Potential conflict of interest

I just wanted to get this out of the way, I have a potential conflict of interest with regards to new Great West Life insurance policies. As I have talked about here in the past, I am paid primarily through commission for selling polices. The way the commission structure works is shown below in an example.

Say I sell a Term 10 Life policy, which has an annual premium of $1000. I get paid a basic commission of 40% of the first years premium, or in this case $400. Now, this rate is pretty standard for all carriers, they pretty much all pay the same basic commissions.

Term 10 = 40%
Term 20 = 50%
Living Benefits (CI, LTD) = 55%
Whole Life, Universal Life, Term 100 = 70%

There is a slight conflict if one were to try and up sell to a more expensive carrier for an equal product, but that doesn't really ever happen as the market pressure for the lowest rate keeps the least expensive policies on top.

Now the part where the conflict comes in, is that there is a second layer of compensation, sometimes called a Bonus or Over ride. The issuing company decides on what Override they would like to pay to an advisor, it usually ranges from 100% to 150% of the basic commission. With GWL I used to have an override of 130%. So on the sample policy above, I would make $400 in base commission and then get a bonus or override of $520 for a total compensation of $920. The override is tied to a level of production, if you don't produce for the company you get a lower bonus. If you produce a lot you get a higher bonus. I received word that my production has not been high enough recently and my override with Great West Life has been reduced from 130% to 0%. Ouch.

I would love to say that the compensation doesn't determine where I place business, and to the most part it is true. I have companies I like dealing with, which includes GWL, and others which I can't recommend. All things being equal, I will always recommend the best product at the best price for my clients, however, I have to eat, and pay my bills as well. Taking more than a 50% pay cut for the same amount of work is hard to overlook. I have put a good amount of business with GWL over the years, I like them as a company, I like their product line especially their Group, Term and Living Benefits products. However, I like Equitable's Term just as much, I like RBC's Living Benefits just as much, and I like Manulife and Sun Life's Group just as much.

So if I have an equal product from another company which will pay me twice as much I am going to have to recommend the one that pays me better. Now this is not to say that I would ever recommend an inferior product just because I get paid more. I am talking strictly apples to apples, comparisons here. Manulife's group product is just as good as GWL's, RBCs Disability policies are just as good as GWL's. The rates are often nearly identical as well. So is it wrong to recommend an equal product to a client on the basis that I know I will make twice as much commission?

In short, I won't be recommending Great West Life policies any more unless absolutely necessary.

I think the only way to solve this is to provide total disclosure on what I get paid. In the next few days I will be working on a new disclosure statement which breaks down my commissions and bonus rates for all the companies I deal with.


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Robert Reynolds, GBA
Certified Group Benefits Advisor
Hendry McKenzie Reynolds Employee Benefits Ltd.

Toll Free: 1-888-592-4614
rob@hmrinsurance.ca
www.hmrinsurance.ca

E.O. E.