Philip Holland Financial Independence financialindependence

New regulations coming into force soon will require some advisers to disclose what commission they may receive. So are commissions that bad?
To cover the first point...Authorised Financial Advisers (AFAs) are required to disclose commissions received, however, recent changes to the regulations mean that Registered Financial Advisers (RFAs) are not required to disclose commissions. This seems to be one of the main reasons why many insurance advisers are taking the RFA option rather than the more onerous AFA option. There are some advisers who have ‘extra special commission deals' with certain companies, in exchange for placing a high (sometimes all) of their business with them. Going forward, these deals will need to be disclosed to you as a client, which I believe is a good thing.

So are commissions all that bad? My personal belief is that commissions on investment products are not good and I prefer the fee only option. For life insurance products, commission seems to be the most viable option for consumers at the moment. Firms like Financial Independence are moving to a fee and commission hybrid model, which we believe would be the best options for consumers.

Fees? So what about fees on fire and general policies? Most commercial insurance policies have a fee component to it. For example, one of the worst cases we have seen – from a big insurance broking firm – had fees of almost 100 per cent over the insurance company premium. The problem with the current regulation is that this does not need to be disclosed. Firms like Financial Independence have decided to disclose these fees to clients to ensure a transparent process for clients so that they can see that they are getting a good deal.

Here are some questions to ask insurance advisers to ensure you are getting the advice you want:

• What commission or fees will you receive from this?
• Do you have any contractual or special relationships with any insurance company?
• Are you aligned with any particular insurance company?
• What ongoing service will I receive for the commissions and fees you receive?

At the end of the day, the commission rates for most of the insurance companies are reasonably similar and as such, the main difference is the quality of the advice and service you will receive.

Philip Holland is the managing director for the Financial Independence group, Tauranga's leading specialist insurance and mortgage advisers. For further information please contact an adviser at Financial Independence phone 07 578 4414 or email [email protected]. A Disclosure Statement is available free of charge on request. The opinions stated in this article are those of the writer and should not be taken as specific advice.