Documents prepared by NAB in August 2014 – and recently tabled in parliament by Nationals Senator John Williams in parliament – have outlined how the bank had the “opportunity to take the lead” in the industry by removing high upfront commissions but decided against it.
“We would need a strong commercial case to do so which is not currently apparent,” the NAB papers said.
The documents highlighted the bank’s understanding that the removal of commissions from risk advice could lead to consumers being unwilling to seek insurance advice if they have to pay a fee.
“We recognise the tension between the potential consumer detriment of commissions and the likely reluctance of consumers to seek insurance advice if they have to pay explicit fees for it,” the documents said.
“[This] was the primary reason these commissions were exempt from the FOFA ban on commissions.”
The documents also indicate the bank was addressing a series of “major incidents” that have occurred over the past five years within its advice network.
These incidents include those related to replacement insurance advice and the adequacy of resources being devoted to client complaints handling.
“In four of the cases we found that the adviser has reconstructed file records, or even forged client signatures so that the file would appear compliant,” the documents stated.
“We have suspended, terminated or ensured the resignations of 31 NAB FP and aligned advisers over the past two years due to conflicts of interest, inappropriate advice, inappropriate practices or serious or repeat compliance breaches.”
Appearing voluntarily before the ‘scrutiny of financial advice’ inquiry last week, NAB Wealth boss Andrew Hagger revealed the bank had actually fired 41 employed or affiliated advisers in recent years.
Despite the ASIC 413 report which stated around 45% of files with upfront failed the minimum legal standard, upfront doesn’t mean bad advice any more than hybrid and level commission means good advice.
The issue around profitability of the life businesses also has nothing to do with the commission type and is all about the length of time a policy remains in force. If a policy remains in force for longer then paying roughly 30% on level commission or 22% on hybrid commission actually eats into life insurers profits much more than upfronts at 10%.
Rather than attacking the remuneration structure, we should be looking at what can be done to keep clients covered for longer and everyone wins.
Upfront is all about high margins. The higher the upfront the better the profit for NAB. Sorta makes their statement self serving!
If the NAB has made(and sticks to) a commercial decision to retain upfront commissions, they should be applauded. No other insurer has thrown any acurate information into the discussion to remove upfront commissions. Perhaps another insurer would to comment? The silence of the insurers is deafening. The reality is that insurers strike the rates for ins addhe whistles and bells, and decided the rates of commission. There is NO commercial evidence that ONLY upfront commissions are responsible for a percieved issue. If NAB are the only ones to retain upfronts, they might get all the business!
given they lost significant market share on the back of their (Mr Tucker) platform fee stance, no wonder they are very shy on taking a lead position when it comes to removing upfront ( please don’t mention the volume bonuses as well) commissions and insurance, it will be a brave insurer to want to lower the cost of insurance for their clients (mmm sounds like More Give Less Take !) and remove the motivation to churn by advisers