No commission for Insurance Agents

In Today's (Singapore) paper: "Australia tightens rules on financial advice".

Excerpt:

"Customers and clients, when they are seeing a financial planner, deserve to know that the financial planner is acting in their best interest. And when you have commissions, that is simply impossible," Mr Bowen said.

That is very interesting.
Post by Gazali at www dot Gazali dash Ahmad dot c o dot c c. Proclivity for objectivity.
Imagine if it is done in Singapore. Let's put things in perspective. I'm an insurance agent for the last 13 years, fully commission based, no basic pay or allowances, even my medical is taken by myself. I don't contribute to CPF (Thank God, and only to Medisave recently).

If that were to happen in Singapore, would it be good to the consumer, or as we say in the industry, the insured?

The natural thing most would think is that, since no commission is payable, the insurance premium will be cheaper.

Actually, commissions is only a small part of the equation. You have to remember that the insurance companies are like any companies, they want to generate profits; they are not charitable bodies.

There are other cost that is banded together. What are they?

• Staff salaries,
• Service or Call centre,
• Office space or building,

and many more, like the cost of insurance. Its naive to think that the office space is paid by the company.

Now, if the commission is cut out from the agent, all will revert to a fee-based model. What's a fee-only model? A fee-only financial advisor can only receive compensation directly from you. It simply means that the adviser will assess your financial needs and goals and compile a report. You would have to pay him for the services. Do take note that it's separate from the insurance premium.

How much will you be willing to pay the adviser for the service? A rough guide indicates that the majority fee-based models charges a fee of $1,000 to $3,000 for an initial plan, and $500 to $2,000 for on-going annual fees.

Is there anyone or company doing it in Singapore? Yes there is. They charged an initial fee and if you take up their recommendations, the fees would be reduce by a certain percentage. That's fee-based.

Would you be willing to pay an upfront of, let's say $1,000 for the financial advice provided, then another $2,400 yearly for your insurance premium, and finally an annual service fee of $500, so that the financial consultant regularly make assessment and recommends adjustments to your plan?

Or would you just pay the premium of $2,400, and the insurance agent gives you, your mandatory needs analysis without cost?

What about we do away with the insurance agent totally and the insurance companies provides the advice as part of the service?

Then be prepared for more expensive insurance. Companies do what companies does; generate profits.

How would it be more expensive? The insurance company simply provides less coverage for the amount of premium. So for example, instead of getting a cover of $100,000 for $360 annually, it could be only for $50,000.

Hey, somebody got to pay for all that extra staff, customer service and overheads. Do you think the company will pay for it? It will always be the consumer.

Let me digress for a while. Have you been to the shop that sells cheap things? The one that they call Super$Saver in Singapore? You know, lots of goods that are cheap. In my place, there is a shop just like that.

And now its closing down. It is entirely staff by Filipinos (meaning "cheap" labor). Its cheap, lots of customers and yet its still going to close down. Why? Some would say because of the quality.

That's precisely correct. Would you pay more for a "better" quality? And the shop that sells to cover the rent, staff and post a profit, are still going strong. Their prices? Higher than the cheap Super$Saver. Are their products better? Its the same thing.

Through the last 13 years, I've seen agents that gives "rebates" to their clients. Rebates are giving part of the commission to the clients. In Singapore, its illegal to do so. Though many flout the rule. Why? Because both the giver and the receiver will be punished. So it is in the best interest that both parties keep their mouth shut.

What happens next? All of these agents have left the industry.

I do have some of these policyholders approach me for help, after their agents left, and they want the same thing again.

I avoid them with a ten-foot pole. Good luck to them.

Think about it.

And not most, in fact all I met, balk at paying the fee, all just want to pay the premium and that's it.

If Singapore were to go the fee-based approach, it has to be legislated. All financial consultants must provide a fee-based service and clients can't purchase life insurance without a needs analysis report provided by them.

Its something along the lines of you can't get a prescription medicine (insurance products) from a pharmacy (insurance companies) without a doctor's prescription (needs analysis by Financial Consultants).

As a financial consultant, I'd prefer the fee-based approach.

Why?

My fees will start from $1000 (based on your assets) for the initial report, and a yearly updates starting from $500 (based on frequency of updates) yearly.

All I need is only 100 clients that pays me yearly and another 50 that does a one time report. I work a 40 week year which gives me time to service 3 clients per week. My life will be fantastic. And I would not have to be always under pressure to get new clients every month.

I would not have to go through the hassle of getting the insurance product for you. Which means that, you have to apply for the insurance yourself, fill up the forms yourself, answer any queries yourself and finally if an insured event happens, you or your next of kin have to figure out how to make the claim.

If I were you, I rather pay the $2,400 yearly and let the agent handle all the paperwork and he meets up with me yearly to discuss any changes. And in the event of an insured event occurs, I know it will be taken care of by the agent.

Photo Credits "Save Money, Do It Yourself" by colros.