Moonstone: Ethics and my business II

In response to last week’s article we received the following input from Craig Harding, MD of Altrisk:

This whole claw-back of commission debate has been disturbing me. Reading your note below and the FSB views is starting to provide clarity about why I’m disturbed.

Jonathon Dixon is quoted as saying ‘The service provided to the client is remunerated by means of commission. The claw-back is there to ensure that the intermediary’s incentives are properly aligned with the policyholder so as to ensure appropriate selling. Any arrangement to have a policyholder refund a claw-back to an adviser undermines the intentions of regulation.’

And also ‘Dixon says the commission is, at least in part, a means of compensating the intermediary for providing an ongoing service to a policyholder while the policy remains in existence’.

I’m especially concerned about the view on alignment of interests. This position holds true when a client continues to pay premiums but may not when premiums are stopped and I’d be interested in the FSB’s view on the reverse position; does it mean they believe that it is appropriate for an advisor to earn nothing if a client stops paying premiums? Are their interests still aligned? FAIS requires a Financial Needs Analysis to be conducted, recommendations to be made (advice) and implemented, yet if the client stops paying premiums the advisor potentially receives no reward at all.

I realise that this raises the whole question of commission versus fees and the status of the advisor which is contentious at the best of times but inevitable. No-one disagrees that we should encourage appropriate selling and discourage inappropriate selling but we need to do this in the context of encouraging a vibrant, competitive, innovative and sustainable industry that goes to work every day to encourage South Africans to save – there are so few left who do this; lets not consign them to extinction.

Craig’s point about what happens when the client stops paying ties in with what we have been saying all along – there should be an absolutely clear distinction drawn between the advice and service components of what we deliver to a client.

If the following are in place:

· I follow the legal (and moral) steps to determine the client’s needs

· I apply my knowledge and skills acquired over years and which conforms to what the fit and proper requirements demand

· I recommend an appropriate product based on my analysis

· The client agrees by signing a legal document, and does not cancel this agreement within the cooling off period