What would Heraclitus think of broker commissions?

The government’s Quality of Advice Review is re-examining the issue of commissions across the financial services industry, including the commissions brokers receive from insurers.

Sloan is a fan of the Greek philosopher Heraclitus. The Ausure general manager’s biography page has a quote from the philosopher: “The only constant in life is change.”

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Sloan said this quote was posted on the wall in the office of Insure247, the insurance comparison website he founded that’s now part of the Ausure network.

“It was to let the stakeholders know that everything that we take for granted today, may change tomorrow – and just to be ready for change,” he said.

Heraclitus’ words of wisdom inform Sloan’s stance on commissions.

“You always have to have a pragmatic approach,” he said.  “What I mean by that is the people who help the top end of town and help medium sized businesses, those businesses are used to paying their accountant a fee, they’re used to paying for those services,” said Sloan.

In contrast, he added, the other end of the market where entry level insurance products are the norm “it’s a bit more price sensitive and we’ve worked really hard to get that mix right,” he said.

Suggesting that he likes the way commissions are part of the broking system, he didn’t directly answer whether commissions can cause brokers to give biased advice. Instead, he pointed to another commission related issue.

“What I would say is that as brokers have started to look at this commission level we’ve found that, with some of the products that were distributed, some insurers have used that commission to attract new business into their direct model,” he said. “So in a way, it’s giving those direct insurers an unfair advantage where we know that the outcomes that clients get are better through brokers. The complaints prove that,” he added.

Sloan said market forces will have a role in deciding where the commission issue finally settles.

“But I think most brokers do a great job of justifying whatever they charge or receive and it’s unlikely that a broker would be making a decision based on commission alone,” he said.

One interesting feature of Heraclitus’ philosophy, according to britannica.com, was his belief in the underlying connection between opposites like good and evil, hot and cold or health and disease. Perhaps this suggests the different sides of the commission debate are more connected than they realize?

“I think this is a really good debate and conversation,” said Matthew Bates, managing director of the brokerage Bell Partners Insurance, in a recent interview with Insurance Business. “I’m actually for removing commissions on certain types of policies – but not all at once – because I certainly think anything to make our industry more professional is a really good thing.”

Bates described the commission issue as a double-edge sword.

“So I think it’s a great way to protect the customer but I’m not convinced about removing all commissions across the whole industry from day one,” he said.

The commission system, he said, does allow the holders of domestic polices and small business owners to get advice they generally can’t afford to pay for. These customers, he said, are often the “least equipped” to make insurance decisions.

Read more: Is it time to end some broker commissions?

Bates was adamant that brokers should be providing the best possible advice.

“I certainly couldn’t sleep and know that brokers were choosing one insurer over another because of higher commissions. That’s not right,” he said.

“Broking is a relationship game, and we build long term trusted relationships with our clients. If you don’t do that and instead make decisions around the highest commission you’re not acting in their best interest,” he added. “So that argument of having commissions removed to increase that professional standard is why I’m more in the ‘for’ camp [favouring no commission] than the ‘against’.”