Windfall For Jumping Ship
The good times are back! And it has spread to the life industry; in the form of firms dangling top dollars to lure top performers. The Straits Times article – Windfall for jumping ship, published on 10th July 2010 highlighted this phenomenon.
According to the article, “total compensation package could range from a few hundred thousand dollars to $1 million on top of usual commissions”. And “to sweeten the deal, the insurer will pay a portion of about 30% of the compensation package as an upfront cash incentive when the agent joins the firm”. These are to compensate the agents for losing the renewal commissions on the old policies when they jump ship. Of course there are no free lunches in this world. The package is tied to a sales quota.
The article also pointed out the risk of policy churning. Policy churning is the surrendering of an old policy and using the proceeds to buy a new policy to generate commissions for the agent. The policy holder would suffer financial or underwriting consequences. Under pressure to meet sales quotas, the agent may be tempted to take and easy way out and resort to churning. Superior products or ease of servicing are common excuses to churn. To the non-discerning, these may sound like legitimate reasons to switch policies.
Money is not the only draw. Administrative changes at a large insurer have became a push factor. The prospect of being taken over by a bitter rival was too much to bear.
Going for better remuneration is not wrong. Afterall, employees in many trades change employers in search of better compensation. It should not be expected of anyone to work for free. Everyone has a family to support. However, the financial advisory business is quite unlike other occupations in that there are plenty of personal relationships involved. Personal information like financial status, health status, family relationships and dreams are divulged. Salary is derived from the client, be it in the form of commissions or fees. Thus, it is not difficult to understand that clients have stronger feeling when the adviser change their firm. The decision to change firm for better compensation must be balanced with the interest of the client. This is easier said than done.
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Tags: Ethics
