Fee model for insurance agents being considered

Panel to view interim period plan

“The committee has an open mind... it will deliberate on the suggestion made and come to a view in due course,” Committee on Investor Awareness and Protection Chairman D Swarup said when asked if the committee would recommend commission and fee structure during the transition phase.

Earlier, in its consultation paper, the committee has proposed elimination of upfront commission paid to insurance agents by April 2011.

“Immediately the upfront commissions embedded in the premium paid (to agents by insurance companies) be cut to not more than 15 per cent of the premium. This should fall to 7 per cent in 2010 and become nil by April 2011,” a consultation paper prepared by the committee had said.

According to the draft suggestion, sale of financial products would not earn any commission to agent or distributor after a specified date fixed by the individual regulator.

The committee has recommended self-regulatory organisation (SRO)-driven regulatory system for financial advisers. The SRO will be a statutory body with punitive powers over its members.

However, the final decision on the agent’s commission would be taken by the insurance regulator IRDA. The committee was appointed to suggest measures to protect investors’ interests and improve financial literacy levels.

The committee, headed by Swarup, who is also the Chairman of the Pension Fund Regulatory and Development Authority, on Wednesday held discussions with financial services providers and other stakeholders before coming out with the final recommendation.

The committee would submit its final suggestion by the month-end, he said.
As per the draft suggestion, all retail financial products should go no-load by April 2011, as it is under the New Pension System where there is no entry and exit charges.
The committee has also suggested setting up of a Financial Well-Being Board of India (FINWEB) to improve financial literacy.

“FINWEB... will have the twin objectives of building a financially literate population and
bringing order to the adviser market to facilitate good financial outcomes from financial decisions,” the paper had said.

The committee also said there should be a disclosure standard developed by nodal agency FINWEB to reveal the income, direct or indirect, that an adviser earns from the sale and maintenance of a product, both from consumers and manufacturers.