Fee for service for risk advice should not be considered as more professional than commissions given the former are still charged even when a client does not receive insurance cover, Synchron Director, Don Trapnell has claimed.
Rejecting the idea that one system of payment is more professional than the other, Trapnell said he cannot understand the view that fees are seen as more professional and commissions as less professional.
“There is an argument that to be more professional, advisers should charge a fee – either a fee for service or a fee to supplement a reduction in commissions,” Trapnell said.
“For the life of me, I can’t understand how charging a fee is viewed by some as a hallmark of professionalism and I can’t understand the argument that says receiving a commission translates to being less professional.”
He added that while the focus should be on the sustainability and reliability of the cover itself, commissions might be more professional than fee for service as advisers are only paid if they produce a result for the client.
“I can’t understand how charging a fee is viewed by some as a hallmark of professionalism…”
“Would clients be happy to pay a fee-for-service then find out they don’t actually get insurance cover because they haven’t been accepted? Or because the premiums were too high and they couldn’t afford to pay them?” he said.
“In a fee-for-service world, the adviser would still have to be paid for the work done trying to get cover, whereas under a commission model the adviser would only get paid if the client were successful in getting cover and the policy stays on the books,” Trapnell added.
“There is merit to both approaches, but let’s not hold out fee-for-service as though it is the holy grail.”
Trapnell said his position did not mean he was opposed to full disclosure on commissions nor the Life Insurance Framework, which should be allowed to get in place before calls for further changes are made.
“It’s four years before the 60% cap on upfront commissions comes in. If we can get the legislation bedded down now, we will be able to refine it and maybe then we can look at reviewing the cap in line with what it actually costs to run a risk advice.”
Yes, It’s a perception which in reality holds no water. As a case in point, stock/share brokers still do (I understand) charge a commission on the buying and selling of shares. Are they perceived as less professional because they charge a commission (called a brokerage fee) rather than a straight-up fee-for-service? Now that I’ve said it, perhaps we as advisers should call our form of remuneration a brokerage fee too!
What about mentioning that under a fee for service model the consumer pays twice…once for the adviser’s time and once again for the product if the application is accepted…what the!
Anyone that argues that fee for service based on time is the only way to “professionally” charge fees has never engaged a lawyer. Unfortunately, I have had to engage more than my share and I have never seen people who are allegedly intelligent make so many mistakes (needing to be redone) or take so long to do basic tasks like sending correspondence to their “colleagues”.
Just maybe it is has something to do with how they are remunerated?
I know this has been said before { like most comments on this issue} but professionals like accountants have a far better opportunity to charge a fee and have it accepted as the work they are doing for their client is usually mandated by law. You have to lodge a tax return you don’t have to take out an insurance policy. We all know that there are many occassion’s when cover is just not acceptable and the client is now displeased enough without you handing him an account for achieving nothing accept confirming his or her inability for acceptance.
You cannot replace commissions with fees in the risk insurance area. People will not pay them on top of the ongoing premium cost. What happens if renewal commissions are also “axed” ?? And the way things are going that could be next.?? !!
Commissions or whatever you wish to call them are part of what makes this industry “tick” and keep underinsurance down ALTHOUGH IT IS STILL OUT OF CONTROL. Imagine the problems that our country would face if insurance was not available because of cost.
You cannot run a business like insurance based solely on a fee structure and even with a 20% commission is way to low to support the activities required.
I totally agree with Don.
From our experience, clients have never questioned our professionalism ( we have always been paid commission only ) and in actual fact, have stated their perception of professionalism, is based on our service, not on how we are paid or charge for the work we do.
There are many highly educated people that charge fees, who are unprofessional and
unethical, so the concept of professionalism based on how clients are charged, is somewhat vague.
It is natural for some people to want to feel important, respected and maybe looked up to and what better “way”, with the help of the Multi-Billion dollar “education” Industry to charge thousands of dollars for Professional courses, that will enable people to gain theoretical knowledge and an entry level to our industry.
Many of these people will not survive, even with their professional qualifications,
though at least they will have another piece of paper to add to their collection..
There are many vested interest groups who see the 44 Billion dollar life insurance
industry as a cash cow and have lobbied Government to change the system so
their “professional service”, charged by fee of course, will improve our industry.
I am becoming sceptical of many of the gurus who espouse their ideals in the name
of improving our industry and the suggestion that charging a fee is more professional than a commission, falls into my uninformed basket, which quickly falls into my yellow recycle bin or delete folder.
I agree ken. You know, for years I’ve been advocating the use of the word BROKERAGE instead of commissions. Bear with me here . . . it is a more ‘professional’ term, I assert. Stockbrokers earn a commission but it is always called “brokerage”. A business ‘broker’ earns a brokerage – also really a commission. There are other examples but you get the idea. I say this because we are in the era of POLITICAL CORRECTNESS and PERCEPTIONS are more important than reality in many situations. The special interest groups and bleating pollies are all about perception. So rather than say to me I am just indulging in word-play please seriously consider what I am saying. It may (or may not) have an outcome changing effect BUT it is a better word to use, sounds more professional (we’re aiming for this now, aren’t we?!) and it is in line with the other examples of ‘brokerage’ I mentioned above. We don’t say ‘customers’ any more, we say clients. We don’t say ‘agents’ anymore, we say ‘advisers’ – I’m sure you agree those sound more professional. Rightly or wrongly the word “commissions” has much baggage and negative connotations. This change could be a small step in the right direction. It certainly couldn’t hurt! Consider using ‘brokerage’ as it makes consummate sense.
My view too as noted earlier in this forum. Sometimes, oftentimes, we have to deal with perceptions and that’s so even if they’re not entirely correct. Therefore, brokerage it is!
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