The Federal Government has re-affirmed its intention to ban commissions from 1 July 2012, but debate continues as to whether this ban will extend to risk commissions.
Last week, Financial Services Minister, Chris Bowen, made a speech in Parliament, in which he re-stated his commitment to the Government’s Future of Financial Advice (FoFA) package of reforms.
… clear and simple client disclosure does not… outweigh the conflict of interest… inherent in remuneration by commission
Mr Bowen spoke in broad terms on the issue of commissions, his position being that clear and simple client disclosure does not, in his opinion, outweigh the conflict of interest that he believes is inherent in remuneration by commission.
However, the minister did not refer specifically to the current debate on whether risk commissions should be included in the wider commission ban from 1 July 2012 (advisers can click here to access a copy of the full transcript of Mr Bowen’s speech).
Mr Bowen and senior Treasury colleagues are in the process of conducting a series of interest meetings around the country, as well as consulting with industry groups about all elements of the proposed FoFA reforms.
Contributing to other industry input, we have forwarded to Mr Bowen a copy of all 139 comments submitted to riskinfo regarding the future of adviser remuneration, especially in relation to the issue of conflict of interest.
Advisers wishing to make a direct contribution on any issues included in the FoFA reforms can do so by emailing: futureofadvice@treasury.gov.au.
Mr Bowen’s own personal feelings do not reflect the the real issue. Quality of advice is the main issue not how an adviser is remunerated.
Has anybody considered giving the client the option to decide how he would like to pay for the service. After all they are the important people in the whole issue.
Our industry and politicians shoild not be dictating to the people who are paying for the service “how they should pay”.
I agree with M Lowe`s comment as stated above. Let`s consider how our client may wish to pay for his advice going forward rather than Government dictating to everyone what should happen. Do we live in a Democracy or a Dictatorship.? It`s hard to know anymore.!!
The politicians seem to think a sale is made on every appointment. If you sell risk the average is 3 in every 10. There is no payment from any potential client at any stage of the fact find or for advice. The client who goes ahead with the advice still does not pay us as there is no difference in cost, whether they go direct or through us. If we are forced to charge fee for service for risk no one is going to be bothered talking to us, when the premiums they will be paying may have a slight reduction to start off with and then have to pay for the advice.
They will just go a bank or the net and tell us to go jump.
In the end lack of competition will force prices up and the client will be worse off, both through the pocket and lack of knowledge.
The advent of multi agents and brokers is probably the main reason the cost of life cover has been reduced so substantially from what it was at the start of the 90s.
I agree with John the rates for insurance have come down considerably since the early 80′ and along with this there has been many innovative products like Trauma etc. Competition breeds this and complacency breeds contempt. Why do something when you don’t have to. i.e. reduce prices or innovate. If they ban commissions for risk which is how over 90% of self employed planners get paid. What all the direct institutions (banks and the like) will do is say we don’t have commissions but management fees or costs for the product which would include salaries (commissions/fees by another name) which are paid to financial planners for doing the business. Who wins from this? Certainly not the clients!
I attended the Treasury’s Future of Financial Advice public information session in Melbourne this morning where I asked the public servants why it was proposed risk commissions are to be banned. They told me in front of around 100 people that attended that it was because the Minister had received a number of submissions from a variety of people and therefore he has decided to address it! I don’t want to cast aspertions on organisations but I bet it came from the Industry Fund network and people of that political persuasion. Apparently a decision on risk commissions is to be made in 2011 and the Minister wants a compelling argument from the industry on why commissions should continue. If so what are the life insurance companies doing about this in Canberra. I raised the issue about commissions in other industries such as real estate and travel and the public servants said they were restricted to only considering general and risk insurance commissions! I said it before in an earlier comment that has been sent to the Minister’s office (thank you risk info) if commssion payments on risl products have worked for 300 years around the world why is there a need to change it now? It is being considered in my view due to ideology! I agree with John Curtin if commissions are abolished people will go direct but will they get the cover they need? Good risk advisers work out what policies a client should take out, that is one of the value adds we provide. Are people going to get good advice from an industry fund in relation to the risk cover they need? I doubt it unfortunately!
I can’t remember Bernie Fraser disclosing his conflict of interest when doing his ad’s for Industry Funds, do you? I didn’t hear him say that he was a director of a couple of the actual funds he promoted (about $43B under management), as well as chairman of the ME Bank & Industry Super Holdings ($37B). People may have been misled by the reference to him as the “former governor of the RBA”. I have read that around $188B of industry fund assets are controlled by just 12 people, most with deep ties to either the labor party or the unions, or both. Many of these also have directorships on other entities that these funds invest in. No potential conflict of interests there? Of course not. Why doesn’t someone bring all this stuff to light and show this whole ‘reform’ for what it really is.
There is only one way to see if commissions on Insurance are a valid way to be paid and that is for the Government people responsible for attaining feedback,to go to a risk advisers office and spend a day seeing what it is we do.
There is no other way to ascertain the validity of this debate as every tom, dick and harry have an opinion, though as usual, have no idea what the full spectrum of work is required to be a specialist risk adviser.
I lay down a challenge to the Government, if they are serious about getting this right, then Mr Bowen needs to come to my office and he will then be fully informed on the very issue he is espousing as important. The difference will be, a expert advising Mr Bowen,not some half baked, self interest group, or worse, idealistic theorists who will destroy thousands of Businesses and lives of hard working advisers and cause a massive increase in underinsurance for all Australians because of a perception that has no merit or validity.
I bought a new mobile phone last week and pay a monthly cost for it that I deem as fair and reasonable.
The chap who organised the phone ( via a major company ) came to my office, provided a very good level of service and explained all the key benefits. I know exactly what day the direct debit comes out of my account and how long the plan is for.
The interesting this is he didnt have to disclose how much commission he gets paid. Do I really care ? The answer is no but I hope he does get well paid for the time and effort he put in.
These industry groups who are more interested in make things more complicated forget that good old fashioned customer service is all we as the customer really want. Where do they get their research from ? Who do they question ? Not the customer. I don’t one customer who has a life policy that has been asked for their feedback from an industry group about whether commissions on insurance is a good or bad thing.
I have asked clients in the last 6 months who have paid me commission on risk transacions this very question. Do you have a problem with me getting paid this amount of commission from the insurance company ? Majority of the time they say things like… “good luck” or “glad you are getting paid for your time”.
They key thing is to be upfront, honest and treat the customer with respect.
Positive enhancements have been made on the investment front and I’m glad commissions are being banned on investments. But for god sake just leave commission on insurance and keep the process SIMPLE for everyone.
Demorcracy & Free Enterprise are what ALL Australians have fought for since Federation.
The majority of ALL Australians should have insurance to protect their debts & assets for their loved ones.
I am a great believer in the fact. When you die, your debts should die with you.
It is a proven fact that humans do not BUY, but are SOLD Life insurance. They are sold on the basis of a “hopefully” qualified Adviser offering a product & service that suites that individuals needs & budget as to their current & propoed hopefully future position that they would like to be in. The fact that the Adviser is paid a commission is irelevant. It is an inbuilt cost that would be preferred to be paid nine times out of ten by a person, as against physically paying an additional lump sum out of ones pocket to have access to purchasing this cover as an alternative. If that was the case, you would also automatically have a higher resistance factor to buy. As it is a proven statistic that not enough Australians have insurance & those that do, do not have enough. Create a resistance barrier and this will drop even further.
Free Enterprise of having over a dozen large competitve Life Insurance Providers operating in our Australian market allows the ability of the client to have access to products that are not only keenly priced, but loaded with benefits that have improved 100 fold over the last 30 years. The fact that you have an independent network of qualified skilled Advisers marketing these products enables the continued improvements to cost & benefits by the providers to entice people to their products offered by these Adviser, because of this independent structure.
Did you notice I use the words, “skilled & qualified”, I should have added educated. An accountant, doctor & solicitor are ALL of the above, but they operate in seperate individual specialist fields. A Risk Insurance Adviser needs to be ALL of the above to assist a client in correctly assessing their needs and requirements as required by current legislative procedures that need to be met.
Do I have any issues in being paid commission from an insurance company for what I have set-up for a client, NO. I have never had a widow come and compalin to me about that fact, or a Self Employed Tradie who has just been told he cannot work for at least the next six months because of a back injury,but his Income policy will pay his wage for that period. That fact alone, will more then likely mean that that person will not be requiring to put their hand out to Centrelink for benefits, which would help the flow on our already “strained” welfare system.
To Mr Bowen & the rest of the Committee involved in considering whether a commission should still be paid to an Adviser in the future, DO NOT TRY & REINVENT THE WHEEL. It was made round for that purpose.
I think our only saving grace at the moment is the Liberal Party have said if Bowen gets his way they will not let the legislation pass the Senate. Perhaps we should be lobbying that Party instead of bashing our collective heads up against a brick wall talking to Labor.
advisers must get more politically active and start to tell clients what to expect because of this gov’t.This also means putting it to the dealer groups,FPA,AFA and anyone else who feed off our efforts,we must demand some results because all we get is bad news and then a hard luck message about all the representations that are made on our behalf.What about paying our annual fee to the FPA based on FFS?This risk c’ssn issue is critical and if advisers get shafted again what is the worth of the FPA,AFA and dealer groups?Is it possible the gov’t make these groups feel important to a point but do what they want anyway?
I have made this comment before, but I feel it’s worth saying again. In fairness to our industry regarding the proposed ‘opt in, opt out’ option for super members, the government should apply the same principal to trade unions and bodies such as the FPA. If a member feels they don’t need any help this year, then they shouldn’t have to pay their dues. Let’s see the uproar if this was suggested. I remember one of my fisrt jobs many years ago (clerical) where I was summoned to join the union. When I said I didn’t want to I was told it wasn’t compulsary, but that I couldn’t work there if I didn’t!
I am a Risk Adviser with in excess of 20 years’ experience in the life insurance industry.
As we know, Australia has a problem with underinsurance (personal cover). If risk insurance changes to a fee basis, rather than commission, I believe it will have a negative impact on people purchasing personal insurance.
It is well know that personal insurance is often treated as a “grudge purchase” – people know they should have it but don’t want to spend the money protecting something they can’t see.
If fee for advice replaces commission for risk insurance, many people won’t benefit from the cheaper (commission free) premiums because they won’t pay a fee for advice on insurance they don’t necessarily want to buy.
I understand that with investments, high commission can cause an Adviser to be biased. However, the commission level across the market for life insurance products is “similar” for all companies.
As an Adviser, the quality of the contract, the competitive premium and my knowledge of the life company’s claims management/payment influence my recommendation, not X% difference in commission paid.
The conflice of interest theme keeps being mentioned.
Legislate for ALL insurers to pay the same payment/commission/fee, what ever you want to call it, and the bias would be eliminated.
The real issues we are faced with is under-insurance here in Australia, people not really wanting to pay for the premiums every year, increasing debt levels, tight family budgets and unhealthy people making it difficult to get cover for them.
The current model works very well :
1) Pay the standard premium, adviser gets paid for all their time – advice, service, implementation etc
OR
2) Rebate the commission, reduces the premium and charge a fee for every step in the process. This would amount to more TOTAL $ being paid by the client (Premium + Fee) as most insurance cases can take weeks to get in place. How does this make it better for the client Mr Bowen ?
A ban on the payments/commissions/fees paid by insurers to adviser businesses, would mean the majority of small business would fold.
Real Estate agents, general insurance brokers, medical sales agents, car salesman, retail sales people, the list goes on all receive commission/payments/revenue on sale of a product.
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