Any FAP deemed to be an intermediary for a financial institution could be caught by CoFI’s incoming prohibited incentive rules – due to be introduced in 2025 – states training firm Strategi.
In a blog post, Strategi states the new rules will apply if a client enters into an insurance contract for personal, domestic, or household purposes.
However, it also states that if a business provides a group insurance scheme to its employees, then the group insurance scheme is also treated as a consumer.
“This means that any incentive payments received by the FAP from the insurer for the FAP’s involvement in the group scheme would be caught within the scope of the incentive prohibitions.”
The firm states that under the prohibited incentive rules, a FAP can pay its advisers a commission with an incentive, provided it is calculated on a linear basis – where a fixed commission percentage is paid for all sales.
“It is also permissible to have one direct reference to a target or other threshold that relates to the volume or value of the relevant services or associated products,” states Strategi.
With less than 12 months to go before the new rules are applied, Strategi recommends FAPs start formulating how future incentives will work.
“When designing incentives, ensure they incentivise more than just sales and revenue,” states Strategi. “The incentive needs to drive the right behaviours.”