Is Risk Commission a Sales Incentive?

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Our latest poll reveals the majority of advisers disagree with the Government’s view that sales incentives no longer have a place in the life insurance sector.

As we go to print, 64% of our adviser audience remains effectively in favour of retaining sales incentives in the life insurance sector, while almost three in ten (28%) agree that it’s time to remove them.

This outcome is an interesting result and compels us to consider whether we’ve asked the right question. For example, should risk commissions be included in the definition of ‘sales incentives’ or simply considered to be a valid form of remuneration for life insurance advice, thereby confining the definition of sales incentives to areas such as volume bonuses and soft dollar incentives such as overseas trips which, admittedly, are on the way out?

From the Government and the regulatory perspective, risk commissions would be considered as sales incentives within the context of the churning debate, to the extent that the lure of upfront commission payments may motivate a small percentage of advisers to switch client policies only for the new upfront payment. That aside, however, the Government’s focus appears to be on internal incentives (not commissions) and soft dollar arrangements.

If we’d specifically removed risk commissions from the definition of ‘sales incentive’, would this poll outcome have been the same?

If we’d specifically removed risk commissions from the definition of ‘sales incentive’, would this poll outcome have been the same?

There’s no doubt that the Government and regulators have serious concerns about the quantum of upfront risk commissions – or what Minister Faafoi has referred to as ‘loaded upfront commissions’ (see: Government Pledges to Get Rid of Sales Incentives), but this is different from calling out risk commissions in their entirety as something that should be stricken from the sector.

One adviser who appears to have included commissions in the definition of sales incentives is Brian Walters, who responded in a comment to our poll story last week that, if financial advisers are operating within the defined boundaries of ethical behaviour, integrity, due diligence and transparency, “…why do we need to alter the current commission process?” Well said, Brian.

So, we’ll put our hand up this week to acknowledge that we haven’t thought deeply enough about how to ask the question about sales incentives – but at least we’ve arrived at another destination, namely whether risk commissions – of themselves – should be included in the definition of sales incentives.

We’ll keep our poll open for another week if you’d like to add your voice to the conversation…