News Article : Two sides
|Category:|| Advisers & Brokers : Commission & Fees|
|Posted:||02 Sep 2005|
What about life company charges?
Peter Dempsey, Managing Director of Masthead Distribution Services (a division of Old Mutual), says there will be no solution to the upfront commission debate if it excludes any one of the three key parties: the client, the life assurer, and the insurance broker (or financial planner).
“At the moment, our feeling is that there is insufficient attention given to the needs of the broker, which risks destabilising the industry.” He warned of a declining savings rate. “The proposals as they stand threaten the existence of a number of brokers in our industry, and their loss would have a negative impact on the consumer.”
He was also speaking on behalf of Masthead Financial Adviser’s Association, which represents more than 2 500 independent brokers. “We endorse completely efforts by the life offices to improve the value offered to clients through long-term savings products.” The introduction of servicing commission and trail fees for both single premium and paid up policies would be welcome.
“But there are a number of aspects of the proposals that we are extremely concerned about.”
For example, the cash flow impact of the LOA proposals is severe. At point of sale a broker would get less than 20% of what he currently receives for a 25-year RA, for example. “This is a significant financial impact and we do not think it is reasonable.
“We already have an ageing intermediary force in South Africa. Reducing the cash flow of brokers will make it more difficult to attract new blood, which is so essential for the continued health of the industry.”
He also questioned the proposal to keep the commission scales the same for longer-term business. “We are concerned that the industry is biasing the products towards short-term sales.” Yet we should be promoting long term savings.
In agreement with other broking groups the Masthead association believes that commissions are only part of the problem.
“Life office cost structures and the ways they recover those costs have as large a role to play,” says Mr Dempsey.
“We want life offices to provide more detail on their cost structures and what they propose to do about them so that we can satisfy our members they are not the only ones being asked to make a sacrifice.”
He also thought that if Treasury wanted to assist in promoting savings it should being doing something about the taxation rules for retirement annuity products.