Skandia stops paying up-front commission
Intermediaries will no longer be paid up-front commission from Swedish mutual Skandia, in a move it says is in the best long term interests of end customers rather than short term sales.
Skandia said it expected to lose sales as a result of the change, because a number of competitors continue to pay such commission.
Bengt-Åke Fagerman, chief executive said: “We are a long term customer governed company and that is the starting point for all our operations. We believe it is right and reasonable to pay commission because advice is of high value to customers, and those who execute that service must be paid for their work regardless whether they are employed by Skandia or another company. But the design must encourage long term customer benefits, not quick [sales] and through up-front commission there is a risk that the customer is steered towards the company where the salesperson gets most remuneration at the point of signing.”
“Only a few insurance companies have actively rejected change and instead raised their up-front remuneration. This is regrettable, but I have high hopes that many insurance companies will follow us. Commission that prioritises short term views over customer benefits is one of the issues that has contributed to the poor reputation of the industry, and is something we as an industry must repair if we are to actually through actions, not just in words, show that we stand on the side of our customers.”
Much of Skandia’s sales go through external intermediaries, who are paid through commission. The larger intermediaries often already have more long term remuneration structures in place, however Skandia expects its decision will lead to “negative consequences” because some intermediaries will steer their sales to companies where they can still obtain up-front commission.
The insurer halved its up-front commission a few years ago, and saw sales hit then, Fagerman said.
Skandia, which reverted to mutual status in the past year, has some 2.5 million customers across Sweden, Denmark and Norway, and claims total assets of SEK460bn (€51bn) across its insurance and investment management businesses.
The Swedish Financial Supervisory Authority recently stated that it would like to see commission removed from all sales involving financial services and products to consumers.