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.’

Our simple poll question is:

Do you support the eleven recommendations made by the Ripoll Inquiry?

We have detailed the eleven recommendations below, recommendations that the AFA has welcomed as ‘… the dawn of a new era in financial advice’, and the FPA has also welcomed as ‘… sensible and practical.’

Early adviser responses have focused on the remuneration issue (Recommendation 4) with a range of views:

“The simple solution to remuneration to advisers is easily set. All ASIC have to do is set the maximum that can be charge in any product or purchase of a product via the PDS.”

“If fees/commissions are capped at the PDS level, to say the 4%, this will stop the storm/timbercorp debacles”

“When will it be realized that the current system works…. complaints seem to be coming from those that operate outside the regular system (and products)”

“The issue isn’t so much the cost of the fees, but the advice that was given to generate the fees”

Bernie Ripoll MP, Chair of the PJC Committee Inquiry into Financial Products and Services, told riskinfo that he believes his Committee’s aims of greater clarity and simplicity for the industry have been achieved, particularly in the recommendation to make it the legislated, fiduciary responsibility of the adviser to place their clients’ interests ahead of their own.

Mr Ripoll also emphasised to riskinfo the imoprtance of considering the eleven recommendations as a package, where the non-implementation of one or more of the recommendations may have an adverse impact on one or more of the other recommendations.

What is your view?  Make your voice heard by voting in our poll and also adding your comments below:

The eleven Ripoll Inquiry Recommendations are:

Recommendation 1

The committee recommends that the Corporations Act be amended to explicitly include a fiduciary duty for financial advisers operating under an AFSL, requiring them to place their clients’ interests ahead of their own.

Recommendation 2

The committee recommends that the government ensure ASIC is appropriately resourced to perform effective risk-based surveillance of the advice provided by licensees and their authorised representatives. ASIC should also conduct financial advice shadow shopping exercises annually.

Recommendation 3

The committee recommends that the Corporations Act be amended to require advisers to disclose more prominently in marketing material restrictions on the advice they are able to provide consumers and any potential conflicts of interest.

Recommendation 4

The committee recommends that the government consult with and support industry in developing the most appropriate mechanism by which to cease payments from product manufacturers to financial advisers.

Recommendation 5

The committee recommends that the government consider the implications of making the cost of financial advice tax deductible for consumers as part of its response to the Treasury review into the tax system.

Recommendation 6

The committee recommends that section 920A of the Corporations Act be amended to provide extended powers for ASIC to ban individuals from the financial services industry.

Recommendation 7

The committee recommends that, as part of their licence conditions, ASIC require agribusiness MIS licensees to demonstrate they have sufficient working capital to meet current obligations.

Recommendation 8

The committee recommends that sections 913B and 915C of the Corporations Act be amended to allow ASIC to deny an application, or suspend or cancel a licence, where there is a reasonable belief that the licensee ‘may not comply’ with their obligations under the licence.

Recommendation 9

The committee recommends that ASIC immediately begin consultation with the financial services industry on the establishment of an independent, industry-based professional standards board to oversee nomenclature, and
competency and conduct standards for financial advisers.

Recommendation 10

The committee recommends that the government investigate the costs and benefits of different models of a statutory last resort compensation fund for investors.

Recommendation 11

The committee recommends that ASIC develop and deliver more effective education activities targeted to groups in the community who are likely to be seeking financial advice for the first time.

This topic was one of a number of key issues discussed at the recent Million Dollar Round Table (MDRT) insurance industry meeting in Sydney, and forms the basis of our latest riskinfo poll, which asks:

Should adviser remuneration on replacement life insurance business be restricted to level commission only?

The argument in support of restricting adviser  remuneration on replacement policies to level commission only relates to discouraging the unnecessary movement of life insurance policies for motives other than what may be considered in the best interests of the client (ie to restrict the practice of ‘churning’).

There exists a small percentage of advisers who ‘churn’ life policies after the original responsibility period has ended in order to access another round of upfront commission on effectively the same business.

this practice … can potentially lead to rejected future claims

In addition to not being in the best interests of the client, this practice also reduces the average term of life insurance policies and can potentially lead to rejected future claims due to non-disclosure occurring during the replacement policy application process.

On the other hand, it was noted that within the general insurance industry, the practice of churning policies continues, even though all general insurance remuneration is paid on a level commission basis.

Naturally, there are many instances where it is in the best interests of the client to change their insurance policies, due to changed employment circumstances or product innovations or changed personal circumstances.

Should advisers who are providing this service for their clients then be restricted in their remuneration options simply because the new policy replaces an existing contract?

What is your view?  Should only level commission be paid on replacement insurance policies in order to dampen the incidence of churning?

Or does this penalise the majority of advisers who prefer upfront commission remuneration models, who are simply acting in their clients best interests by changing their policies?

This debate relates to:

1. Educational qualifying standards for those aspiring to provide personal financial advice
2. Monitoring of the quality of advice being provided to consumers by those already qualified

The focus for our latest riskinfo poll is on point 1 above (we will come back to point 2 in future polls).

Our question is:

Do you believe that educational qualifying standards should be raised for those wishing to provide personal financial advice?

Some advisers may consider that education standards are sufficiently high at present and that the issues lie more with the monitoring of subsequent adviser behaviour, while other advisers may have a view that entry standards should be raised.

For those advisers who believe that higher qualifying standards should apply, how should that be achieved?

• Should there be an industry-wide ‘minimum hours’ requirement for course work prior to undertaking examinations?
• Should the ‘pass’ mark for the examinations be set at higher levels?
• Should a single examination set be developed by regulators?
• Should training companies such as RG146 Training Australia, Kaplan and Pinnacle join forces to implement an industry self-regulated code of practice?

…there will be a proportion of new entrants into the financial services sector who may choose the ‘path of least resistance’

There are a growing number of training providers emerging in the financial services sector who offer a spectrum of courses and qualifications, whose differing fee levels may reflect the quality of their output.  With human nature being what it is, especially in the present economic climate, there will be a proportion of new entrants into the financial services sector who may choose the ‘path of least resistance’, which may or may not be beneficial to the industry over the longer term.

RG146 Training Australia MD, Dr Mark Sinclair, holds a view that the key driver for graduates providing sound advice is the quality and integrity of the assessment methodology itself.

According to Dr Sinclair, the minimum assessment standards that should apply across the industry include:

• Strict examination conditions (no discussion/collusion)
• ‘Closed book’ examinations (current standard across the industry is ‘open book’)
• Independence of the examiner (eg not a related party such as a supervisor or lecturer)
• Quality of the ‘knowledge bank’ of multiple choice and short answer questions

But who should determine these and other standards?  The providers themselves, or the regulators?

Take a minute to place your vote and have your say…

The vast majority of advisers would vote ‘Yes’ if asked whether the cost of their advice should be made tax deductible, but what is your opinion about whether the proposed tax deductibility should apply to all advice fees or only to advice provided on a fee-for-service basis?

So, our poll question, in the event that the full cost of financial advice may be made tax deductible in future, is…

Should tax deductibility of the cost of financial advice only apply for advice that is provided under fee-for-service models?

For comments on this topic, see our related story: Calls for Full Tax Deduction on Cost of Financial Advice - Fee for Service Only?

Another question is to what extent would any future arrangements that see financial advice fees made tax deductible,  make it easier for advisers to transition from commission-based  to fee-for-service remuneration, especially if the tax deduction may only apply to fee-based advice?

Our poll is one place where you can voice your opinion, by posting your vote and adding any comments.

A number of advisers and dealer groups have also made their own submissions to the Ripoll Inquiry on a broad range of topics, together with institutions, government organisations, representative associations and clients of failed financial services providers.  Their submissions can be accessed here: Submissions to the Inquiry into Financial Products and Services in Australia.

But on the question of tax deductibility of financial advice for all advice models, or only fee-for-service…

Our latest poll asks:

Should financial planners/advisers be made to join a professional association in order to be able to provide professional financial advice to consumers?

The call for mandatory membership of financial planners to an appropriate porfessional body is being made by both the Association of Financial Advisers (AFA) and the Financial Planning Association of Australia (FPA).

This joint call from the two Associations is motivated by a desire to lift both the professional standards and public perception of the financial advice industry in Australia.

FPA CEO, Jo-Anne Bloch, pointed out to riskinfo that the issue of compulsory membership of a professional association is part of a broader strategy that includes restricting the use of the term ‘financial planner’ as well as raising the minimum educational requirements above those required by law for anyone wishing to offer professional financial advice.

As part of these requirements, Ms Bloch and the FPA believe that any financial advisers wishing to operate at these standards must also be a member of an appropriate professional body, and one whose charter of educational standards and conduct must be accredited by ASIC.

AFA CEO, Richard Klipin, reflected the attitude expressed by the FPA, pointing to other professions whose practitioners are required to be members of an industry association (eg doctors, lawyers) in order to be recognised by their clients as individuals who have met the industry standards of competency and conduct required to give them the confidence they need to rely on the service or advice being provided.

On the other hand, some advisers have previously expressed dissatisfaction with one or both Associations, at least in their current format, and may prefer to aspire to high levels of education and quality of advice without necessarily being required to join one of their industry associations.

So, in addressing the question of compulsory membership of an association, there must also be consideration given to the nature of the association itself and the standards it requires and/or the standards that ASIC may stipulate in the future, if compulsory association membership for financial planners is introduced.

It’s over to you.  Make your voice heard.  Have your say.

Do you agree that superannuation fund trustees should be allowed to provide limited, single issue, personal advice to their superannuation fund members?

This latest poll question follows the reaction generated by ASIC’s recent announcement that it will issue a class order relief that will allow superannuation trustees to provide limited personal advice to their fund members.

Already there has been a strong response to this move by ASIC, with superannuation and institutional associations in favour of allowing limited personal advice to super fund members, contrasted by adviser associations, who are strongly against this proposition (see last week’s article: Limited Advice in Super - Battle Lines Drawn).

The division of opinion between the associations reflects the interests and points of view of the members they represent.

One comment riskinfo has received is from an adviser who has recounted his experience with a similar arrangement that has been implemented in New Zealand:

In New Zealand “KiwiSaver providers” like ING for example can state which fund you are in, and how you can get a Government contribution, but they have to refer to an Adviser for anything more than that. They frustrate the clients by saying, “I cannot tell you what to do, you’d be better talking to an Adviser”.

It’s worked for Advisers and clients since July 2007. I hope that helps you folks over there.

Not sure whether it does, but perhaps we can learn from the experiences of others, even if the circumstances are not exactly the same.

The broad argument in favour of ASIC’s class order relief centres on the contention that many more Australians will have access to basic personal financial advice - ‘…a victory for common sense.’

Some advisers have expressed their opinion that there is room for limited personal advice to superannuation members by trustees, which may in fact generate more advice opportunities for planners:

Forcing super fund members to seek out an FPA or AFA member for some very simple and straight forward advice will only mean that more Australians will be deterred from obtaining any advice at all.

The argument against the class order relief is based around the issue of the superannuation fund trustee being able to offer limited advice without being aware of its members’ broader needs and circumstances.  This is best summarised by AFA CEO Richard Klipin’s comment that:

“…it is not financial advice when the trustee does not have to know the member, does not have to understand the member’s needs and objectives, does not have to provide advice which takes into account the member’s entire financial situation, does not have to complete a risk profile on the member and when all the trustee has to offer in terms of investment is its own superannuation fund.”

Other arguments against the class order relief include the fact that super fund trustees may provide advice without necessarily being subject to the compliance regulations under which all financial advisers must operate.

So, have your say on this controversial issue.  Make your vote count and add your own comments below.  We will report the outcomes to you next week.

Vote Now!

We want to know whether your client engagement would be enhanced if you were able to access more information from the life companies that highlights the nature and extent of claims paid to Australians.

There is an almost universal lament within the insurance community that the Australian public believes the life insurance industry simply does not pay claims, or at least does not pay enough.  It is an excuse used often when clients and prospective clients deal with financial advisers and an attitude that also discourages many advisers.

… the challenge for advisers and the industry is to have that positive  message understood and absorbed by the consumer

The opposite is the case, as demonstrated by the risk store’s 2008 claims statistics, and IFSA’s latest industry claims report (see riskinfo article IFSA Releases Results of Claims Experience Investigation).  But the challenge for advisers and the industry is to have that positive  message understood and absorbed by the consumer. 

Traditionally, life companies have been reluctant to release information about their claims experience.  The reasons are serious and practical - the more detail an insurer releases about its claims history, the better chance there is of its competitors and others determining its underlying profitability when combining claims data with statutory (public) reporting required by APRA.  In other words, the information is ‘market sensitive’.

But in recent years, the tide had begun to turn.  It’s turning slowly, but it’s turning, with a number of insurers releasing more and more detail about the make-up of their claims book, such as the breakdown of trauma events, the overall dollar value and proportion of claims per event and category, as well as average claims paid per insurance category (ie Death, TPD, Trauma, Income Protection).

In the United Kingdom, life companies are far more ‘generous’ than their Australian counterparts in terms of the amount of detail they release for public consumption.  This has been due, in part, to the adverse and biased electronic media campaigns in the early part of this decade  that targeted the life companies as un-caring institutions who found any excuse to decline a valid claim.

Ironically, the open-ness of the information that is now availabe in the UK has been credited, again in part, with a resurgent and growing book of life insurance policies in that country.

But on a day to day level, would access to more information about claims statistics be of value to you in your dealings with your clients?  Or do you believe that more access to claims information from the life companies will make little to no difference to the way you conduct and manage your client relationships?

There are many more points of view and cases that can be made, both for and against this question, and we encourage you to have your say in our Comments forum at the end of this article.

So, have your say and make your voice heard.

Vote Now!