Insurer looks at agents' fees

Charles Anderson. Photo / Steven McNicholl

The head of New Zealand's largest life insurer says tougher rules are needed to ensure there is more transparency about commissions and how they affect the decisions made by advisers.

Sovereign chief executive Charles Anderson said adviser licensing and regulation introduced in July last year had been a good start. But more needed to be done to stamp out one of the biggest areas affecting consumer confidence in the industry.

"I think generally in this market more could be done to help stop the transfer of business that is not helpful for the consumer," Anderson said. "New Zealand's model still rewards unhelpful behaviour which ultimately emerges as detrimental to the consumer.

"I don't think what has happened so far is going to stop that behaviour necessarily."

Anderson said there was a lot more disclosure in other markets. In Australia the practice of transferring business from one place to another to generate fees was presently under scrutiny.

Anderson said it was difficult to eliminate commissions as many people were not prepared to pay for advice up front but better transparency was needed.

"We are living in a world where things like the [global financial crisis] and financial institutions in general have left the public feeling a degree of unease," he said.

He said Sovereign had been promoting more transparency internally and hoped to set a high bar for the industry.

"But it's going to take a while before we see the impacts," he said. "It also depends on the extent to which the Financial Markets Authority follows enforcement and its appetite for making public any breaches."

Anderson said licensing and regulation of the adviser industry had not resulted in the high levels of exits from the sector which he had expected. He had expected close to 25 per cent of advisers to leave but so far less than 5 per cent had moved on. The FMA had also been tied up dealing with finance company investigations and court cases and when it became fully operational there was a possibility "that could stimulate more departures".

He had noticed advisers deciding not to train up to give advice on more complex investment products for which they must become an authorised financial adviser.

They hadn't exited the industry but chose to focus on insurance instead. Training to become an authorised financial adviser was quite a commitment and he estimated it had cost some between $80,000 and $100,000 in lost revenue to meet the new standards.