Our latest poll question is:

If risk commissions are banned, will your practice charge a fee for providing your services at claim time?

If the Labor Government is returned, we will see the continuation of the Future of Financial Advice reforms consultation process, where one of the key questions being asked is whether the proposed ban on commissions from 1 July 2012 should also include commissions on risk products.

If advisers are effectively forced to charge a fee for the insurance advice they provide, does this mean charging fees will also extend to the claims process?

Many advisers consider it a privilege to be able to assist their clients navigate their way through making a claim on their policy, whether that process is difficult or easy (and it’s not often easy!).

But while the thought of charging fees to clients who have submitted insurance claims is a foreign concept to many, possibly most advisers, it is a process that already takes place within some advice practices because of how they are set up.

For example, there are practices that will provide initial contact between client and insurer before offering the client the choice of either conducting the rest of the claim process on their own or involving the advice practice for a fee that reflects the level of their involvement.

Many advisers have pointed out that the commissions they receive on all the policies they write subsidise the often substantial time and effort that can be involved in helping those clients who make claims.

If risk commissions are banned and all clients are charged fees for the insurance advice they receive, many advisers have been questioning how they will be able to afford the time it takes to properly serve their clients’ needs at claim time.

Will some advisers strike agreements with their clients to extract a proportion of the claim benefit payment as their fee?  Will other advisers choose to, or be forced to consider charging a fee, irrespective of whether the claim is successful?

Are there alternative solutions?  Are there methods advisers use now to help their clients at claim time that will still be effective if risk commissions are banned?

We’d like to know what you think.

Our poll question is:

Following the August 21 Federal Election, which Government will deliver a better financial services industry for advisers and consumers?

The answer to this question may be simple for some, but difficult for others.  For example, would a new Coalition Government be better for advisers and the industry itself, but leave consumers less protected?  Would a returned Labor Government serve the interests of consumers, but at the expense of a less competitive financial services sector?

Successive Federal governments have agitated for serioius financial services reform.  For the many who have spent some time in the industry, they may recall the substantial changes made by the previous Coalition Government: the Financial System (Wallis) Inquiry, leading to CLERP 6 recommendations, leading to the Financial Services Reform Act, leading to unintended consequences, leading to the FSR Reform Amendment Act.

The present Government has instituted three key inquiries in its first term: Ripoll, Henry and Cooper, where many recommendations from all three will inevitably be legislated if the Government is returned.  But which recommendations?  What will be the impact and/or consequences?

Is it possible that one Government can enact policies that will see a better outcome for all elements of the financial services community, including industry funds, retail funds, life companies, advisers, licensees and of course, consumers?

Or is it impossible, almost by definition, that one Government can structure a financial services industry that will be to the benefit of all these sometimes conflicting elements?

To what extent will advisers be swayed by one of the key policy differences between Government and Opposition, namely that a Labor Government will legislate to control, to an extent, how an adviser is remunerated, but a Coalition Government has said it will not?

We are not asking how you will vote on August 21.  Your answer to this poll question may indeed reflect how you will vote, but there may be other considerations that will lead you to cast your vote a different way.

Tell us what you think.  As always, we will appreciate and value all (measured) comments you may wish to add…

Early adviser responses to the Cooper Review recommendation to ban risk commissions in super, suggest there will be a substantial and adverse impact on consumers, advice practices,  tax payers and social welfare payments.

All of these areas, such as the impact on the viability of many advice practices, are important and will be addressed in forthcoming polls.  But the focus of this poll question is concerned with the potential impact that a banning of risk commissions in super may have on the cost of insurance.  Our question is:

Will banning risk commissions in superannuation lead to lower insurance premiums?

To recap:

Cooper Review Panel Recommendation 5.12 reads:

Up‐front and trailing commissions and similar payments should be prohibited in respect of any insurance offered to any superannuation entity…

The Panel’s reasoning behind this recommendation is based on the contention that commissions form a meaningful component of an insurance premium.

Logically, if commissions are removed from the premium, insurance costs should be cheaper and superannuation account values will increase because a greater proportion of the super contribution will be invested, rather than spent on insurance.

Premiums on existing retail life insurance products can reduce by around 35% if the adviser dials commission down to zero, while level commissions on group risk products typically load the base premiums by around 15% - 20%.

But in reality, would premiums reduce by these levels if risk commissions in super are banned?

Even though they are in a competitive environment, could life companies see this as an opportunity to extend their profit margins, as some have suggested?  Meanwhile, others point out that if a risk adviser is placed on a salary by a bank or industry fund, the company still needs to account for that salary expense within the premiums that are eventually paid by the member.

Likewise, if superannuation trustees ‘import’ insurance advice for their members, there will naturally be a cost for that advice which must somehow be paid.

What is your view?  Will banning risk commissions in super bring down insurance premiums a little or a lot, or not at all?  Will the superannuation member ultimately be better off, or will they pay elsewhere?

Let us know what you think…

Our latest poll question asks:

Do you believe payment of commissions on risk products represents a conflict of interest to the consumer, real or perceived?

Our poll is based around statements made by the Financial Services Minister, Chris Bowen, on the question of banning risk insurance commissions.

Mr Bowen’ statements were made as part of the announcement last week of the Government’s industry consultation process for its Future of Financial Advice reforms, which Mr Bowen has said will include discussion about whether to extend the ban on conflicted remuneration structures to risk insurance.

Our article last week on the Government’s industry consultation agenda sparked a passionate response from advisers who were highly critical of the prospect of banning commissions on risk products, many challenging Mr Bowen to spend more time with advisers, in order for him to better understand the nature of life insurance and how, in reality, it must be sold, not bought.

Mr Bowen told an industry audience last week he accepts that banning risk commissions may indeed have an adverse impact on underinsurance, but at the same time, his Government must address the issue of conflict of interest, real or perceived, from the point of view of the consumer.

So, while advisers have presented a good case about the potential damage that could be caused by banning commissions on risk products, has enough consideration been given to addressing the other side of the coin, namely the issue of conflict of interest?

The issue of conflict of interest in relation to adviser remuneration has been brought into focus mainly by well-documented collapses of financial services firms, which have wiped out the long-term savings of thousands of Australians, but where risk insurance commissions were not a factor.

The Government is now considering whether the banning of all commissions, including risk insurance commissions, will lead to the development of greater public confidence in the financial advice sector.  In relation to commission on risk products, Mr Bowen appears to be considering the trade-off between a blanket banning of all commissions and the greater public confidence that may be generated, against the potential worsening of the underinsurance dilemma.

One adviser last week did put forward his suggestions as to how to remove conflict of interest on risk commissions:

1. Remove APL restrictions and force all dealer groups to allow advisers access to all players in the market.

2. Ban commission overide payments to dealer groups based on volume. Maybe that will force some groups out or adviser splits up, who knows.

3. Place a longer responsibility period on the cover, only for re-writes to another company and not client cancellations.

What is your view about conflict of interest in relation to risk insurance commissions?  There is a solid argument about how banning risk commissions may worsen the underinsurance crisis, but what are your views on the other side of the coin?  As the Government consults with the industry on this question, this is a key moment to have your voice heard…

Our simple poll question is:

Do you support the Government’s ‘Future of Financial Advice’ reforms package?

Our thanks to the many advisers (and consumers) who have already commented on our initial story (see Government Bans Commissions…).  The majority of those comments indicate adviser opposition to not being allowed to determine the nature of their remuneration in a future where they believe less consumers will be able to afford financial advice.

However, the two overriding principles that have guided the Government’s reforms are:

1. Financial advice must be in the client’s best interests - distortions to remuneration, which misalign the best interests of the client and the adviser, should be minimised
2. In minimising these distortions, financial advice should not be put out of reach of those who would benefit from it

Do you agree that the banning of commissions (except on risk) and the other reforms will achieve the above aims?

Click here to review the Government’s ‘Future of Financial Advice’ reforms package.

Time to have your say…

Our latest poll is taking the pulse of advisers on whether they are considering a move to fee for service.

Our question is:

Will your advice practice commence transition to a fee for service remuneration model in the next twelve months?

The debate over commissions versus fee for service will not go away, and has seen new layers added over recent weeks:

• The FPA has backed the retention of commissions as a remuneration option for risk products
• Godfrey Pembroke and Hewison & Associates has each declared it will move to an exclusively fee for service advice model, including life insurance
• New business tools are emerging to assist advisers looking to move to fee for service models (see Fee for Service Business Tool)

While the AFA and many financial advisers continue to maintain their stance on the need for the industry to allow advisers and their clients the choice of remuneration models (accompanied by appropriate disclosure), there is growing impetus for a future financial advice industry that totally separates advice fees from products, especially across superannuation and investments.

We want to know whether your practice is looking at fee for service, at least for super and investment advice, and will be commencing this transition in the coming year.

While we await any developments that may emerge as the industry consults with regulators over adviser remuneration (as recommended by the Ripoll Inquiry), we want to know your intentions now.

Are you waiting for more developments or resolutions or legislation or are you commencing a move to fee-based advice before you may be forced to do so in future?  Or are you fed up with the debate and believe a commission-based practice, with full disclosure, will continue to ethically and efficiently serve your clients?

Tell us what you think.  Cast your vote and make your considered comments below.

The question is simple, but the answer is complex.

It makes sense to picture a unified adviser organisation that represents the entire financial adviser community, where a single voice will speak louder than the sometimes fragmented individual voices of the FPA and the AFA.

As Matrix Planning Solutions Chair, Pieter Franzen, points out in his open letter calling for a merger of the two Associations:

“Each organization … has strengths that support the advice profession.  We believe that one of the associations has a strong governance and professional standards capability, whilst the other has clear strengths in building adviser relationship skills and developing the next generation of advisers.”

While each association holds similar philosophical positions on many issues, two key differences that need to be addressed are:

1. Future adviser remuneration models.  The FPA supports a fee for service model for investment and superannuation advice, while the industry still awaits announcement of its position on future remuneration structures for risk insurance products.  The AFA believes advisers and consumers should be given a choice of remuneration models that include commission as one option.
2. The FPA holds itself to be a professional organisation that sets the standards by which its members operate, similar to accounting associations.  The AFA is more a representative body advocating the interests of its members.

Advisers who have already contacted riskinfo hold a range of opinions. One adviser believes that neither the AFA nor the FPA has been pro-active in supporting non-aligned financial planners.  He believes the proposed merger will be ‘a merger of paper tigers’.

Some advisers have commented that the thought of being a member of an association that speaks on behalf of all advisers is one that resonates, while others point out that the accounting profession appears to have been well served by its two peak associations over many years.

What is your opinion?  As we said, it’s a simple question, but while the answer is complex, we want to know whether you agree or disagree in principle with the question:

Should the AFA and the FPA merge?

Our latest poll considers the question of industry consolidation.  We are seeking your opinion as to whether you believe your clients will be disadvantaged by less choice and potentially less flexibility that may result from fewer institutional players in the market.

Our question is:

Do you believe that more life company consolidation will have a negative impact on consumers?

At his company’s AGM last week, TOWER Australia’s Managing Director, Jim Minto, raised his concerns about the  potential impact to consumers of fewer companies operating within the life insurance market:

“The transformation of the market to fewer, larger players creates a concern that Australians will lose choice amongst life insurance providers as well as see a loss of independent companies and innovative solutions.”

… large players with power can create reduced choice and higher prices

“We will potentially see Australians being offered higher margin products as a result.  Life insurance is not a price and value sensitive consumer commodity product and large players with power can create reduced choice and higher prices,” warned Mr Minto.

Others may present an alternative case that consolidation, if managed efficiently, will lead to greater economies of scale, which could in turn have a positive impact on product pricing.

Economies of scale may also allow investment in expensive, cutting edge, customer service technologies that may not otherwise be feasible (eg the next generation of electronic underwriting and online client management services).

But advisers and dealers are at the sharp end of the life insurance/financial planning market place and know their clients best.  What is your view?  Will more industry consolidation lead to a positive outcome for your clients?  Or do you believe your clients intetrests will best be served in their ability to choose between a broader array of life company ‘propositions’?

Have your say…

Our latest riskinfo poll asks:

In future, do you support commissions being paid to advisers for life insurance products only?

Adviser and other industry opinion on the issue of commissions appears to fall into three main categories:

1. Retain commission as a remuneration option across all financial products
2. Retain commission for risk products only
3. Abolish all remuneration by commission

Based on adviser comments from previous polls and other industry feedback, there is a proportion of advisers who argue that remuneration on the sale of life insurance products should be considered as separate from the broader debate over payment for investment and other financial advice.

This point of view is supported by a number of life companies, by the Financial Planning Association (FPA), and by the Ripoll Inquiry itself, where Mr Ripoll has previously confirmed to riskinfo that life insurance products should be considered separately in this debate.

Many in favour of completely abolishing commissions argue that the financial advice sector has been tainted by issues, both real and perceived, as a result of commission payments, and that removing commissions entirely will allow the industry to move to a more ‘professional’ standing.

Meanwhile, the argument in support of retaining consumer choice is best expressed by the Association of Financial Advisers (AFA), which holds that the question of how advisers should be paid is for the adviser and his/her client to determine, as long as there is full disclosure.  The AFA has long argued this debate should be about the value and quality of advice and its price, rather than simply about how the price should be paid.

The outcome of this debate is yet to be determined, with the Ripoll Inquiry recommending that the financial services industry and its regulators collaborate on the issue of adviser remuneration.  This is why your opinion is more important than ever.

What is your view?  Should commission be retained for risk products only?  Should commission be abolished all together?  Or should commissions continue to be allowed as a remuneration option for all financial advice?

Have your say.  Add your comments.  Make your voice heard.

Recommendation 4, on ‘ceasing payments from product manufacturers to financial advisers‘, has attracted the most interest from the advisers.  71% of respondents in the latest riskinfo poll support some, but not all, of the Inquiry’s recommendations, with the most opposition being directed at Recommendation 4.

We are now asking advisers a  more specific question:

Do you support Ripoll Inquiry Recommendation 4, regarding ceasing payments from product manufacturers to financial advisers?

We qualify this poll question by making an assumption that Recommendation 5, on the future tax deductibility of financial advice, will be implemented.

Make your voice heard by voting on this question and add your comments, bearing in mind the industry and government are being encouraged to consult with each other to develop a solution to the ‘adviser remuneration question.’