At the end of 2011, the FSB invited various industry bodies, representing both product providers and intermediaries, to respond to proposals on how remuneration could be “reformed” to ensure that it was fair to clients. A second focus would be on refining the definition of “intermediary services”.
The Regulator gave feedback late last year to ASISA, as most of the changes would affect the life offices and investment advisors, but there was also a short section on its current views on short-term insurance remuneration.
Some of the views submitted to the FSB were:
- There should be a separation of the different components of financial advice, e.g. financial planning, risk planning, product advice and intermediary services.
- The nature of intermediary services is seen as on-going by the industry, therefore as-and-when commission should be continued.
- Suggestions were made that separate fees should be negotiated with clients for risk planning and product advice. This would require an adjustment to commission rates, otherwise clients would be paying the same for less.
In reaction to this, the FSB expressed its initial views on these inputs:
- It agreed in general terms with the comments received
- It undertook to review the components of advice and intermediary services to determine which of these should be remunerated by means of commission and which paid by means of policyholder fee
- Definitions will also be informed by binder regulations and outsourcing directives
The intention was to publish a new discussion document in the first quarter of this year, calling for further input. This has not happened for a number of good reasons, including the realisation that a review of remuneration models, in isolation, will not achieve the desired outcomes. They have therefore embarked on a full review of retail distribution. Distribution models need to be placed under scrutiny as part of the broader Treating Customers Fairly (TCF) framework.
In our view, the main focus is still on investment business, and any changes to short-term remuneration will not be effected soon.