Steadfast drives remuneration transparency, reflects on NIBA code reversal
Steadfast CEO Robert Kelly says the network is a “forerunner” in driving transparency of remuneration, and that the previous version of the National Insurance Brokers Association (NIBA) code was “representative of consumer sentiment and government interpretation of the views expressed by the Hayne Royal Commission”.
As insuranceNEWS.com.au has reported, NIBA’s Insurance Brokers Code of Practice was republished on November 1 after a requirement to disclose remuneration, including commissions, to small businesses was removed.
The earlier version of the 2022 code required brokers to disclose commission to all individual or small business clients, but the latest change restricts the requirement to retail clients purchasing defined general insurance products, as outlined in the Corporations Act.
Mr Kelly was asked about the latest code changes at Steadfast’s AGM and spelled out the company’s position.
Steadfast has its own code, he said, which all network brokers must sign up to, and which encourages transparency with all clients. The Steadfast code seeks an undertaking from brokers that “all remuneration will be transparently documented in their transactions with their client base”.
“The reality is that we were one of the drivers in the Australian financial services market on transparency of [remuneration],” Mr Kelly told the meeting.
“We were forerunners in changing the way we thought that consumers should be informed and we are a great supporter of transparency.”
Speaking to insuranceNEWS.com.au, Mr Kelly said the Steadfast code, developed three years ago, was quickly accepted by most of its brokers.
“They’ve all signed it. Anybody who didn’t sign it, left our network.”
Mr Kelly says it makes more sense to define retail clients based on “their status in the world”, rather than the products they are buying.
“Most bizpack buyers are retail clients. They usually have less than 20 employees. So [remuneration] should be transparent.
“That fits the ACCC’s view of what a retail client is – someone who needs the advice because they don’t have the expertise within their own organisation, or their own knowledge base, to make a decision about something, so they need someone to advise them, ipso facto their insurance adviser's recommendations.
“What we are saying is if you’re a retail client then you should be able to get full disclosure – not ‘we’ve got to give you full disclosure on your house, but we don’t have to give it to you on your public liability, or your tools and trade, or your workers’ comp’.
“Part of the advice should include what that advice costs.”
He says that NIBA’s previous version of the code “was the correct one” from the consumer’s position, but some brokerages didn’t believe the requirement to disclose remuneration to small businesses was necessary and threatened to leave the association. He says they argued there was no need to go beyond the Corporations Act.
“NIBA received a representation from [some brokerages] to say that if they continued with that code in its form they would leave NIBA and set up their own association that looks after the brokers’ interests better.
“I think that’s naive, was ill-informed and that NIBA, with Phil Kewin at the helm, is very representative of brokers, their rights and obligations.
“The new code was a very good document.”
Mr Kelly believes those brokers arguing against transparency are primarily concerned about client reaction to how much it costs to have their advice on the product they have just been sold.
“When we launched the Steadfast Broker Code to our network I had a fellow in Melbourne say ‘my God, if I’ve got to be that transparent, what are my clients going to say when they find out how much I earn?’ My answer was that this is a matter you must reflect upon ie: the value and cost of your advice to the clients you serve.
“That’s the whole nub of the problem when you consider transparency.”
Mr Kelly believes NIBA compromised to placate some of its members, and that the issue should be revisited in the light of recent criticism.
As insuranceNEWS.com.au has reported, Quality of Advice Reviewer Michelle Levy, consumer groups, industry expert John Trowbridge, and Insurance Brokers Code Compliance Committee Chairman Oscar Shub have all criticised the removal of the requirement to disclose remuneration to small businesses, with Mr Shub saying he is “deeply concerned”.
Mr Kelly suggests NIBA should survey its membership and seek the “rank and file view”, before any further amendments are considered.
“I think you have to say to yourself if the IBCCC, which is there to adjudicate, doesn’t believe that the [previous version of the code] should have been superseded, and is publicly admonishing NIBA for going back, then maybe NIBA needs to consider if another review is necessary.”
NIBA was unavailable to comment today but has previously said that reverting back to a focus on retail clients, as defined by the Corporations Act, provides consistency with the Quality of Advice Review recommendations and government response and avoids “additional administrative complexity for brokers and confusion for their clients”.
NIBA has also pointed out that many brokers disclose commissions to small business clients of their own volition, and that it is proud of the 2022 code, which includes a number of major improvements on the 2014 version, including outlawing contingent remuneration such as volume-based commissions.