Sunday, May 09, 2010

Fair remuneration of agent

At the FISCA talk, I asked the participants what is a fair amount for an agent to earn on selling a life insurance policy with a monthly premium of $500. Should it be $2,000? Most participants felt that this was too high.

The actual amount that is earned by the agent (and the managers) is shown as "distribution cost" in the benefit illustration. It varies from $6,000 to $10,000. The participants were shocked. They did not realise it.

If you wish to buy a life insurance policy, look for the distribution cost and the effect of deduction. These two important points are explained in my book, Practical Guide on Financial Planning. The effect of deduction can amount to $200,000 for a policy of the above size. It is a lot of money that is deducted from your accumulated savings.

Spend $12 and 12 hours to learn about the basics of financial planning by reading the book. Attend the FISCA talk to get a better understading.

22 comments:

Anonymous said...

Commission is unfair because it disregards the complexity and the amount of work put in (not leg work).It is hidden and often it is a lot in par products.
Fee is equitable and the amount charged depends on the above and it is also transparent and the customers can decide whether they should or should not go ahead with the advisory service. It is also negotiable.
Fee only model firm has no relationship with any of the product providers.
Hope MAS will recommend a model similar to the medical practice where consultation is separate from products, a pharmacy to provide the execution of the products. Customers will be served only if they can produce a prescription chit or report signed by a registered financial planner.
The products will be dispensed as according to the 'prescription' report.
This will eliminate the salesmen and incompetent insurance agents.

Anonymous said...

Mr Tan, I was one of the attendees of your talk. I found it useful and practical and I had passed on some of the tips that I learnt to my son who is just starting work.

Anonymous said...

When insurance agents complain they have no salary ask them about the doctors and the lawyers.
They spent many years of study and have to pass practising exams. What do the agents have. They passed some run of the mill tikam tiakm exams.What do they expect? They are over paid. The commission embedded is too high.
The wholelife should have commission of 10% for first year and 5% for next 2 years.All in all 20% for product pushing. Additional earning should come from advisory fee which depends on how complex the case is and to be agreed by the customers.
Product advice should only be paid the 20% over the 3 years.
This will be fair to the customers and the remuneration should reflect the professionalism of the adviser and not the salesmen.
I am not surprised if this structure is introduced all insurance agents will become advisers overnight. This can be dangerous too but safeguards will be in place to check for reasonable basis and if the insurance agents try to bull their way through they will be on head on collision with the law, ie breaching section 27 of the FAA.MAS must then enforce and an opportunity to do agents cleansing.

Anonymous said...

I attended the talk on Saturday too.

One point to raise on a case-study about one lady with multiple shield plans having claim issue - what I know is that you can have only one private shield plan at any one time. Once you switch to another company, the old shield plan will be terminated.

I also noticed that the private shield plan is on top of the MediShield plan - one part of the premium is paid to the insurance company and another to CPF. Anyone know why?

Anonymous said...

Fee based is the fairest method and hope MAS will implement it soonest.
Hope MAS is in consultation with their counterpart in UK and Australia. The quicker the better to stop unscrupulous and incompetent insurance agents from fleecing and conning consumers.
Commission is the root cause of all the evils committed by insurance agents.
All the evidences are there and proof that commission is a big mistake and MAS must address quickly.
Look at CPF, 87% of members lost money since 2000.
Look at LIA statistics: people are grossly under insured and only about $50K when averagely people need $500K.
Claim has been only $47K...not enough to bury the deceased policyholders let alone take care of the family the deceased left behind.
85% don't have even $20K to buy CPF life.
85% have not planned and cannot retire.Old people have to continue to work and yet not enough to meet them. etc.
Blame it on inertia??/ rubbish, there isn't qualified advisers to help these people. 99.9% of insurance agents are salesmen and unscrupulous product pushers for commission only.They are unqualified as financial consultants and yet they impersonate and masquerade and call themselves consultants. They are insults to the true consultants. They are cheats.
Commission must be removed and also to change the way financial products are recommended and sold.

Anonymous said...

While I understand the audience on Sat's talk have their fair share of bad experience with insurance agents and property agents, I can't help to say something for the agents here:

The agents are paid by commission and nothing else unlike ordinary waged workers. I think it is unfair to say that there is a conflict of interest there. Aren't the regular waged workers being paid monthly too, and they also have the vested interested. If your employers stop paying your salary next month, will you still do your job for them? I don't think so. Also, are your receiving a fair salary now? I don't think so too. So what make you think the agents are over-paid?

Every meeting with clients won't result in a closed sale. Hence, they are driven to close as many sales as possible. They should be motivated but not overly motivate to distort facts. So, some agents can appear to be 'pushy' and worst still 'unethical'. I condemned such un-professional action too. Now, look at a regular employed person in a company, how many of you are truly spending 100% of your office hours to do office work or spending office hours doing some personal stuff. And yet you are getting a monthly salary on pay day. Is that fair too? I don't think so!

So, please spare a thought for agents who are really sincere in providing a good service to you while you may treat them like any other agents. Always give the person the benefit of doubt first.

We owe to ourselves to know about the financial product or knowledge out there in the market. There are plenty of resources online and offline you can find out about product like insurance (just read Mr Tan's website will help a lot).

One Chinese saying : 你不理财,财不理你!(If you don't manage your wealth, your wealth will ignore you!)

By the way, I worked as an employee for more that 15 years and now I am an insurance agent (I have not sell any life policy as the return is bad, I am there to learn more about their secrets) + property agent (I have not close a sale deal as the sellers are asking for sky-high price) + business owner to-be 8-)

Anonymous said...

Anon May 09, 2010 6:28 PM,
The question is do the agents deserve the commission for the advice given or correct advice?
Insurance agents don't do need analysis and if they don't how do they know that is the correct product and the right amount? It is becuase they don't do and push the product upfront that is where everything goes wrong.Wrong product and wrong amount and on investigation you find that there was conflict of interest, ie the insurance agent sold the product that was in his or her interest and NOT the client.
Nowadays, 99.9% of the agents use this method, ie pushing the product upfront and they don't need to justify. Sincerity without competence and honesty and putting the client's interest first is very dangerous.Many people suffered becuase of this.It is unethical and unprofessional. Not doing the right thing is unethical, right? The right thing to do is examine the clients' needs first and prescribe the product accordingly without compromise.But insurance agents compromise and short change the clients by pushing the products that benefit the agents and not the client.
It is like walking into a clinic and the doctor sells the medicine the patient asks wihtout prior examination or no record of previous consultation. This is malpractice.
It doesn't matter whether the agents are paid by commission or salary it is doing the right thing, doing it competently. If the agents are NOT competent but sincere he or she is compromising the interest of the clients. How do you like to be operated by a butcher and he is sincere.? and your heart surgeon is a plumber.
What is sincerity? Sincerity is the brother of honesty and when you are not qualified and competent and you still do it you are dishonest. You put the client in danger.The FAA doesn't stipulate sincerity as one of the requirements but honesty and competence are a must.
It is NOT the onus of your customers to know the products first before buying them.There is no way to learn everything. Insurance agents don't know much do you expect the customers to know everything? You are the adviser and you are paid to give advice and you are to responsible for the advice. If the clients know the products why should they pay you the commission? You don't deserve a cent.It is over paying you for filling up the forms.
Yes, it is BETTER but NOT necessary to know something about the product. It is the job of the agent to give advice, recommend product and responsible for the product and then be paid.
I hope you know your role as an insurance agent. Anyway, insurance agents will become dinosuars soon when MAS removes commission.

Anonymous said...

The commission earned by the agent is used to cover expenses:

1. cost of stationeries, stamps/envelope/cards and photocopying

2. cost marketing materials such as brochures/phamphlets

3. cost of travelling. most employed personnel only travel from home to office and back to home only. cost of travelling also includes, ERP, parking fees and coupons, if agent is driving

4. cost of the office - aircon, workstations, computers, desk space, must be earned.

5. cost of servicing - meals and gifts they buy their friends, potential clients as goodwill

Agents all start from $0 and have to earn every cent for their livelihood. Their tenacity in life is build through hard work and the hard knocks they receive in life, the rejections they get from proposing products and making cold calls, and all the broken promises made to them by their "friends" and relatives.

Commissions are not determined by agents. Products are designed by the insurers and insurers are regulated by MAS. Like all middlemen, agents sell because the products are there and every products has its merits.

Mr. tan and friends can whack and laugh at agents for whatever reasons you deem fit. You can demean and ridicule the agents and call them names. But remember, like what Grandmaster Ip Man said, "人的身份可以有高低之分,但人格没有贵贱之别。" Yes, many of you here may be high in social status but that not mean you are right and can bully those who are not in good and "respectable" jobs like yours. This blog is always about knocking down agents, and not the other way around, think about it.

Anonymous said...

To close a $500/mth case is not easy. Maybe only 1 such case a week.

$2000 per year is less than $200 month. if this is too high, then how do you expect anyone to survive selling insurance?

In my opinion, it is not a fair remuneration.

Anonymous said...

Anon May 10, 2010 2:39 AM

"This blog is always about knocking down agents, and not the other way around, think about it"
You should be thinking about it why insurance agents are being bashed. Is it they are doing an honourable job that they got bashed? No...it is because they short changed, robbed their clients and put their own interest first by selling or dumping useless products on their trusting clients.And their cleints found out only after many years that they have been conned.

"Commissions are not determined by agents. Products are designed by the insurers and insurers are regulated by MAS".
Don't forget that is is the insurance agents who determine the products to sell. Always the products sold by them are high commission products that short change the clients of their needs. Why? isn't this unethical when you know that these products are useless to them?

"Like all middlemen, agents sell because the products are there and every products has its merits."
Middlemen are dangerous especailly they are not qualified and competent and worse they are salesmen who earn commission and willing to compromise the interest of their clients.
Every product has its own merit is true but the problem is clients are always sold the WRONG product and the product is always a snake oil product or koyok that benefits the agents only..
Whatever expenses you incur in this business doesn't justify you to con the customers into buying something that is useless.You must give your clients fair dealing and cannot claim that the products you dump on the client is to cover the
expenses you incur to prospect him down.You still need to sell the clients an appropriate product that meets his needs best.
Anyway it is well known that 99.9% of insurance agents are not qualified and competent and have character flaws . The reasons you gave to justify robbing your clients with products of high commission is self evident and you are trying to blame it on your company.
Have you read the FAA? What have you learned of your responsibility, your fiduciary duty to your clients, the fit and proper requirement and how you should approach your clients?

Wilfred Ling said...

Anonymous May 10, 2010 2:39 AM said:
Commissions are not determined by agents. Products are designed by the insurers and insurers are regulated by MAS. Like all middlemen, agents sell because the products are there and every products has its merits.

There is no law in Singapore that prohibits financial advisers from recommending other products that are not carried by their own principal. There is also no law prohibiting the financial adviser from charging a fee.

However, many insurers and IFA firms prohibit their own advisers from charging a fee. Why? Because if advisers can charge a fee, they would not sell those high profit-margin products. Do you know that advisers earn commission based on 3 – 6 years on a declining basis but product manufacturers earn a perpertual revenue as long as the client does not terminate the product? Are not these advisers fools to keep on selling? Many advisers do not realized that they are being made used of. Advisers must keep on selling products to earn a living while product manufacturers earn a perpertual revenue once the sale is closed. Advisers who want to escape from this trap must quit from this kind of working environment and join firms which support the fee-based model.

The cost cited by this anonymous persons are mostly not valid as it is based on traditional thinking. Why there is any need for photocopy perhaps other than to photostate the client’s NRIC? Also, aren’t beautiful brochures provided by the product manufacturers already? There is also no need to incur any cost in traveling like ERP – just ask the client to come to the office. There is also no need to treat meals and give free gifts to friends and potential clients. Have you seen doctors giving free gifts to their potential patient? Only salespersons need to do all these to entice the prospect to buy something.

Many agents claim that they start with $0 unlike their salaried counterpart. But that’s only the half truth. Agents’ commissions are also unlimited unlike their salaried counterpart.

There are always two sides to a coin. There is always a choice – there is no need for an agent to be a salesman.

Anonymous said...

To answer the thread - fair remuneration, I think there are two key areas of consideration:

1. "fair" - what is deemed fair? Does all job give fair compensation for the job done? Is giving $6000~$8000 to a middle-level manager for pushing paper and delegating jobs around seemed "fair"? If you ask around, a lot employees will feel that they are underpaid and overworkd and life is unfair to them. To the employers, they feel that they are overpaying and the staff are short changing them by not handing up projects that were due yesterday or skiving off work by facebooking, taking longer than 1 hr lunch breaks and arriving late and leaving early. To the consumer, they will always want to pay as little as possible or zero to the middleman. While for the middleman, there are legwork, paperwork, operational costs, knowledge, experience and opportunity cost that he gives into the deal, so he wants to expect a good pay. So what is fair?

2. "remuneration" - from the business dictionary, this means "Reward of employment as pay, salary, or wage, including allowances, benefits (such as company car, medical plan, pension plan), bonuses, cash incentives, and monetary value of the non-cash incentives.".

So for the self-employed entrepreneur-businessman insurance agent, just like any other business, what would be the remuneration that would be enough to keep him in the business?

Anonymous said...

Anon May 10, 2010 9:17 AM,

you are NOT suitable for this business. You have character flaw. You should switch to a job that will not tempt you to do unethical and immoral things.

Wilfred Ling said...

Anonymous May 10, 2010 9:17 AM said:
To close a $500/mth case is not easy. Maybe only 1 such case a week.

$2000 per year is less than $200 month. if this is too high, then how do you expect anyone to survive selling insurance?

In my opinion, it is not a fair remuneration.


I believe the above was a typo and the anonymous meant that he can only close one such case per year?

First question – why is it so difficult to close a regular monthly premium of $500? Because nobody trust the salesman. That’s why it is difficult.

Second question – why is there a full reliance in selling insurance for a living? Because the adviser can only do that as mandated by his product manufacturer / Principal.

There are so many financial matters that are unrelated to insurance which the adviser can help their clients with. Of course these earn no commission but there is nothing stopping the adviser from charging a fee for actual service rendered. I can give one classic example which financial advice is required but no commissions are earned. For example – CPF rules have become too complex for ordinary folks to understand. Yet, CPF rules affect everyone’s residential purchase, retirement, medical, etc. If the adviser can charge say $200 per consultation for the client to seek advice on CPF rules and if there are 20 of such cases per month, the earnings will be $200x20=$4000. Of course, among these 20 cases, some clients would probably have other needs like insurance etc.

I believe many financial advisers cheat others out of desperation. They could only sell the prescribed products because their contract with their Principal mandate that they could only sell products from their Principal. These advisers must make a decision to leave their Principal to another which is fair and logical.

Anonymous said...

To: Wilfred Ling

You might not be aware there are more than just "photocopying cost". For your business model, you may think it is just photocopying NRIC. Let me clarify: photocopying includes printing (since using the same Xerox machine) and materials that are mailed out.

As for the brochures - maybe for your business model, somehow they are gotten free. But for others, these colourful brochures has to be purchased.

As for the starting cost - Agents' do not have unlimited income as you claim. The moment they quit from the business, they also lose income, same for any employed staff.

It is easy to generalised and stereotype but I suggest you see things from both sides.

Anonymous said...

As long as you are on one side, you will always see the other side differently and trying to justify things should be done in a different way.

So it is ok that you don't buy any life insurance. And may be it is ok you don't own any property. Or better still you don't need to buy bonds, shares, unit trusts, ETFs, commodities, etc.

I think everything all boils down to "Greed" and "Ignorance".

If you can't contain your "Greed", please always prepare to be cheated by others who are equally greedy.

Seriously, I can't help to NOT pity those who lost their money in whatever mini-bonds. I also don't believe they are totally 'ignorance' of what they have bought. They just choose to act 'ignorance'. Sorry, I should say they are 'Greedy' for more?

If you refuse to learn more and remain as "Ignorance", rest assure there will be people out there to "cheat" on you whether intentionally or out of their own "Ignorance".

So to avoid all these troubles in life, may be it is easier to:
- not to buy any financial product
- not to own any property

Are you capable of doing that?

Wilfred Ling said...

Dear Anonymous May 10, 2010 10:52 AM,

Advisers can reduce their cost by working smart. Why need to print anything unless it is to close the case? There is no need to print and mail out anything. There is this thing call E-Mail which comes FREE which advisers can use to email BIs and other materials.

Actually there is no need to show any brochures to the client. If the recommendation is based on client's needs, the BI is more than sufficient to show all material information. Many brochures highlight the advantages of the product but downplay the fineprints. Also brochures are not the documents which the client signs on. So not showing brochures can be a good thing to avoid misunderstanding. Anyway brochures do NOT need to be purchased because it is indeed FREE provided by the product manufacturers. Advisers who have been buying brochures should question their firms why. Perhaps these agents are forced to buy because they distribute brochures indiscriminately. Indiscriminate distribution of brochures is a typical salesmanship method and bad for environment.

Agents' commissions are unlimited because the more they sell, the more commission they get. Unlike salaried person who may work like crazy and is still getting the same pay. That is why agents have no fixed salary as their income has no ceiling.

Anonymous said...

Anon May 10, 2010 10:13 AM,
Let me remind you no 2 advisers are created equal.One with many tikam tikam certs from college of insurance and another one same tikam tikam certs plus a CFP, obviously the one with CFP will command more respect assuming both equally honest. Which one should be paid more? Again not sure , it depends what they give to or do for their clients, scope of their service, the complexity of the case etc. If one peddles a product and filling up forms does he or she expect to be paid more? Definitely not.
Remuneration is commensurating with work and expertise. Is this fair.? But insurance agents expect to be paid a lot for form filling, photocopying, traveling , meals etc and all these have nothing to do with the client, right? They don't add value. Why pass these costs to the clients? Never mind, if you are doing a proper job and benefit the cleints financially and meeting their goals.The problem is the agents feel justifiable to rob them by dumping , by conning them into buying a high commission product which is rubbish and cannot meet the cleints' needs adequately. Look ,the client is supposed to pay you and NOT you paying yourself by choosing the products that earn you high commission to dump on them.This is robbing without the clients knowing it.The clients trust you and you betrayed their trust. Many policyholders realised this after so many years.It is too late. So much time is lost.
I am proposing to MAS that policyholders who suffered this loss of money and time should be compensated by the company because of the incompetence and conflict of interest of the insurance agents who sold the products.
Let me make this statement again..99.9% of the insurance agents are not qualified and incompetent to dispense responsible and competent financial planning.

Anonymous said...

Wilfred Ling is correct to say that consumers are fools to have bought wholelife and endwoment products.
Despite the rotten returns ,insurance companies continue to roll out products with a lot of frills to hide the rotten core and use the greedy insurance agents to peddle them.In other fields this kind of products would have been discontinued but why insurance companies continue and die die manufacture them?
The answer is this kind of products provide endless revenue and income to the company if the policyholders keep holding them. That is why the companies are willing to reward the agents with high commission to push them and at the expense of the buyers.Both the companies and the agents work hand in glove to rob the consumers.
The fools are the consumers because they don't what hit them until 25 years later when review by a third party taht they discover that they were taken a ride by their trusted and beloved sincere agents.
Imagine these products are loaded against the buyers.
1You kenna locked for life; once in you are shackled.
2. if you terminate you lose a lot
3.you are insured so low and yet you pay so much
4. you get low return
5. the agents told you it is saving plan and yet it is not your money and yours only when you surrender but you lose and the orphan money left the company keeps.
6. when you need money you have to borrow and pay a high interest rate higher than the return they pay your policy. isn't it strange? unfair, cheating?
7. when you make a claim they don't pay you your cash value. Why? another cheating, right?
The above are some only.
Look at the above and tell me whether the product is in your favour or the company? It is loaded against you from the start and you don't even have a say, from the contract term to the so called benefits.
Now the middlemen, the insurance agents are your betrayers and traitors who willingly do their biding/command because of the good commission. They are the traffickers and runners for the companies to poison your financial life with these toxic products like wholelife and its variations.
You know what penalties the drug traffickers get when caught.The same should be applied to them.

Wilfred Ling said...

Anonymous May 10, 2010 2:04 PM said:
“Wilfred Ling is correct to say that consumers are fools to have bought wholelife and endwoment products”

I didn’t say that, do not put words in my mouth. I said that advisers are fools to keep on selling products to earn a living while the product manufacturers earn perpetual revenue for each sale close.

Anonymous said...

Wilfred Ling, what is the difference?. Both are fools. One is a fool of the other fool. One is a fool to peddle product that generates income to the manufacturer , the other is a fool to be fooled by a proxy of the manufacturer. And what a fool to argue over it.

Anonymous said...

By now you should know who the sales champions of the industry. Their ceo called them super dupers. These sales champions sell by brochures becuase they push products. They know what their clients need even before they meet them. No need fact find and need analysis they have this gut feeling what their clients needs. That is why they are super dupers. Their clients got duped even from a distance telepathically . Indeed the super dupers, the sales champions.

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