Its report indicates that it is out to change the distribution model for insurance:
“We have been raising this issue for several years but have seen little response from insurers.
“At the heart of our concerns is the established distribution model for the sale of insurance policies, which includes commissions (monetary and non- monetary). Commissions that focus exclusively on sales volumes and targets rather than customer outcomes are the drivers of the poor conduct.”
“Our view is that it is the responsibility of insurers to measure and manage the impact of incentives on advisers’ behaviour and consumer outcomes. “
However, its hands are somewhat tied as the Reserve Bank is the regulator of insurance companies.
The FMA doesn’t want things life offshore trips, however insurers are ploughing ahead with them. For instance Fidelity Life launched its 2019 trip and qualifying criteria at its recent conference. Meanwhile. Partners Life executives have been up in Vietnam scoping out venues and logistics for its trip next year.
It’s pretty clear that it’s business as usual for life companies and that they wouldn’t be doing offshore trips if they didn’t have benefit.
Like it or not soft dollar commissions are part of the life insurance industry and they can be polarising.
According to the FMA health and life insurance companies spent $38 million on soft dollar commissions over the past two years.
That looks like a lot of money, but when it is put into context, by the FMA, it is just 9% of revenue generated from sales.
One adviser noted that he would spend a greater portion of his revenue of marketing than that.
A core premise of the FMA research is that advisers maybe conflicted by soft dollar commissions and clients could be impacted.
However, there is not one piece of evidence to support the proposition that soft dollars led to bad customer outcomes.
Indeed a couple of observations indicate that soft dollars may help advisers give quality advice.
Nineteen per cent of the money goes on professional development. There is also acknowledgment offshore trips contain an element of training and professional development.
The interesting observation is that the FMA looked at research.
Here’s what it said: “We found that of the 125 rated products, 43% were rated high, 40% medium, and 17% low. Sales of highly rated products made up 75% of sales of rated products during the period.”
You can conclude from that advisers aren’t flogging dud products to clients to earn soft dollars.
One thing that is galling about the FMA report is that it refers to its report on replacement business or churn.
That report was statistically unreliable and is of no significance. The results cannot even be referred to as a trend.
Just as galling is that the report is full of qualified statements rather than statements of fact.
To give you an idea how fact devoid this FMA research is you will find it riddled with statements like: “may be incentivised”; “another reason that insurers may continue to provide…”; the information we collected suggests insurers..”.
I doubt the report would get a pass mark if a student at university handed it in.
If the FMA was trying to make a prima facie case that soft dollar commissions should be banned, then it failed.
