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OUTLINE OF IFA GUIDED DISCUSSION
ON THE USE OF COMMISSION MODELS
Russell Hutchinson, Warwick Walker and Alan Rafe
11 June ...
Agenda
1. Introduction by session host
2. General introduction to the session by Russell Hutchinson
3. Alan Rafe to discus...
Learning Outcomes
1. Understand the differences between the remuneration options
available
2. Consider a model of the diff...
Russell Hutchinson
Chatswood Consulting Limited
Director
Go to www.chatswood.co.nz
and link up on LinkedIN
What is the Work?
A brief look at the components of the advice business:
• Manual work - very low 
• Marketing work - not...
Comparison of Commission Systems
• 94% Persistency
• $100k New ARI
• $300k Inforce
• 50/50 Mix of GST and Non-GST
• In a g...
Advantages of Maximising Upfront,
Disadvantage of a Low Renewal
• Maximising upfront commission leaves a renewal commissio...
Advantages of Maximising Renewal,
Disadvantage of a Low Upfront
• Maximising renewal, say by selecting a ‘true’ level opti...
Fee Only
• Few advisers select this option
• Very few clients like this option too – some advisers have experienced
prepar...
Value of Incorporating Commission
and Fee for Service
• Some activities are hard to undertake on commission
 Reviewing a ...
Models
More now More spread Fee only Commission
(of whatever
type) and fee
mix
New sales Highly
rewarded
Moderately
reward...
Alan Rafe
Quality Product Research Limited
CEO & Co-Founder
Life Commission vs Non Commission
Trauma Commission vs Non
Commission
Percentage of All Users Who Include
Provider in Quotes
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Sovereign AIA Fidelity ...
Warwick Walker
Foxplan Ltd
Financial Planner
END FOR YOU $$
LEGACY
START
RETIRE
TIME
CONTEXT
Context
1. Time between now and leaving industry
2. Market
3. What else you advise on
4. Your view of where industry is go...
Example
Options
1. Continue with largely upfront as long as you can
2. Start on hybrid or level- it has worked in F&G
3. Fees for ...
Open Questions and Discussion
2020 IFA PAA Conference Discussion on use of Remunerations models 26 05 15
2020 IFA PAA Conference Discussion on use of Remunerations models 26 05 15
2020 IFA PAA Conference Discussion on use of Remunerations models 26 05 15
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2020 IFA PAA Conference Discussion on use of Remunerations models 26 05 15

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For New Zealand financial advisers. A high level review of the use of different remuneration models, including variations in upfront and renewal, fee, pro-bono work in the provision of advice on risk and insurance purchase.

Published in: Economy & Finance
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2020 IFA PAA Conference Discussion on use of Remunerations models 26 05 15

  1. 1. OUTLINE OF IFA GUIDED DISCUSSION ON THE USE OF COMMISSION MODELS Russell Hutchinson, Warwick Walker and Alan Rafe 11 June 2015
  2. 2. Agenda 1. Introduction by session host 2. General introduction to the session by Russell Hutchinson 3. Alan Rafe to discuss the choices from product selection perspective 4. Warwick Walker to discuss the choices from a practitioner perspective 5. Questions 6. Wrap up comment from each of us
  3. 3. Learning Outcomes 1. Understand the differences between the remuneration options available 2. Consider a model of the different components of work in an advice business 3. Understand the value of each model in different aspects of the business 4. Review the differences between commissionable and non- commissionable products 5. Explore a working model of a hybrid fee and commission approach to remuneration
  4. 4. Russell Hutchinson Chatswood Consulting Limited Director Go to www.chatswood.co.nz and link up on LinkedIN
  5. 5. What is the Work? A brief look at the components of the advice business: • Manual work - very low  • Marketing work - not every client buys • Knowledge work - Large and rising, with a broader market, more features, and more complexity, and compliance • Emotional work - Large and rising, risk advisers have to help people confront death and disability • Risk - Risks due to advice failures are rising due to compliance • Remuneration should be tied to work done, and most of the work done is at outset (certain) and less is at renewal, some at claim (but not everyone claims).
  6. 6. Comparison of Commission Systems • 94% Persistency • $100k New ARI • $300k Inforce • 50/50 Mix of GST and Non-GST • In a group • Excludes Health only • Just the major offer to third party advisers 0% 20% 40% 60% 80% 100% 120% Comparison of Commission Systems
  7. 7. Advantages of Maximising Upfront, Disadvantage of a Low Renewal • Maximising upfront commission leaves a renewal commission in the range of 5% to 17% with 7.5% to 10% being typical • Remuneration should be tied to work done. • Most of the work done is at outset (certain) • Less work is at renewal, • Some at claim (but not everyone claims) • But not all work is actually connected with the implementation of a new policy • Business establishment requires effort, and therefore capital • Business maintenance and a quality advice business also requires effort
  8. 8. Advantages of Maximising Renewal, Disadvantage of a Low Upfront • Maximising renewal, say by selecting a ‘true’ level option at, say 25% (not available from all insurers) would reduce upfront to 25% also • Giving up half the upfront to move from 5% to 20% looks attractive, Giving up a further 75% to move only from 20% to 25% or 30% does not look so attractive • Remuneration should be tied to work done • Advice work versus product sold – there is a difference • What superior ongoing service are you providing? • The security of the promise to pay the higher renewal in the future is crucial
  9. 9. Fee Only • Few advisers select this option • Very few clients like this option too – some advisers have experienced preparing plans for $1,000 fee, only to have the client decline to pay the bill and implement the business with a commission-based adviser • The problem of implementation remains:  Some will not implement, often leaving the client to “pay twice”  Some repay commission (agency agreements notwithstanding)  Some will implement at nil commission – but charge a separate fee for that
  10. 10. Value of Incorporating Commission and Fee for Service • Some activities are hard to undertake on commission  Reviewing a claim for a client served by another adviser  Picking up a review where you know there is little chance of winning the business  Administrative assistance during restructuring • Some are easy to undertake on fee • A fee option is useful to offer • Increasingly being taken up • Establishes an hourly rate or fee for advice proposition for work in the future
  11. 11. Models More now More spread Fee only Commission (of whatever type) and fee mix New sales Highly rewarded Moderately rewarded Moderately rewarded Highly rewarded Advice only Nil – not done or pro-bono Nil – not done or pro-bono Moderately rewarded Moderately rewarded Claims Low Moderate Low – sometimes this charge can be hard to make Moderate Sale of business Lower Higher Lower Higher
  12. 12. Alan Rafe Quality Product Research Limited CEO & Co-Founder
  13. 13. Life Commission vs Non Commission
  14. 14. Trauma Commission vs Non Commission
  15. 15. Percentage of All Users Who Include Provider in Quotes 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Sovereign AIA Fidelity Asteron nib Partners AMP Lifetrack OnePath Southern Cross Accuro
  16. 16. Warwick Walker Foxplan Ltd Financial Planner
  17. 17. END FOR YOU $$ LEGACY START RETIRE TIME CONTEXT
  18. 18. Context 1. Time between now and leaving industry 2. Market 3. What else you advise on 4. Your view of where industry is going 5. What you believe regulators will do 6. What is the product providers agenda? 7. Who are opposition and what they are doing?
  19. 19. Example
  20. 20. Options 1. Continue with largely upfront as long as you can 2. Start on hybrid or level- it has worked in F&G 3. Fees for advice & Commission for Product sale 4. Fees for advice only
  21. 21. Open Questions and Discussion

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