The ethical problem with commissions
A line has recently been drawn in the sand with the release of the Trowbridge Report.
There are those who believe the existence of commissions categorises advisers as nothing more than salespeople and prevents us from being recognised as a profession. Then there are those that believe commissions are an essential component to prevent a worsening of Australia’s underinsurance problem and represent fair pay for fair work.
However, those that seem to support fee for service as the only way forward seem to hold their view zealously. Some go so far as to say that ethics and commissions cannot co-exist and that the very existence of commissions creates a conflict of interest.
Conflicts of interest occur in almost every decision in our waking lives. Personally, my biggest conflict of interest is how much time I let my children watch TV just so I can have 5 minutes more peace and quiet.
But when it comes to my clients, when somebody walks through my door the process is always the same: understand what it is they need and want, educating them, providing them with solutions to consider which meet those needs and wants, and then acting on their informed decisions.
My job is to help people; I do not sell products. What I “sell” is my time, my expertise and my integrity.
I will provide service to any client who seeks my help.
If I were to generalise fee for service proponents, I would say that they restrict their services to a small niche of high net worth individuals who can afford their fees or they only suit a client looking to include investment-based strategies, which subsidises the cost of the risk advice.
Their business model excludes many everyday Australians, which perpetuates the image that financial planning is not affordable nor accessible.
I believe that choosing a commission-based model can be more honourable in doing the right thing by the client.
Yes, I can lower the premiums on a client’s policy by 25 per cent to 30 per cent for the life of the policy, but in order to cover my costs, I would need to charge a fee.
However, that fee would be more than the discount the client would receive. How would that place them in a better position? How is that putting the client first?
If I charge a fee and a client’s application is not successful, or the outcome is unacceptable to them, how would the client feel about paying for not receiving the outcome they desire when it is the only service they have engaged me to provide?.
By opting for a commission, my client can be confident that they do not pay a cent, unless they are happy with their cover and the offer made by the insurer.
To offer my services without guarantee of reward until my client is satisfied for is, for me, the mark of putting my clients' needs ahead of my own.
The general public recently baulked at the idea of having to potentially pay a GP a co-payment of $6 when they visited the doctor, despite the purpose of the funds being to support the research and advancements into treating diseases that presently destroy the lives of individuals and their families.
It was feared that patients would put off seeing their doctors and have worse health outcomes as a result.
Now if that is true, how can I justify charging a fee significantly higher than $6 knowing that my clients may put off a scheduled review of their cover to take into account changes in their debts and liabilities, or when their cash flow is tight after the birth of a child, or to review an existing exclusion.
The outcome for my client would be far worse.
Regardless of the remuneration method we choose for ourselves we all have the same obligations under the law to act in the best interests of our clients.
I take issue with anyone who uses their business model to denigrate someone who chooses an alternative business model and to infer that the advice received is somehow inferior, tainted or unprofessional.
I can hear you say, 'I have heard it all before: you all say that you put your client first, but then why are there all these scandals in the media that all involve commissions. The only way to ensure integrity is to remove commissions'.
To me, this is like calling for the removal of all cars since they tempt people to drive too fast, or to cut in, and that everyone should be required to take the bus.
For those of you that hold this view, consider this: perhaps your belief that an adviser being ethical regardless of the method by which they choose to be paid is something you can't comprehend, because it says more about your own shortcomings than the advisers around you? That does not give you the right to assume and judge the motives and actions of your peers.
For those advisers that say they have personally witnessed wrongdoings by advisers who have been driven by nothing more than commissions, have you reported them? Or did you decide that the responsibility was not yours, that it would be too much of a hassle? Once again, I challenge you to consider: where do your morals stand if you prioritise protecting your image of not being a whistleblower over the wellbeing of another human being.
I think we could all agree that there are people out there doing the wrong thing and that this prevents us from being viewed as a profession.
There will always be people with poor ethics or who make poor decisions in every industry. If we want to be viewed as a profession, we should mimic the responses of the most respected professions.
There are scandals involving doctors inappropriately touching their patients or lawyers misappropriating funds, but we don't change their remuneration; we remove and deal with the offender.
We should take the same approach. It is not the remuneration issue of a system that is the problem, but the quality of its participants. If advisers or insurers behave unethically, then they should be removed.
At the end of the day, our industry has a long way to go, but mudslinging does not help our reputation. If you choose to focus on the negative issues then that’s all people hear. It is all they will ever know.
Follow the remuneration business model that works for you, but for goodness' sake, don’t preach and breed mistrust in your clients based on the way another adviser chooses to be paid.
If you do, then it is you who is part of the problem, you who is hurting our industry, you who is preventing trust in the wider community and preventing us from being recognised as professionals. Commissions are simply a vehicle which deserve their place.
Katherine Hayes is a director at Tiffen Insurance Services and a Synchron-authorised Financial Planner.
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