The Government is seeking feedback from the public over whether insurance brokers and advisers should be banned outright from receiving commissions.
The Ministry of Business, Innovation & Employment (MBIE) has just released an issue paper
as part of its review of the Financial Advisers Act 2008 and the Financial Service Providers Act 2008 in which it suggests drawing clearer boundaries between sales and advice.
This could mean following moves made in other jurisdictions where commissions have been banned for financial advisers rather than just having a greater insistence for transparency over commissions.
Under the heading ‘How should we regulate commissions and other conflicts of interest?’ the issue paper says: “Commissions can create a conflict of interest for the adviser, incentivising them to advise that their client buys a particular product.
“Internationally, a number of jurisdictions changed regulatory requirements following the global financial crisis to either ban or restrict the use of commissions.
“We seek feedback on whether the current disclosure requirements for commissions and conflicts of interest are adequate and how they should be changed or improved.
“We also note current requirements apply only to authorised financial advisers, and seek feedback on whether they should be applied to all financial advisors, and if so, at what level.”
But the Insurance Brokers Association of New Zealand (IBANZ
) says many of the problems stem from the life insurance side of the industry and fear the effects of applying a ‘one size fits all’ solution.
CEO Gary Young
told Insurance Business
: “Removal of commissions would mean a significant change to the way our members are reimbursed.
“There seems little justification for such a major upheaval.”
He said IBANZ
would be working hard to ensure there was a good understanding of how their sector worked with the ‘significant difference’ between life and general being a key factor to be highlighted in the submission they give.
“The main focus of the legislation is the consumer and so any change needs to be justified by showing that it would actually improve the consumer experience.”
Some in the general insurance sector say being fully transparent or even removing commissions from the equation have done just that.
recently highlighted the benefits experienced by Dan Donaldson whose company InsuranceBroker.kiwi
advertises its zero commission policy as a point of difference.
Donaldson said with the fees already agreed up front, he found clients responded better during a risk discussion and answered openly rather than worrying about what the broker was trying to sell them.
Other companies ranging from Frank Risk Management
in Hamilton to big players such as Marsh
and Willis pride themselves on fully disclosing fees and commissions on client invoices.
The Insurance Council of New Zealand (ICNZ) said the principle of transparency around commissions got to the heart of trust and confidence in the insurance sector in general.
CEO Tim Grafton said: “We have consistently held the view that there needs to be transparency around broker commissions so that the insured knows what commissions apply to what products they’re being advised to consider purchasing.
“A number of other industries – real estate broking or share broking for instance – have this level of transparency and in this very consumer-centric age that we live in that is really important. It goes to the heart of reputation and I think it’s inevitable that we’ll move in that direction.”
He said it was highly likely that the public would not make the distinction between the life, health and general insurance sectors when making submissions, which was all the more reason to apply the same principle across the board.
Grafton said ICNZ would also be consulting members before drafting their submission.
The final date for submissions is 22 July 2015.