Should all Sales-Based Incentives be Banned?

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Do you agree that sales-based incentives are the main reason that Australian consumers mistrust financial advisers?
  • No (74%)
  • Yes (21%)
  • Not sure (5%)

Our latest poll is based on a new industry white paper in which it contends that incentives are the single biggest problem and main cause of consumer mistrust of financial advisers (see: Insurance Commissions Leading to Mistrust of Advice).

Named ‘And the walls came tumbling down: Why the industry must build a new foundation‘, the title of the white paper is a metaphor for what its authors are seeking – a dismantling of the existing financial services structure in Australia, where the line between ‘product’ and ‘advice’ remains blurred, and its rebuilding. They seek a new advice culture in which there exists no conflict between product and advice, either real or perceived.

They seek a new advice culture in which there exists no conflict between product and advice, either real or perceived

While this principle is solid, many financial advisers will argue that they already operate under an advice philosophy that genuinely serves the best interests of the client – a values-based or needs-based or solutions-based philosophy that always has the client at the centre of the conversation. While many of these advisers still receive some or all of their remuneration by way of commission, they will argue this is totally disconnected with the nature and quality of the advice they deliver, including any products that form part of the solution that serves the client’s best interests.

Others, including the white paper authors, would argue in turn that while this may indeed be the case, it’s not just reality, but perception that’s an issue, and that only the complete removal of any incentive-based remuneration and other incentive-based benefits will allow a perception change in the mind of the public.

Along with incentives, the other underlying reason, according to the white paper, that Australians don’t trust financial advice, relates to the ‘industrialisation of advice’. This issue relates to the nature of advice delivered via large institutions, where the white paper asserts that the majority of advisers aligned to an institution don’t actually sell advice; they sell product. This is another contention that merits further discussion; one that we’ll come back to in a future poll.

Meanwhile, take the time to read our summary report on the white paper and/or click through to the white paper itself, if you’d like to get the complete picture of the landscape its authors are painting.

As always, your measured comments will be most welcome – tell us what you think and make your voice heard…



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7 COMMENTS

  1. Fee for service insurance is only in the best interest of high end clients full stop. If it costs me 2-3k to put on a “strategic & product” insurance only client but the “wholesale” rate is only 20-30% cheaper than the commision based product and the client is expected to pick up the fee…no deal. Sure over time the client “may” be better off, except when they ask for an “independent” review of their policy. Now I need to charge them a fee again but even worse I may need to replace a product…have you read the replacement insurance guidelines by ASIC??? If a robot can do all that and and charge a fee the client is happy to pay good luck to them!!! I’ve run the numbers before and fee for service insurance advice creates it’s own conflicts and will alienate those most in need of quality insurance advice.

    • Spot on Dan. When are the corporates going to listen, act and leave us alone to look after the client PROPERLY? Saddens me to think how our precious industry has become a football and the client and adviser are the ones being kicked all the time. Where did the adults go? You know – the adults who USED TO run the life companies and had a backbone and cared for advisers and clients? They went away when profit became more important than relationships. SHORT term profit. Too sad for words.

  2. totally agree with Dan K – I service accumulators via mortgage brokers (late 20’s, 30’s & 40’s). These clients have an emphasis on paying down debt first. They appreciate the personal risk ADVICE & an overwhelming majority say they would not have even considered these matters without the broker raising the importance of personal protection. Not client has raised any concern about a commission being paid & when asked would they instead prefer an out of pocket fee I am advised they would likely not proceed & defer the option. I’d suspect the people behind this white paper have other interests in this game & add little value in the challenge of under insurance.

  3. I don’t think there’s anything wrong with picking up a one off commission for putting a comprehensive insurance program in place. When the worst happens this advice is life changing and the cost pales into insignificance. I don’t believe that the majority of people who need this cover are prepared to pay an adequate fee for this advice.
    I do however have great difficulty with the re-writing of this business every few years on the pretense of acting in the client’s best interest but in reality it is designed to generate up front commission.
    The ultimate problem is unethical behaviour by some unethical people. This happens in every human undertaking. Not sure how you fix this. I suppose we should start by making sure that we are all squeaky clean!!!

  4. I am yet to hear of any client complaints about commissions paid to advisers. Until I do then I will recognize it is a problem.

  5. God, these same people who don’t and haven’t dealt with clients or sold / recommended to purchase insurance are putting their 60c worth in and only the consumer will be worst off because they will have to charge for the whole advice rather than the planner receiving some commission. Get a life people….

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