If the life insurance industry doesn’t voluntarily change the way products are designed and financial advisers are remunerated then it’s only a matter of time before the regulators push for a ban on insurance commissions again, warns Asteron Life executive general manager Jordan Hawke.
“The upfront commission model is under stress and the industry needs to self-regulate but the transition from upfront to level commissions is too far, and hybrid commissions are one alternative,” he said.
“The industry has to try and change because that is good for clients, good for advisers and good for the overall industry.”
On Thursday, Asteron Life launched a new remuneration offer for financial advisers, which encourages advisers to forego hefty upfront commissions in favour of hybrid commissions.
Under the offer, Asteron Life will pay an additional 10 per cent commission in year one to advisers who write new business from November 11, 2013, in the Asteron Life Complete product.
Developed by Asteron Life in conjunction with financial planners, the offer is called “2 for 10” and aims to help advisers transition from their reliance on upfront commissions to a more sustainable business model while also improving the speed and efficiency of processing insurance applications.
According to research by Asteron Life, over 80 per cent of business is written on upfront commissions.
“Upfront commissions are good for cash flow but not good for building value in an advice business,” Hawke said.
“Hybrid or stepped hybrid commission structures may earn the adviser less commission in year one but provides a transition solution to increase the long term value of their business.”
“I have spoken to many advisers about the future of our industry and I have strong support for the need to change to a different remuneration model. While “2 for 10” may be seen as a short-term tactical solution, it is a baby step in the right direction and responds to the challenges given to me by advisers.”
Hawke rejected claims that the offer only suited mature advice businesses with an existing revenue stream.
“This offer can suit both new and mature businesses,” he said.
“Advisers who are starting out today have an opportunity to structure their businesses differently from the outset in a way that lowers overheads and better manages P&L.
“Everyone is entitled to be rewarded for the work they do but the challenge is that the structural flaws around product design, remuneration and acquisition cost recovery, are more apparent than ever and so we need to look the model in its entirety.”
