Old Mutual prepares advisers for the new regulations on commission and early termination values

Old Mutual recently announced that its plans are o­n track to comply with the regulations o­n commission and early termination values gazetted by government for implementation o­n 1 January 2009.

The savings and investment company said it welcomed the new direction from government that aims to strike the right balance between consumer protection, the provision of excellent products and the encouragement of a vibrant advice industry.

Despite the impact of the changes Old Mutual is confident that the majority of financial advisers are committed to remaining in the industry, with appropriate support. Advisers have been adapting their business practices for several years now, as well as using new and existing product solutions developed by the industry, and should continue to flourish, commented Old Mutual.

“Old Mutual launched Project Apollo two years ago to provide further help in the form of practice development, client insights and business tools for financial advisers to strengthen their ability to continue providing invaluable advice to consumers. At the same time, we are adapting the commission and benefit structures o­n our savings products to comply with the new regulations,” says Mike Harper (pictured), MD Retail Affluent at Old Mutual.

“We recognise that financial advisers have played a pivotal role in helping South Africans to optimise their financial affairs based o­n holistic planning,” says Harper.

“Old Mutual has participated fully in industry body discussions with the Financial Services Board and National Treasury, has consulted with financial advisors, and believes that the process has resulted in a dispensation designed to align the interests of financial advisers and the industry with those of consumers,” he adds.

The new commission regulations o­nly apply to recurring contribution savings policies such as endowment policies, and retirement annuity (RA) fund policies. Existing commission structures will continue to apply to risk products, such as life and disability policies, as well as single premium investments.

In addition to the changes in commission, the regulations specify new minimum early termination values o­n recurring-contribution savings plans commencing after the implementation date.

The regulations permit a maximum reduction in fund values of 15% for both recurring-contribution endowment and retirement annuity policies that are, for example, made paid-up, surrendered or where the premium paying term is reduced.

The maximum surrender value will reduce from 15% to 0% o­n a straight-line basis over the charge term. The charge term is defined as:

· a maximum of 10 years (where the premium term is 20 years or longer)
· half the premium term if the premium term is 10 years or longer, but shorter than 20 years
· 5 years if the premium term is 5 years or longer but shorter than 10 years
· The premium term if the premium term is shorter than 5 years.

Insurers may levy administration charges of up to R300 o­n early terminations

Old Mutual’s Project Apollo looks at ways in which to assist advisers to move into the changing environment with ease.

For example, the company is currently rolling out an analysis tool and calculator, which enables advisers to analyse the income sources within their practices and measure the potential impact of the new regulations o­n their future earnings. The tool also enables advisors to evaluate the impact of alternative plans to grow their income effectively.

In addition, Old Mutual has been supporting its own adviser force by offering training o­n ways to manage their practices, thus ensuring they are equipped to run strong financial advice businesses.

This includes steps to segment customer bases, and to render advice to a more manageable number of customers.

Advisers are encouraged to diversify their practices by offering customers a balanced, broader product range, meeting a variety of customer needs – including risk solutions (for life, disability and severe illness cover purposes), and single premium investments and retirement solutions.

Initiatives like these will undoubtedly enable advisers to build deeper, more meaningful and more lasting relationships with their customers.