As-And-When Commission as the cure for miss-selling

The FSB invited input from 5 representative bodies on a proposed discussion document on “intermediary services and related remuneration.” In today’s article, we focus on one aspect: the considerations concerning risk business, including short-term and life assurance.

The following questions form part of a more exhaustive list:

  • Do stakeholders agree that a shift towards an as-and-when commission basis for life insurance risk products is necessary to reduce miss-selling and support industry sustainability?
  • To what extent do certain up-front advice and intermediary services performed for life insurance risk products argue for an up-front element to remuneration?
  • How must a shift towards an as-and-when commission basis for life insurance risk products be adapted – if at all – to accommodate sales of risk products to the low income sector?

It is a long-held conviction that trying to find a one-size-fits-all solution for the financial services industry cannot work. Trying to squash short-term and long-term cover into one convenient drawer simply cannot work – the very nature of the product, and the service requirements, just differ too vastly.

In the first point raised above, one can counter with a question: to what extent has as-and-when commission reduced miss-selling in the short-term and healthcare industries? Converting your practice over time to one funded on an as-and-when basis has a number of advantages, including the value of your practice and a recurring income, but in terms of miss-selling, that is determined by the mindset of the advisor, not the remuneration model.

One gets the idea that the FSB is not biased in its approach to this matter, but there certainly is a need for a practical input from the industry.

The second point listed above, for example, specifically appeals to our long held view that there should be a 100% separation of the advice and service aspects of intermediary services. Much has been said and done about converting the “sales” process to an “advice” focus, and extensive regulatory legislation are in place to ensure that it happens. Perhaps the regulator should place a little more faith in the effectiveness of its own laws?

As in any transaction between a consumer and a professional, the former parts with some money in exchange for using the expert’s knowledge and experience. In our industry, that is where advice is followed by the client’s acceptance thereof, a policy is issued, and the client has a month in which to consider his decision – the so-called cooling off period.

Six months down the line, the client is retrenched. How does this impact on the advice you give? Why should there be a claw back? What happens to his car instalments and bond repayments?

The separation of the advice and service components, which have always been conveniently lumped under “commission” is a long overdue process worthy of serious consideration.

Lastly, the matter of the diversity of our beloved country.

I see that calls are made for suggestions regarding …sales of risk products to the low income sector. It is indeed heartening to see that, while spending so much time studying the examples of what happened in the UK and Australia, the regulator is aware of the fact that we are a developing country.

The problem is that, when you start making exceptions, it makes the application of an already “impossible to understand” set of regulations even more complex, and very specifically so for those who need to ensure adherence thereto, be it the individual, a compliance officer or the FSB.

We saw this applied when the upfront commission on investment products were introduced some years ago. Our presentation at the time included the cost of delivery in the low income sector, and this exception was made.

The solution to different market segment needs lie in the product composition, not the advisor’s remuneration.

Capitec Bank has shown that it is indeed possible to deliver without prejudice to client or product provider. The flow of so-called affluent clients to Capitec is indeed proof that the regulator should perhaps shift its focus to the supplier of the product, rather than the purveyor thereof.


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