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FMA hopes sunlight on adviser junkets will spur change to incentive programmes

Wednesday 16th May 2018

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The Financial Markets Authority wants insurers to rethink their sales incentives after a report found junkets were being dangled to advisers as a sweetener for a hard pitch on new life and health insurance policies. 

The market watchdog today released a report on how nine life and health insurers provide non-financial incentives to advisers, such as offering trips, training and conference events, showing the firms spent $34 million on the soft commissions over a two-year period, amounting to 9 percent of $377 million of new product sales. That's on top of the financial commission an adviser can attract for securing a new sale. 

"The overall amount was high to me, although a point that we've made before is it's not the total amount of compensation or remuneration advisers get that worries us, it's what sort of behaviours incentivises them," director of regulation Liam Mason said. "The fact that the most expensive of these, the largest of these were all aimed at hard sales targets was more worrying to us." 

In March, the watchdog warned the life insurance sector about its incentive practices after a survey of 24 financial advisers found they were being incentivised to push clients to change policies, but struggled to draw solid conclusions due to the different disclosure obligations between registered financial advisers and authorised financial advisers. 

Today's report was drawn from data provided by AIA, Asteron Life, AMP, Fidelity Life, nib NZ, OnePath, Partners Life, Southern Cross and Sovereign, who collectively provided 242 different soft commissions to 3,000 advisers. All nine firms offered trips as an incentive which amounted to $18 million of the spend on soft commissions.

Professional development such as trading and software subsidies came to $5.5 million, and events to $3.8 million. Another $3.5 mlllion was offered to cover incidentals such as association membership or provide discounted insurance, $1.7 million was offered through development grants, and $1.6 million in gifts and vouchers. 

The big unknown for the regulator is legislation currently before select committee aimed at streamlining adviser designations, shifting the licensing regime to entities rather than individuals, and placing a customer-first obligation on all advisers, which Mason said will probably mean "some incentive structures are going to be untenable". 

"How we see this (report), is it gives industry a short space of time to do something itself, to show some significant movement and take a leadership role here," Mason said. 

He said he was pleased one of the nine firms stopped offering overseas trips, and while the regulator hasn't seen as much movement as it would like, the early steps are "encouraging". 

Separate FMA data released this week show a reduction in the number of authorised financial advisers receiving soft commissions, with a 2 percentage point fall to 30 percent of the 1,610 respondents receiving training in 2017, a 2 percentage point decline in development courses to 17 percent, and a 1 percentage point dip in international travel to 4 percent. 

The regulator said it will show the findings of the report to a Ministry of Business, Innovation and Employment review into insurance contracts and conduct and will meet with insurers to make sure they are meeting the FMA's expectations to manage conflicts of interest. 

The FMA said it will also be publishing the results of two more reviews examining practices for qualifying financial entities' replacement insurance business, and how banks structure incentives for the sale of financial products. 

(BusinessDesk)

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