The FMA has raised concerns over soft-commissions linked to sales volumes.
In its review into soft commissions offered by life and health insurers, the regulator found that, of all soft commissions, 42% required the adviser to sell a particular number or value of the insurer’s products.
The recently released report found that insurers’ total spend on soft commissions for advisers was $34m, which represents nine per cent of their $377m in revenue from new product sales, over a review period from April 2015 to March 2017 (see: FMA Targets Soft Dollar…).
Of the type of soft commissions offered by insurers, the FMA stated it is most concerned about overseas trips.
It found this type of incentive is also the one on which insurers spent the most (53% of their total spend), even though only 12% of soft commissions related to trips.
“The trips are intended to both incentivise advisers to sell the insurers’ products and to reward advisers for their success,” the report stated, adding:
“This focus on sales volumes and targets, rather than good customer outcomes, increases the potential for conflicted conduct.”
“This focus on sales volumes and targets rather than good customer outcomes increases the potential for conflicted conduct.”
The review also found that the number of trips offered by insurers was in line with the 2016 review, although two insurers told the regulator they have since stopped providing some of the types of soft commission that they had provided during the review period.
However, the review noted that not all soft commissions are based on volume of sales, such as conferences, where attendance was by invitation only.
“Invites were issued to advisers who had a strong relationship with the insurer, or where the insurer wanted to build a stronger relationship. Advisers were not required to sell a particular value or number of products to receive an invitation,” the report stated.
But the regulator continued: “We remain concerned about the potential harm to consumers from the incentives provided by soft commissions, especially where those commissions have not been disclosed to consumers.”
The FMA’s recent annual snapshot of AFAs found that soft commissions have continued to fall among this type of advisers (see: Soft Commissions Continue to Fall…).