News Article : Transition arrangements for new commission dispensation
|Category:|| Advisers & Brokers : Commission & Fees|
|Author:||Edited by ITInews|
|Posted:||02 Jul 2007|
They protected their own backsides and made the broker the scapegoat - Changes proposed by the LOA are calamitous - The already woeful savings rate will drop even further
With regards to the restructured commission on RA’s and Endowments, my comments:
- The revised commission is a spill-over from all the negative publicity (and duly so) these investment models endured the past year or so. The insurance companies had to save face (for exploiting investors) and they did this by making me (the broker) the scapegoat and especially our commission.
- The LOA (consisting of representatives of all the insurance companies) did not protect us, nor did they inform the public of the real problem i.e. the high admin cost factor being charged, etc. Instead they protected their own backsides and supported the negative adjustment of our commission.
According to me the whole issue is a farce and me, the broker, has to foot the bill. Over the years our overheads have increased dramatically (beyond our control) and I’ll only accept the new commission structure if the upfront portion is waived from any future claw back – this means we are generating an immediate income to cover overheads, etc like any normal sound business needs to remain sustainable.
Finally, this is only the beginning and commission on risk products will come under attack shortly. What can we do about it?
We need One body representing all brokers to take a stance against the insurance companies, LOA and other meaningless bodies and fight for what is right and just.
Until such time nothing will change to the benefit of brokers.
I think these latest Commission changes proposed by the LOA (who clearly do not have my, the independent intermediary's interests at heart) are calamitous.
With these commission levels being paid on Retirement annuities and endowment polices no one can afford to sell them. Not to mention the 5 year commission re-claw, what short memories the LOA member companies have. The last time they tried that with RAs they simply didn't sell any of them.
The crux of the matter here is that the Life offices costs on these products are by far the biggest problem and cost to the client.
Anyone who has recently had an endowment mature (I have) and who has asked for a breakdown of his return will see that the intermediary commission is not even one third of your total costs.
Until the life offices reduce their costs dramatically (and I mean halve or more) no one will get value from these products. Every time there is pressure in the financial services industry to lower costs for clients, the Life offices band together and penalize the intermediary.
Who do they think is going to sell this dubious product to clients?
With 5 years re-claw of commission risk to worry about? And having to comply with all the legislation and possible fines and jail terms if something goes wrong? After having done all proper fact finding, analyses and disclosures? Not me. The CEO of the Life Company can hop in his car and go sell it himself.
Remember that this is being forced upon us against a historical background of dwindling income for intermediaries. Medical scheme commissions were slashed and didn't solve or constitute the costing problems for medical schemes anyway.
We were also told at that time to "adjust your business model". All investment policy commissions are now being slashed instead of treating the real source of the problem-life offices. And risk policies are next on the radar for Treasury and the LOA.
This is quite obviously unsustainable, but as usual it will take the decimation of the intermediary and his business, and the subsequent catastrophic reduction in income to the Life offices before the industry realizes it has bitten off the hand that feeds it.
In the interim we are literally being forced to move into another sphere of business that can provide an income we can no longer rely on or even generate from our financial practices.
The total and fundamental overhaul of the Life Offices and how they do business is the only way this industry can survive. We can’t be paying CEOs of these companies millions a year while the people who pay this salary by generating product sales are systematically penalized.
It seems to me that the LOA (read assurers) are only waking up now to what we (Luasa and some intermediaries) were telling them two years ago.
Some people may say that it just goes to show what little thought was given to the original LOA proposals (May 2005) as to the financial effect on intermediaries and how little they really care about them, and that they were prepared to throw them to the wolves in a desperate attempt to hang on to the status quo regarding confiscatory penalties for RAs and Endowment policies early termination penalties.
Of course now that they have woken up, it is a case of damage control. I predict that when these new and unnecessary measures come into effect, the already woeful savings rate will drop even further.
Could it be that there will be available all these wonderful lower cost plans, but fewer members of the public will actually invest in them, as the sales ( I subscribe to the old saw that assurance is sold not bought) will have dramatically dropped?
If this does happen, one has to ask how this has and will improve the position of Joe and Jane Citizen.