Strong Adviser Support For Standardising Commissions

The majority of advisers have said they would support the standardisation of risk commissions.

In responding to our latest riskinfo poll, 59% of advisers have voted “Yes” to our question:

Do you support standardising commissions for risk products?

35% of advisers do not support standardising risk commissions while 6% are undecided.

Based on comments from those who voted ‘yes’ to the question, the general approach appears to be that standardising risk commissions will remove any real or perceived conflict of interest and will ensure the eventual product selection will be based purely on the best interests of the client.

In addressing the issue of perception, a number of advisers have also called for the word ‘commission’ to be replaced by alternative terms that do not carry with them the same negative perceptions that exist in the minds of some consumers (and politicians?):

“… we have to be remunerated by “commission” or as I suggest we call it, an adviser fee paid by the insurance companies…”

“Drop the ‘commission’ word”

“Agree with dropping the term commission – it has to go”

“Remove the word commissions and we are done”

Suggestions from advisers for alternative names for upfront commissions are: ‘adviser fees’ or ‘implementation fees’.  Suggestions for new terms to be used for renewal commissions are: ‘service’ or ‘review’ fees.

While some will respond that changing the word does not actually change or address the issue itself, the argument from those who have suggested new terms to express commissions is that it does address the issue of perception.

Some have pointed to standard flat commissions working in the general insurance sector, but one adviser noted that, unlike general insurance, there is no guarantee the life insurance business will be placed:

“Standardising commissions, eliminating any form of volume bonuses and making all commissions level surely eliminates any self interest bias that may exist.  Of course this doesn’t cater for the fact that life advisers can do alot of work to place a case and still have it declined unlike a general broker.”

We do not have any feedback from the life companies as to their own position on this question.  But while there is a sense that insurers may not support it, there have been suggestions made as to why standardising risk commissions would benefit the life companies:

• It will create more trust in the industry
• It will create more demand for the insurers’ products
• It will reduce the risk of commissions becoming an ever increasing cost of doing business

There has also been support from advisers for the notion of capping commissions, rather than standardising them, while one adviser reminded riskinfo readers that “Commissions are decided by market forces.”

Our poll remains open for those who have yet to vote and to add their comments, all of which will be forwarded to the Treasury as part of the Governments’ Future of Financial Advice reform consultation process…