Financial advisers have been highly critical of the move to consider banning risk insurance commissions, but the issue of conflict of interest remains.
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 … must address the issue of conflict of interest, real or perceived, from the point of view of the consumer
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…
after 38 years as a risk writer and knowing the work it takes to have someone adequately insure themselves and to keep them covered, i’d say no insurance will be the norm, not underinsurance.
This move by Minister Bowen has not been costed. The loss of revenue to the budget from the whole of this program may well be in the range of $250m and the resulting staff spills as Advisers reduce costs will add a further $250m in lost PAYG.
When they cost it I will believe it.
Well done riskinfo for asking the REAL question that should be asked and answered. These days, it’s the advice that matters to clients receiving life risk products as solutions. It’s the sums insured that will count in the outcome and although I will alienate many of my dear colleagues in the research space, I contend that in 99.9% of claim situations there is no retrospective proof that the client was sold the ‘wrong’ product. There is no such thing as a bad product. If the regulators believe there is a conflict of interest in the life risk area because of commissions, then we should be educating them that even if an adviser sells Company X’s product rather than Company Y’s, it will NOT be to any recognisable detriment of the client. But not selling the right sums insured and product mix WILL be to their detriment. Commissions or no commissions will have ZERO effect on that outcome.
I don’t believe any regulator education has occurred on these facts. Or it could simply be that the regulators are hell bent on ‘being seen’ to be removing conflict of interest, and they care not if it’s a valid move with a basis in fact or not.
Memo for Bowen and the Government : If you were to ban risk commissions then you can say goodbye to 26 years of experience giving any further risk advice as without an incentive of being rewarded there is simply too much work and effort involved. Fee for service does not work for the majority of risk cases applied for but does have a place for some. The answer is simple – if risk commissions stay then underinsurance will reduce whereas if they go then underinsurance will increase. Your call Minister.
Chris Bowen needs to consult advisers and not just his mates running the industry funds.
Talk to me Chris Bowen.
I am sick of this government thinking that it is allowed to restrict citizens/industries. Feel free to educate and influence Australians as much as you want if you feel that you need to protect individuals(Industry funds have been trying to do their best spreading convenient sides of the commissions story for years). However once the government starts restricting how Australians can operate businesses/pay for services this is where we lose our freedom.
We get paid well for what we do as it is a tough job. People don’t like to speak about life insurances, let alone pay upfront for advice that they aren’t sure that they want.
When we do our job, it results in less expenses for government in areas of health and welfare payments as our clients can look after themselves/their families.
By removing commissions on insurance, you will be adding a cost issue to advice. This will mean that low cost, call centre type advice centres where ‘advisers’ with 3 months experience will dominate and underinsurance will increase as the easy-sell will become the norm.
This ideological blah the ALP comes out with is getting boring. Mr.Bowen would not know and has not bothered to find out how a risk practice work. If he thinks we place business on who pays the most he is off with the pixies at the bottom of the garden! The cowboys were pushed out of the industry when we had to disclose commissions,it made it a better place. I disclose all commissions to my clients and they could not care less,they know I run a business,pay wages and taxes just like every other business. More spin from Industry Funds and Banks! My clients get ADVICE! The product is use to fix their problems does not depend on who pays the most. If you want a conflict of interest he should check out the Motor dealers in this country and see how much they make on a used car trade in! RIP OFF! Sounds a bit like Ripoll doesn’t it.
Unless the dismantling of the commission structure for risk products is accompanied by a simplification of advice requirements, then it will be uneconomic for advisers to provide risk-only advice to a significant proportion of their current served market. By extension, less people will receive risk advice in future from financial advisers.
In respect of risk insurance, I do not believe the case has been proven that a “conflict of interest” exists from a consumer perspective. And by insisting the industry must address such a conflict – real or perceived, is as absurd as treating a patient for an illness they dont have.
Why not just follow the general insurance sector and have all insurers offer the same commissions, and remover vlume inentives. Where is the conflict if all insurers are paying say 80%/15%
Advisers have to be paid. Not all clients can afford to pay upfront. Make a level playing field by setting maximum commissions/trails to be paid.
Adviser/client can then agree to payment within that level and or fee for service
If they are going to ban commissions, what about real estate agents, mortgage brokers, car sales and Doctors who bulk bill (arnt they getting a commission from medibank?)
In my 21 years of being an adviser, I have never come across a client who knew the exact amount of insurance he needed (many have a guess, but none have done a needs analysis) How many Mums and Dads would pay $1500 to impliment insurance as a fee for advice and then pay for the insurance as well?
Instead of costing say $2000 for insurance they would have to pay $3500.
Sherry and Bowen, get a real job in private industry or run your own business before commenting on something you have no idea about.
I hear the term “conflict of interest” mentioned all the time.
Why don’t all the insurers pay the same % commission rates therefore removing the conflict of interest ?
Risk insurance is selling an in-tangeable trigger event that may or may not happen, it is very hard to commit someone to pay the premiums every year.
I believe Mr Bowen should show some consistency with the issue of commissions and financial products. If he is truly serious about conflicts of interest with commission based revenue strucures, then I believe I would prefer the option to pay an adviser fee on my House, Contents, Valuables, Car insurance and mortgage. Let me have the option to opt-out when it suited me. Bring on a truly level playing field, or leave well enough alone.
Conflicts of interest are present in all walks of life! Doesn’t a Doctor who recommends an operation to a patient face a conflict of interest? No operation no payment! Doesn’t a lawyer who suggests a client should sue face a conflict of interest! The list goes on including amongst government ministers. The main argument run by industry funds in relation to commissions on super contributions were that these were mandated (by government) and therefore it was unfair to charge a commission on something that is compulsory. They have won this battle. With risk insurance a purely voluntary decision to buy or not to buy, why should commissions be banned. Risk insurance commissions have been around for hundreds of years it has worked well why ban it now? If risk commissions are banned why shouldn’t the ban be extended to general insurance, real estate, travel agents, mortgage brokers & retail sales staff to name a few areas where commissions are prevalent?
Minister Bowen appparently has a Financial Adviser, he wouldn’t have one if he or she was doing a bad job. Why doesn’t he come out and endorse Financial Advisers?
What is the Life Insurance industry doing to lobby the Federal Government to leave the status quo alone? May be a comment from IFSA would be useful?
What about commissions paid to stockbrokers? What about commissions paid to real estate agents? Let’s just ban commissions altogheter. What the minister needs to understand is that insurance is sold, not just a compulsory matter like superannuation. If they think there is an underinsurance problem now, then think again. The prospect of more and more people dying underinsured, or becoming totally disabled without adequate insurance will leave any government with an even larger social security problem in the future. I’d like to know what the complaint ratio is against Risk Advisors compared to Financial Planners. Negligible, I expect. What business is it of the government how an insurance company chooses to remunerate it’s advisors? This reintroduction of socialism by this government will stiffle incemtive and kill off industry. All that need to be done is to standardize commissions across the industry as in real estate and work out a suitable means to stop churning and the problem is solved.
Since when is looking after someone`s ability to meet living costs in the event of a serious sickness or accident been a conflict of interest. I`ve been doing this for 20 years Mr Bowen and when have you really helped anyone.? When have you given a weeping widow a way to pay the mortgage,keep the kids at school let alone keep food on the table.? This government is an absolute joke.? What`s the FPA and the AFA doing about this.? We pay our fees every year and what we are losing is more & more each time. My risk clients truly don`t bat an eyelid at what my commission is on a deal for them because they know it`s not a separate cost. However, I`m not sure what would happen if I had to ask them to pay this amount upfront.? Probably go to one of those TV insurance mobs. I`m so disappointed that something I`ve worked very hard on for 20 years could all go up in smoke.!!
Seems like there is no stopping the whale hunters. Chances are that they have never taken the opportunity to see the beauty (the claims results). They don’t give a damn about the suffering families or the disabled (and the baby whales are just left to starve). They just love the blood of the sport.
This industry was born with an opportunity. Take it away and you kill the goose that lays the golden eggs.
Don’t worry, the Department of Social Security will grow with the demand.
It is a system that the user demands when they have not been sold what they need.
Intangibles are never purchased, so remove the sales and the intangibles will not be delivered.
Mr. Bowen, my suggestion to you and your Government stop stuffing up different industry eg financial industry mining industry and the likes concentrate on Governing the country and not interfere with things outside your field.
in regards to the risk Business eg Life Insurance,TPD,Trauma and income protection these types of covers have to be sold people don’t rush to our office to buy them because Human nature is we all procrastinate and most of the time we end up doing nothing about Important things need to be done, may I also remind you that the commission paid on risk products is paid by the provider and it is not an additional cost to the client as a financial planner with 36 years of experience I personally have always put the client interests ahead of commission or any other benefits as good financial planner will always do
As a risk insurance advisor for more than 26 years, not that this illiterate Government cares, but the day that commissions are banned, will be the day I leave the industry and I suspect many other advisors will do the same. I once thought that the Whitlam Government was the most incompetent Australian Government ever, but compared to Rudd, Swan, Bowen and crew, Gough’s mob were a shining light!
How will Minister Bowen guarantee that the amount of trailing commission that the evil financial planner will no longer receive will be now paid to the policy holder by way of reduced premium.
He will not be able to.
This will be a disaster for Australia and the ones that will be hurt the most are the Labour Party supporters – the workers
I am in my 39th year as a risk specialist, have over 2000 clients, employ 2 staff to service my clients– we do not charge a fee.
New business is written based on the following
1.Best product and benefits available for client.
2.My relationship with the underwriters(only 10% of my business are clean skins)
3.Life companies attitude to service and claims.
Commission is never an issue.
There is no conflict of interest.
Placing my client in the right contract is the priority.
100% of my clients are happy with this arrangement, but would they be as happy if I charged a fee to handle their claim or change their bank details?
I welcome any politican to visit my office and see the REAL world not a perceived one.
Most of the above have stated the obvious BUT they are only obvious to us in the industry. This Bs that the industry funds have perpetrated and the likes of Storm and others have brought about by their failures will kill any real chance of a client being properly insured. Incentive selling wow a new concept!!? Sure we get paid well when we insure a client and i have no problem telling the client how much. The government needs to stop interfering in how we get paid and start looking at the issue of ensuring the right people are giving the advice. Risk writers surviving since FSR generally are of good character and provide well for their clients. Those that churn weelll the new insurance compmnay should call the client and ask why they are rewriting the business? If this was done and the client could give reasonable reasons apart from miniscule price reduction. Things like improved benefits such as , needlestick or Trauma reinstatement or whatever the improved benefits were to the client THEN this practice would stop. I saw a client last week who for the past 4 years has had his IP cover renewed with a new company each year!! These are the types of advisers that need to be trapped NOT the adviser giving the correct advice and ensuring our clients are protected. I handled a claim for a client recently it required me to fly to her side [airfares $400] and get the documents done fly home and see her specialist and organise the report etc. i didn’t charge for this because i believe I have been paid for this as part of the ongoing service the cleint recieves from me. This is the sort of thing Minister Bowen needs to be told about and get off his backside and get out there and see how the responsible advisers operate and stop this stupid witch hunt. I have been in the industry 27 years.
Recently the Lifewise Underinsurance Report highlighted a staggering 95% underinsurance problem in Australia today. That report suggested a social security burden of over $1.3B in increased payments to uninsured households.
Any responsible government would recognise that INCREASED access to advice is needed, and that interfering with the industry will decimate our advisor pool, and significantly impact access by average Australian families.
Bowens statement is underpinned by an arrogant misconceived notion of the public interest, and smacks of gameplaying at the expense of the families of the future.
I have been in risk business for 12 months, using the research software clearly gives the most appropriate cover for the client which I as adviser recommend.
The notion that advisers give advise based on commission is offensive.
To really avoid this percieved conflict I think is to force product providers to pay the same commission.
The issues we are faced with in the risk/insurance industry are as follows: an un-healthy population due to people eating unhealthy, not having sufficient time to exercise, working longer hours, people who smoke, the tightening family budget, selling a product that the client may or may not receive any return or money on. And now there is this topic that we are all commenting on.
There are a number of risk only advisers in the industry, we should be trying to attract people to this industry in order to have more advisers seeing people in an attempt to sell the notion of protecting your assets, lifestyle, income and family by paying premiums. I agree with the suggestion to standardise the % commission the companies pay to advisers.
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