2020 IFA PAA Conference Discussion on use of Remunerations models 26 05 15
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Transcript of 2020 IFA PAA Conference Discussion on use of Remunerations models 26 05 15
OUTLINE OF IFA GUIDED DISCUSSION ON THE USE OF COMMISSION MODELSRussell Hutchinson, Warwick Walker and Alan Rafe11 June 2015
Agenda1. Introduction by session host
2. General introduction to the session by Russell Hutchinson
3. Alan Rafe to discuss the choices from product selection perspective
4. Warwick Walker to discuss the choices from a practitioner perspective
5. Questions
6. Wrap up comment from each of us
Learning Outcomes1. Understand the differences between the remuneration options
available
2. Consider a model of the different components of work in an advice business
3. Understand the value of each model in different aspects of the business
4. Review the differences between commissionable and non-commissionable products
5. Explore a working model of a hybrid fee and commission approach to remuneration
Russell Hutchinson
Chatswood Consulting LimitedDirector
Go to www.chatswood.co.nz and link up on LinkedIN
What is the Work?A brief look at the components of the advice business:
• Manual work - very low • Marketing work - not every client buys• Knowledge work - Large and rising, with a broader market,
more features, and more complexity, and
compliance• Emotional work - Large and rising, risk advisers have to
help people confront death and disability
• Risk - Risks due to advice failures are rising
due to compliance• Remuneration should be tied to work done, and most of the work
done is at outset (certain) and less is at renewal, some at claim (but not everyone claims).
Comparison of Commission Systems• 94% Persistency• $100k New ARI• $300k Inforce• 50/50 Mix of GST and Non-GST
• In a group• Excludes Health only• Just the major offer to third party
advisers
AIAAM
P
Astero
n Li
fe
AMP R
PP
Fidel
ity lif
e
OnePat
h
Partn
ers L
ife
Sover
eign
SovNet
0%
20%
40%
60%
80%
100%
120%
Comparison of Commission Systems
Advantages of Maximising Upfront, Disadvantage of a Low Renewal
• Maximising upfront commission leaves a renewal commission in the range of 5% to 17% with 7.5% to 10% being typical
• Remuneration should be tied to work done. • Most of the work done is at outset (certain) • Less work is at renewal, • Some at claim (but not everyone claims)• But not all work is actually connected with the implementation of a new
policy
• Business establishment requires effort, and therefore capital
• Business maintenance and a quality advice business also requires effort
Advantages of Maximising Renewal, Disadvantage of a Low Upfront
• Maximising renewal, say by selecting a ‘true’ level option at, say 25% (not available from all insurers) would reduce upfront to 25% also
• Giving up half the upfront to move from 5% to 20% looks attractive, Giving up a further 75% to move only from 20% to 25% or 30% does not look so attractive
• Remuneration should be tied to work done • Advice work versus product sold – there is a difference• What superior ongoing service are you providing?
• The security of the promise to pay the higher renewal in the future is crucial
Fee Only• Few advisers select this option
• Very few clients like this option too – some advisers have experienced preparing plans for $1,000 fee, only to have the client decline to pay the bill and implement the business with a commission-based adviser
• The problem of implementation remains: Some will not implement, often leaving the client to “pay twice” Some repay commission (agency agreements notwithstanding) Some will implement at nil commission – but charge a separate
fee for that
Value of Incorporating Commission and Fee for Service
• Some activities are hard to undertake on commission Reviewing a claim for a client served by another adviser Picking up a review where you know there is little chance of
winning the business Administrative assistance during restructuring
• Some are easy to undertake on fee • A fee option is useful to offer• Increasingly being taken up
• Establishes an hourly rate or fee for advice proposition for work in the future
Models More now More spread Fee only Commission
(of whatever type) and fee mix
New sales Highly rewarded
Moderately rewarded
Moderately rewarded
Highly rewarded
Advice only Nil – not done or pro-bono
Nil – not done or pro-bono
Moderately rewarded
Moderately rewarded
Claims Low Moderate Low – sometimes this charge can be hard to make
Moderate
Sale of business
Lower Higher Lower Higher
Percentage of All Users Who Include Provider in Quotes
Sovereign AIA Fidelity Asteron nib Partners AMP Lifetrack OnePath Southern Cross Accuro0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Context1. Time between now and leaving industry
2. Market
3. What else you advise on
4. Your view of where industry is going
5. What you believe regulators will do
6. What is the product providers agenda?
7. Who are opposition and what they are doing?
Options1. Continue with largely upfront as long as you can
2. Start on hybrid or level- it has worked in F&G
3. Fees for advice & Commission for Product sale
4. Fees for advice only