The FMA’s Chief Executive, Rob Everett, has clarified the regulator’s stance on adviser commissions, during the Economic Development, Science and Innovation Committee’s annual review of the regulator.
Referring to the recommendations the FMA gave in its life insurer conduct and culture report, National’s Paul Goldsmith asked Everett, “Are you of a mind—a number of suggestions out there that all conflicted advice should be banned full stop, you wouldn’t be advocating for that or would you?”
Everett explained their recommendation in the report made a distinction between sales incentives that are offered by employees of product providers versus the advice channel.
He noted that advice is more complex as people are purchasing product via an advice channel in comparison to directly from a provider.
“So it puts you in a position of having to look at the structure of remuneration for the advisers that would be different than in an employed environment,” Everett said.
“And that is complex, it was a big part of the debate on the financial advice bill, and our view as stated in the report is that, we want product providers to work very hard at structuring commissions and other incentives for advisers so that they respond to the needs of the customer – we’re not advocating they be banned altogether.”
“…we want product providers to work very hard at structuring commissions and other incentives for advisers so that they respond to the needs of the customer – we’re not advocating they be banned altogether.”
The report stated:
We expect insurers to remove or substantially revise incentives linked to sales for frontline salespeople and all layers of management within their organisation
We expect insurers to review their commission structures and volume bonuses for intermediaries – including structures with very high upfront commissions – to ensure they are incentivising intermediaries to deliver good customer outcomes. In our view, high upfront commissions are not acceptable as they drive poor conduct and can result in poor customer outcomes.
We expect insurers to change their qualifying criteria for soft commissions to ensure they mitigate conflicts of interest and incentivise advisers to improve customer outcomes rather than just reward them for the volume or value of products sold.
Click here to read the FMA’s full report into life insurers.