Life industry commission ‘petition’ stirs broker emotion
On 01 December 2009 FAnews Online distributed a newsletter titled: Would you follow an anonymous call to arms. In that newsletter we discussed an email that had been circulated encouraging financial services intermediaries to form a breakaway representative body. Their correspondence focused on a perceived lack of broker representation at regulatory meetings. It also alleged that various industry stakeholders, including the Financial Services Board (FSB), Association of Savings and Investments SA (ASISA), Financial Intermediaries Association (FIA) and life insurance companies were holding ‘secret’ meetings to discuss the regulation of up-front life commissions.
The gist of their complaint: “How are we represented in these discussions as the major stakeholder and those most affected? Our ‘representatives’ in this regard, the FIA, ASISA, etc are not brokers and have no vested interest in our well being. They are not run by Brokers for Brokers, nor do they represent the majority of us in the market - so why do we leave it up to them to represent our best interests given the 'excellent' work they did for us during the investment commission debacle? Were any of you consulted during the previous changes to investment commissions?”
The anonymous outfit ended its ‘call to arms’ with an ultimatum: “WE WILL NO LONGER BE TOLD WHAT OUR FUTURE IS. IT IS TIME THAT WE HAD A SAY IN WHERE OUR INDUSTRY IS GOING!” FAnews Online decided to chat to some of the industry stakeholders to get their latest responses to these emotive issues.
Stakeholder responses
Jonathan Dixon, Deputy Executive Officer: Insurance, FSB
“I can state unequivocally that there have been absolutely no discussions/meetings between the FSB and any industry representatives on up-front life insurance (risk business) commissions since September 2009 – nor at any stage. The FSB has not yet developed any proposals with respect to changes to life insurance (risk business) commission.
“The FSB has always ensured that there is wide consultation on any regulatory proposals, including with the FIA and individual brokers. For a large brokerage to claim that there was no consultation on changes to commission on investment business is irresponsible. A National Treasury/FSB discussion paper was issued for public comment, as were draft regulations, and an extensive process of consultation was followed.
“As a general comment, my concern is that not only is this email baseless, but it also creates a lot of unjustified concern in the broker market that their interests are somehow not properly considered. As in the past, the FSB will continue to ensure that if there are to be any changes to regulations these will be considered in a transparent and consultative way. The FSB is convinced that achieving the best outcome for consumers of financial services requires a strong relationship between responsible product providers, professional financial intermediaries and informed consumers. The voice of financial intermediaries and advisors is thus critical and we strive to ensure that we work closely with the FIA, but also undertake a number of broader road shows and consultations on FSB issues.
“As a final point, I also have a grave concern about anonymous emails of this nature. This nameless individual or group, whoever they might be, is not only acting in an irresponsible and unethical manner by spreading these untruths, but also creating an impression that there may be something underhand about their attack on the FIA. There are numerous forums in which any concerns about the nature of consultation on regulatory issues can be raised in an open and transparent way and I would encourage this particular individual or group to come forward and make their points in a more responsible, constructive and open manner.”
Peter Dempsey, Deputy CEO, ASISA
“The petition was sent out anonymously late last year following an article in an Afrikaans newspaper in September, which stated that the FSB, National Treasury and ASISA had put together a working group to look at changes in the commission structure of risk products.
“ASISA took note of this article with concern since we were not aware of such a working group. At the time we approached the FSB for clarity and received the following response from Jonathan Dixon at the FSB: ‘It is also with surprise that I read of reports of a NT, FSB and ASISA task team having been set up to discuss commission on risk products. No such task team has been set up from the FSB side – and the National Treasury has confirmed that they have not set up any such task team either.’
“Mr Dixon added that ‘this is an issue that needs to be informed by further work on the intermediary status issue, as well as being informed by ongoing discussions of these issues by the UK FSA. This work is ongoing and all stakeholders will be involved in any future discussions that take place on these issues.’
“ASISA can confirm that there is currently no work being done with regards to commission for risk products. However, internationally this is being debated, especially in the UK where the removal of upfront commission for investment products will be implemented in 2012. We expect this debate to be tabled in South Africa in the near future, but when it does it will be part of an overall review of remuneration options within the broader financial services industry. ASISA will definitely be a participant and so will those organizations representing IFAs.
“It is concerning that The New Council for Brokers chose to incite IFAs without first approaching the bodies it is accusing of holding “secret meetings” for the true facts.
“ASISA, through the Intermediary Liaison Standing Committee, interacts with bodies representing IFAs on a regular basis. Information is shared open and honestly with the aim of making sure that all stakeholders are informed of new developments that may impact on them. There is definitely no secret agenda aimed at excluding intermediaries.”
Ian Middleton, Managing Director, Masthead
“I am not aware of any ‘secret’ meetings between these bodies. If there were, Masthead was not party to them. We do have confirmation from the FSB that there was no task team set up either from National Treasury or the FSB to look at changes in the commission structure of risk products. We conveyed this to our members last year when there was the first round of speculation.
“Possible changes in commission are only one part of a larger picture and a world-wide trend. If one cuts through the emotions in the email, then it’s valid to be concerned about changes. As a nation, we seem to believe that a deadline will always be extended – think about tax returns, driver’s licence renewals, voting registration, meeting fit and proper requirements. The real danger is if people in the industry don’t do anything. If, seeing the signs of change, they don’t position themselves and their businesses for change. Denial and inertia will put brokers out of business, not the regulation on its own.
“Masthead represents independent broker members, but we accept that there are a number of other stakeholders in the industry, from consumers, to regulators, to product supplier, to the media. If one did not consider the impacts on these stakeholders when providing inputs and commentaries on industry developments, I think it would be short-sighted and potentially damaging to the interests of brokers. In addition, I believe that by recognising the positions of others we build, rather than break down, credibility and therefore the chance of being taken seriously. Masthead will therefore continue to provide feedback and commentary that is objective, constructive, and considerate of the needs of consumers, brokers, the regulators, and product suppliers.
“Masthead schedules regular meetings with key regulators and as such has over the last few months met with the FSB and the FAIS Ombud on a range of matters affecting independent brokers. Commission is but one issue that we have discussed with the authorities – other important issues are the latest Conflicts of Interest draft regulations, the Treating Customers Fairly initiative that is relatively new in the agenda, international developments (particularly in the UK and Australia), the impending regulatory exams that advisors will be required to write (especially in relation to costs) and developments in relation to compliance officers. We believe in objective and constructive engagement and try to gain an understanding of the issues facing the regulator. In turn, we provide input on the impacts of proposed changes. Based on this we find that our meetings are constructive two-way interactions.
“In the National Treasury/FSB discussion paper on contractual savings that came out in 2006 there was reference to intermediary status and commissions on risk products as well as disclosure to consumers. Looking forward, we can expect that these matters will receive attention and that there will be change. Our regulators do not act in isolation. They look at international developments and the FSB has acknowledged that they are looking at work being done by the Financial Services Authority in the UK in the form of the Retail Distribution Review (RDR), although they are not focusing on this at present. We also believe that more recent developments in the UK and Australia calling for the banning of up-front commissions in those countries will not be ignored by our authorities when they look to the future of regulation here. The FSB has indicated that all stakeholders will be involved in any future discussions on these issues and Masthead has stated its desire to be involved in these discussions.
“In the short term we see the key regulatory changes/issues affecting independent brokers as:
- Finalisation of the Conflicts of Interest regulations;
- Treating Customers Fairly (TCF); and
- More input and engagement on intermediary status and commission (with reference to the 2006 discussion paper).
“From a Masthead point of view, we view the issue of commission as being part of a wider issue. For brokers it’s about profitability and the ability to run a business. While the detail of change is unknown, it will come and we are helping brokers review their business models. More specifically relating to commission, Masthead strongly believes that consumers need financial advice and we believe that advice has a value. This value should be paid for by the consumer, but we are neutral on whether this advice should be paid for through commission or through a fee. Commission is simply a vehicle for the payment. What is important though, is that there is a reasonable relationship between the value of the advice and the money (whether fee or commission) paid. Both broker and customer should feel that they are getting a good deal.
“We believe we have a deep understanding of the issues facing brokers as well as other stakeholders in the industry. Masthead comments and engages on ‘big issues’ in the industry. This means that we comment and engage the regulators on matters that affect the survival of independent brokers. We have unique insights and intelligence and we model the impacts of proposed changes. By taking a balanced view and looking at the impact backed up by solid research we believe we create credibility. This has enabled us to give the regulators insight and understanding of the impacts on brokers in relation to what they are considering. In addition, our discussions allow us to create understanding for our members of where regulation is coming from and where it is likely to go.
“Masthead is committed to providing input on issues that are important to the success of independent brokers. Over the last 5 years we have made submissions and commented extensively on matters such as the FSB and National Treasury’s discussion documents and proposals relating to commission regulations (in 2006, 2007, 2008), LOA proposals relating to commission on s14 transfers (in 2008), FAIS Fit and Proper requirements (in 2008), proposals relating to Medical Schemes commission (in 2009) and proposals relating to Conflicts of Interests (in 2008 and 2009).
“I believe that the regulators engage with brokers as much as anyone else, although some corporate stakeholders may be better organised because of the resources they have. But the onus to consult lies not only with the regulator – broker bodies have the duty and the right to initiate engagement with regulators. Over the last five years, we have seen that the regulators have taken cognisance of our inputs and that’s pleasing.
“However, despite the willingness to consult, I do think that the regulators should be cautious about trying to import and transplant foreign regulation into SA without careful consideration of the impacts and whether there is a local “fit”. Not everything foreign is good or appropriate. There is a lot of regulation in the industry and we see more being written. We accept that regulation is necessary, but this regulation should be appropriate and not just regulation for the sake of regulation. Increased regulation is not the answer. More effective policing and application of existing regulation is where the focus should lie.”
Johann le Roux, CEO, Momentum Retail
“The review of commission on life products has been on the agenda for some time since the release of the Discussion Paper on Contractual Savings a few years ago. The discussion paper led to the review of commission for savings products, which took effect in January 2009.
“The review of commission on risk products was put on hold at the time and Momentum’s position of moving from up front to as and when commission on risk products was articulated then. As an intermediary-driven organization, Momentum does not support as and when commission on risk products, given the already existing pressures on the financial planning environment after the reduction in savings commissions, as well as the different dynamics of risk and savings policies (from a client value-for-money perspective).
“Momentum would like to state that we have not been party to, or aware of, secret meetings to support a move to as and when commission for risk products, as suggested in media reports and anonymous, unsubstantiated emails.
“Momentum enjoys a good working relationship with the various intermediary associations within South Africa through ASISA and various other forums.
“It is our view, that any review process includes contributions from all stakeholders, including the intermediary environment.
“Momentum supports ASISA, the FSB and FIA objectives of promoting unity among intermediaries in the industry, elevating their professional image, improving transparency levels and working with government by providing input on policy and other issues.”
Brett Cameron, Marketing Distribution Manager, Old Mutual
“Potential changes to commission regulations on risk business were first mentioned by National Treasury in their Discussion Paper on Contractual Savings published in March 2006, and again mentioned in their work programme timeline published shortly thereafter.
“The work programme timeline that National Treasury published back in 2006 is behind schedule. The new regulations on commission and early termination values for savings business were only effective 1 January 2009. Some of the medium term topics are receiving attention, specifically disclosure and intermediary relationships, in the form of the Conflicts of Interest regulation. But other topics, including broader commission issues are not being tackled at this stage. That does not mean that they are not still on National Treasury’s regulatory agenda.
“The regulator in the UK (the FSA) is currently conducting a wide-ranging review of Retail Distribution. The UK work programme is fairly similar to developments in South Africa, and the regulators do look to each other in developing their programmes. The UK regulators follow developments in South Africa as much as South Africa might follow other countries. There are numerous sources of information on the FSA’s review - the attached speech by Dan Waters I feel gives a good overview. In the UK, the FSA has questioned whether changes to commission regulations affecting savings and investment business, should also be applied to risk business, and has commissioned a separate review to address that question which we expect to be finalised this year. Our understanding is that National Treasury is currently looking to see what the FSA proposals might say before looking at making changes to risk business commission.
“It appears to us that the suggestion of ‘secret’ meetings between ASISA, FIA and the FSB stemmed from a Fin24 article last year. As pointed out in follow-up articles, Old Mutual is not engaged in secret meetings to address commission regulations on risk business.
“Where it comes to the comments around intermediary consultation, representation and support, we do understand that the regulatory changes are a reason for intermediaries to fear for their survival. Intermediaries are a key stakeholder in the insurance industry, and Old Mutual supports both tied advisors and independent brokers. Intermediaries are and will remain the life blood in the success of Old Mutual and its customers in providing access to advice to the average South African consumer.
“Over the years, Old Mutual has actively supported independent intermediaries to ensure their continued success. When FAIS legislation was introduced, Old Mutual helped establish Masthead which played a critical role in supporting intermediaries in adapting to the FAIS environment. During the debate to introduce the changes to commission regulations on savings business, Old Mutual played an active role in the debate in representing the impact on intermediaries.
“Over the past three years Old Mutual has also been actively supporting its intermediaries in understanding the potential impact of the commission regulation changes, and helping them in adapting their businesses to be sustainable in the changed environment. Intermediaries are also very resilient in adapting to a changing environment. They have already adapted to numerous regulatory changes, and while future regulatory changes will not be without impact, intermediaries should have confidence in themselves to succeed despite the changes.
“We are confident that National Treasury, the FSB and ASISA understand the important role played by intermediaries and they all engage regularly with the various intermediary representative bodies. This was actively witnessed through the ongoing engagement with intermediary bodies through the introduction of commission regulation changes for savings business. Masthead has also evolved into a recognised representative body for independent intermediaries, and has established strong credibility with the regulators to ensure that its views are listened to.
“It is clear that there will continue to be changes to the regulatory environment in the insurance industry and that certain aspects of these changes will have an impact on intermediaries. Intermediaries mustn’t play a passive role as the changes are debated. They also shouldn’t feel excluded from the debate. Working through the various intermediary representative bodies is one way of doing so. The insurance companies themselves, and certainly Old Mutual, will also pay attention to intermediary concerns and ensure that they are represented in the discussion.”
A final word from the editor
This is probably the lengthiest correspondence FAnews Online has ever produced. We believe these detailed responses provide insight into the stance of various stakeholders in the industry. We also believe the responses point to a set of stakeholders that care for the wellbeing of the financial services intermediary. The industry should go forward under their guidance.
I would welcome any further comment at [email protected]
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