Time to crack down on advisers’ soft incentives
Over the past week the central North Island reverberated to the roar of performance engines as the 2018 Targa North Island rally was staged.
About 125 classic and contemporary race cars went hell for leather across 400 kilometres of closed public roads and 600km of ‘‘touring’’ roads.
The fact that events like this can still take place is a reassuring datapoint that the fun police aren’t yet in full control.
It draws a broad catchment of participants, from retired property developers with professional race teams through to old bogans like me with a few mates and some parts from the local wreckers. Likewise, cars range from Porsche GT3s to BDA Escorts and soupedup Fiat Bambinas.
I’m lucky enough to have done six Targas over the past four years. Given the vagaries of weather, metal fatigue and operator error, every Targa is a crap shoot as to what might happen.
This year we started well in our potent little Honda EK9, with the misty mornings and wet roads suiting the lithe Civic as we sprinted from Taupo to Havelock North.
Day two was less kind as the cambelt on our high revving little mill shredded itself. Game over.
Well not quite. We decided the best thing to do was trailer the deceased Honda back to Wellington and pick up my mate Darryl’s Mazda RX3 historic race car, then return to Havelock to get it scrutineered, liveried and back into the event on day three.
As well as allowing us to complete the rally, the rotary engined Mazda was a real crowd pleaser, enticing conversations wherever we stopped with its ‘‘braap, braap’’ exhaust note.
In Dannevirke, I got cornered by an old Mazda dealer who told me that one of the reasons the rotaries sold so well in petrol-starved 1970s New Zealand was that regional sales managers would give bottles of Johnnie Walker to every salesperson who sold one.
This sales technique – known in the trade as a soft incentive – has been around since Adam was a cowboy.
And, in the case of selling rotary Mazdas, isn’t necessarily a bad thing (though you couldn’t pay me to drink Johnnie Walker).
But some soft incentives bring a lot more benefit than a $40 bottle of scotch. In the insurance game they can be worth tens of thousands of dollars.
So rather than being an informal little nod for a job well done, they start being a serious chunk of renumeration change.
Culturally it’s become particularly endemic in the insurance business, both for traditional fire and general agents but also for those peddling life insurance and health policies.
Hot-shot salesmen and woman get egged on by regional sales managers and chief executives to surpass their sales targets so they can get treated to luxurious weeks away in places like Tahiti, London, Banff and Las Vegas.
This practice of soft commissions was outed last week in a Financial Markets Authority report which found that nine life and health insurance companies spend a staggering $34 million on non-financial incentives.
These arrangements serve the interests of the advisers, with no discernible benefit to consumers.
Indeed, it’s unclear whether consumers are even aware that their recent life policy renewal may have just moved their adviser from the luxury room to the waterbed suite at the Tahiti Hilton. Conflict of interest, much? You bet.
Old-time insurance brokers would likely say it’s something that everyone in the industry has been aware of and passively accepted.
But suddenly, following Australia’s royal commission into the banking, superannuation and financial services industry and a cacophony of other findings, the acceptance appetite is likely to have changed.
The part I have found astonishing is that rather than ’fessing up and cleaning up, some insurance companies want to argue the toss.
It’s been reported this week that only blue-chip operators OnePath and AMP have decided to pull the plug on soft commissions (and both did this before the FMA report came out, bless them).
Other insurers, including Asteron Life, NIB, Sovereign, Partners Life and Fidelity Life have yet to make a call, and some even suggested that the glamorous offshore soirees have an important educational role to play.
Others maintain they rely on advisers to manage conflicts of interest around soft commissions.
To me that sounds just a bit too cute, and corrodes the brand equity of the organisations saying it. You know you can’t trust a poacher to act as gamekeeper.
Clearly these companies haven’t woken up and smelt the coffee across the Tasman, and more recently the local brew from barista brothers Rob Everett and Adrian Orr.
Particularly not the unnamed company that – according to the FMA report – is responsible for a third of all soft commissions across all the insurers reviewed.
The wankel rotary engine in the Mazda RX3 and relies on a dead straight central shaft to keep everything in balance and trued up. It’s something the insurance industry could use.
Mike ‘‘MOD’’ O’Donnell is a professional director and writer, and an amateur rally driver. His Twitter handle is @modsta and his team won the Peter Brock Spirit of Targa Award at last week’s Targa Rally.