The financial advice industry will not be considered a profession while it continues to receive commissions for life insurance, the Australian Securities and Investments Commission has warned.
Ahead of the public release of its highly anticipated report into life insurance advice, ASIC has criticised the financial advice sector for continuing to receive commissions, saying that a profession must avoid conflicts of interest.
In its submission to the Parliamentary Joint Committee (PJC) inquiry into raising the professional, ethical and education standards in financial services, the regulator said while there are ‘pockets of professionalism’ in the financial advice sector, it cannot be considered a profession.
‘We consider that significant changes are required to shift the culture of the industry from a transaction-based sales force to an advice profession, offering trusted advice that has the confidence of society,’ ASIC said in its submission.
While these remuneration structures are legal, they are not consistent with the characteristics of a profession
Among the areas cited by ASIC as key indicators of a profession was ‘acting ethically and in the public interest’. ASIC said that although the Future of Financial Advice (FoFA) reforms removed a number of forms of conflicted remuneration, ‘…there remain a number of conflicts in the remuneration structures and in industry structures more generally’.
‘For example, many industry participants continue to receive conflicted remuneration despite the introduction of the FoFA reforms because there was extensive grandfathering of conflicted payments. While these remuneration structures are legal, they are not consistent with the characteristics of a profession… REP 407 (see: FDS Identified as Biggest FoFA Challenge) found that a substantial proportion of income received by Australian financial services (AFS) licensees and authorised representatives continues to flow from commissions. This includes commissions from product issuers – for example, life insurance commissions that are still permitted,’ the regulator said.
ASIC was also critical of the role played by advice associations and industry bodies, arguing that ‘…the proliferation of industry associations is an impediment to the professionalisation of the advice industry, as fragmented representation is inconsistent with a common identity’.
In its submission, the regulator indicated that the financial advice industry, through its multitude of associations, was not capable of effective self-regulation that would lift the professional standards of financial advisers. Among the reasons for this view were:
- A belief that the competition among industry bodies for members actually means that the existing industry bodies have a disincentive to levy their members for sufficient funds to investigate and prosecute compliance with their codes of conduct
- Similarly, a concern that a multiplicity of recognised professional bodies may lead to a ‘race to the bottom’ as professional bodies compete for members by developing the most ‘industry-favourable’ rules
- The fact that it is not cost effective for industry participants to effectively fund multiple bodies to perform the same function
- A belief that a proliferation of recognised professional bodies, especially if they are performing a co-regulatory role, means that it is difficult for consumers to know who is responsible for what conduct when they deal with industry participants and to understand the particular rules that apply to individual participants
In place of self-regulation, ASIC recommended the following be introduced to raise the standards of the advice sector:
- Mandatory degree qualification in a relevant field for people who advise on tier 1 products
- A national exam to test whether the individual has attained the standard of competence required
- Mandatory annual continuing professional development for advisers (30 hours)
- Monitoring and supervision of new advisers for a period of 1-2 years
ASIC’s recommendations appear to be at odds with advisers voting in our latest poll, who have collectively indicated they would prefer a self-regulatory model as opposed to government intervention. Click here to have your say.
The life-risk insurance industry has been operating in this country for well over 150 years. My understanding is that it has always remunerated its practitioners via commissions. Why change a formula which has worked during all that time?
How are commissions on insurance sales a conflict of interest? Most life offices are only a hair’s breadth in difference in the amount of commissions they pay to advisers, so where’s the conflict?
As well, share/stockbrokers receive commissions on sales of shares and there is seemingly no problem with this arrangement which has also been practised like that for aeons. Are these practitioners any less professional because they do business this way and are remunerated by commissions? But they call the arrangement “brokerage”. Perhaps we should too!
Commission,brokerage, marketing cost,remuneration, call it what you like.
It is required to generate insurance sales.
Even with those incentives we are still struggling to convince the public to take out adequate insurance cover.
Any departure from the existing system would not benefit the consumer.
Another beat up on the way.
Where is ASIC’s best interest duty for the industry it regulates, commissions makes no difference when my advisers or myself are giving their professional advice.
From what I understood and correct me if I am wrong but the Storm advisers were remunerated by Fees not commissions, how professional was that.
I don’t really care what others think about what is a profession, I am a professional in my industry which I have served for 42 years and wouldn’t change my decision to stay in this rewarding industry.
If we want to get literal on the meaning of Profession then I would put this one up for consideration because incapsulates True Professionalism;
A profession is a vocation founded upon specialised educational training, the purpose of which is to supply objective counsel and service to others.
Notice it says nothing about how you are remunerated.
Spot on Don, I think that is how a lot of advisers feel. This need to become a profession is becoming too much, if you act in an ethical and professional manner with your clients who cares what it is called.
The regulator ASIC is full of lawyers. Is ASIC going to regulate Lawyers now to stop them receiving commission from clients.
Yes ASIC allows Lawyers to receive commission in the form of “no win no pay” deals with clients and primarily in cases involving insurance. So it could be said that Lawyers were being paid commissions as part of the insurance industry.
This needs to be prohibited along with 6 minute incremental charging as this type of charging does not “act in the best interest of the client” but in the best interest of the lawyer.
This regulator is so fundamentally flawed in its approach and so left wing socialist anti business that it needs total reform. Best we start again with ASIC using the APRA model getting people in the regulator that have worked in the industry rather than just fill it up with graduate lawyers all of whom have been indoctrinated by the Left wing Fairfax Press.
Keep this type of attitude and destroy the rest of a profession I too am proud to be a part off for the last 35 years. We all struggle now with legislation that helps no one accept the policy makers whom are all now continually making a Dogs breakfast of what should have been a simple measure Can you imagine people paying their advisor an Additiomal $2000 service fee on life insurance products?? We might as well forget about advice and let the direct insurers battle it out !! See how quickley the courts fill up !! With dissatisfied consumers whose main objective was to get the cheapest policy on offer rather than get the right advice in the first place
One gets the impression the lawyers in ASIC have not noticed there has been a change of government. This particular philosophy favours our mates the ISN because it would eliminate self-employed risk advisers instantly, thus making it easier for the ISN to operate. BTW, they would be dealing with the same insurers we used to deal with, but with real underwriting.
Most clients will not pay fees for insurance advice, particularly if the adviser has to charge over $2,000 for an advice and implementation service impacted by needless compliance overkill.
Insurers are, as usual, walking both sides of the street. They would love to reduce up front costs, or at least the part paid to advisers. However even the dumbest of insurer CEOs ( and there are a few around ) know that an adviser will not be bothered to keep business on the books
without a fee. Why should they ? That means the internal costs met by the insurer to put the policy on the books could not be recovered when lapses occurs.
No advice TV direct policies have a 40% lapse rate. You could expect say 30% to apply to policies “sold” by an adviser. But its still a large potential loss.
What ALL insurers will do is expand into the “general advice ” market, and then reduce the contractual quality of their offers, just as been done in the TV market sector
That’s called market failure when people suddenly find themselves without the cover they thought they had, and resort to Social Security
Maybe then we could close ASIC and use the funds saved in Social Security
ASIC might be better off reading the insurance PDSs of ISN funds to check if they reflect the 1 July 14 SIS changes.
The “faceless” men of ASIC are once again flexing their “absolutely no idea of the real world muscles!” Interesting that the property market is one of the most significant pointers to the strength of our economy and last time I checked, sales in that industry are notably through commissions, so does this mean too that the property industry cannot be called professional? Also bought a lottery ticket this morning and there on the ticket is the amount of commission received by the retailer…….obviously another “non professional” industry!!
Yesterday I travelled 240 kilometres to complete a claim form for a client without charging a fee and for which, after my dealer group share I receive the princely sum of $270 per annum in trail commission……….but then again I must be totally unprofessional for accepting it!!
This must have been a real sit down “Think tank” session by some very knowledgeable people with years of background experience in the insurance field to come up with this one?
How does ASIC propose that a Professional is remunerated & compensated for his/her work with that they do sitting down with a client & follow the guidelines of Advice under current regulations.
Most client’s I know are loathe to pay a Fee as it is perceived an additional cost from there pocket, regardless what adjustments are made to Life Insurance premiums by Insurers if commission was removed.
Paul’s comment is so true in reference to Stock-brokers.
Same applies to Mortgage Brokers & Banks.
It has been stated that we are an ageing, under insured over debt ridden society here in Australia, and ASIC want to assist in “exploding” that proportion to an even higher level of under insured Australia.
People want to own there own home, therefore they have a mortgage initially in 98%of the case. They will seek out a Broker or Bank to secure this facility. They will buy a mortgage to do this.
Regardless of whether that debt & that family structure needs to be protected, the majority of the population will NOT go out of there way to “BUY” insurance. It is an intangible item that a person cannot sleep in or eat.
It is not normally seen as a priority.
Therefore it is these “Unprofessional Advisers” who need to assist these people in “buying” insurance.
Regardless of what ASIC perceive the majority of these people who take out insurance are “sold” this product by either an Adviser or a Super Fund Provider.
If ASIC can please tell me what they propose will be a better objective way to promote insurance levels to be, firstly maintained & then increased to protect the structure &fabric of the Australian family, then please “fire away”.
Next Q. Small Business operators that often have company structures with four or five non family directors need the benefit of Buy/sell Life Insurance cover that requires a reasonable level of time, skill & knowledge to implement this type of structure & cover for them. Why should I not be paid a commission for this work.
Does ASIC have the skills & the correct methodology to be able to say this is the best course of action to proceed with.
Have any ASIC members been an Adviser and physically experienced the process of what an Adviser goes through?
Thank you ASIC for your continued support in derailing this industry.
I agree with every comment made by my colleagues. ASIC is hell bent on pursuing an agenda and ideology which completely ignores any common sense argument or the cultural and social background against which insurance advice is provided. There is no mention of the good which comes from the $10m per day paid in the resultant claims which occur.
We all know where ASIC is going with all their left wing socialist attitude on advisers. Each year there is something new that ASIC come up with, edging so closer to their hidden agenda of having no adviser as we know it operating their own practice as we know it!
WE never hear the good stories that Advisers do, like the story I have about my client’s son who came to see me regarding advice on his superannuation due to a redundancy. He ended up walking out of my practice one month later with a $128,000 payout from a back pay on his Group Salary Continuance as a result of an illness he had suffered and being out of work for 2 and half years ago!
I would like to see a study carried out to determine how many people would pay a fee that is sufficient to cover the time taken to provide insurance advice, submit the application and follow up the outstanding requirements requested throughout the underwriting process knowing that this fee will be in addition to the insurance premium. I bet ASIC does not include that information in their report.
ASIC are a very good example of the world of regulators “who are inundated with information and devoid of wisdom”.
The reality is commissions vary very little between companies,they are the most cost effective method for consumers to pay for advice and the SOA articulates the reasons why a product is best suited to the clients needs.
All ASIC need to do is start listening and understanding more.
Is the ASIC serious? ok the bank CEO,s gets a bonus is that not a commission? is tax not a commission? do Drs not get a commission from Medicare and call it a fee?.
Who is this idiot from the ASIC who comes up with these stupid ideas? the ASIC is full of educated derelict who could not survive on commission so what would they know?
So the industry needs to change the word to commission for a referral fee and a service fee, basically trail is a service fee in any event it just happens to come with a commission statement.
Why is the ASIC so intent on destroying our industry? Ill tell you why it has to justify its existence the ASIC is a regulator of destruction not assistance.
The ASIC has allowed insurance into he hands of real estate agents and accountants well if you wanted a job regulating you now have one.
The industry is not about a degree who said a degree is the answer? educated derelicts that who, A person passionate about insurance will always do a better job than an over educated derelict persistence and determination alone are omnipotent.
The ASIC has become a dictator of rules ones it wont clarify yet it seeks to destroy advisers it sees as rouges, This industry is one of the oldest in the world it has worked for centuries and yet the ASIC has employed idiots to tear down what has worked for generations, DONT FIX WHAT WORKS or you did not lean that in University?
The only thing FOFA and the ASIC has done is cost the majority of the population the opportunity of financial planning, it is now well out of the reach of the general public.
For example I saw clients get charged $15,000.00 in fees for an SOA they met the adviser once and have not had a follow up in 18 months they get charged $180.00 a month service fee each yet no follow up. Well done FOFA you have destroyed our industry and put it back 300 years out of reach of the general public.
Before FOFA not fee for service now its rife fee for service has no place in insurance and insurance has no place in the hands of accountants or real estate agents.
Why let me give you an example a client of mine was paying far to much tax and no super her accountant was asked about super contributions, they reply from the accountant your only 30 don’t worry about super.
A strata manager decided it should get the opportunity to quote against the brokers cover for the body corp yes CHU came in 30% cheaper however the policy replaced was an industrial special risk policy and at claim the body corp was left in the ………
My qualifications include and Adv Dip in Financial Planning, Adv Dip in General Insurance broking and an Adv Dip in Finance/Mortgage broking with more that 23 years experience I have never seen such havoc caused by anyone such as the ASIC.
If the ASIC keeps going down this line small business operators will no longer be able to afford to offer a service. Its difficult enough now.
I would have to say that ‘ASIC Deputy Chairman, Peter Kell’ has no real idea how the life insurance industry works and what our ongoing remuneration is designed to address. I would like to see how he would cope sitting in front of a client who is experiencing the grief and heartbreak our clients go through processing their claims – and then slide an invoice across the table for our time while we do this. I’d like to see him work with our clients and their families while we gather all the information that’s required during a claims process claims, that we all know can take sometimes take more than 12 months – without any payment. It’s all good and well for him to sit in his nice cushy office with his sick pay, annual leave and long service leave entitlements and inbuilt bonuses and throw stones at advisers who have had the guts to step outside their comfort zone to start up their own business to go commission only but you Mr Kell, have absolutely no idea whatsoever about the value we provide our clients. In my opinion, this is just another bureaucrat trying to justify his enormous salary package by muckraking rather than making a truly positive difference to the industry.
Insurance is sold not bought. It is a sales process, and for many many years has generated commissions. So the sales process for any industry, that will no doubt create a commission, should also be banned. This goes beyond politics I fear. There is a over zealous senior fat cat, who resents risk advisers, and is the person driving this drivel. It only ever comes out of the bugle of asic, then supported by interested parties like unions etc. There has never ever been any comment or negative sentinent from guess who, consumers of the insurance, because frankly they don’t care and in most cases are pleased that we get paid well for the wonderful work that we do not only in sales, but the help and advice at claim time. And by the way, it is at claim time that some legal vultures take obsene commissions. Why is that never questioned.
ASIC is behind the ball – again. The appearance of doing something… anything.
If they think Direct will be the solution for lower end consumers, they only need to look what’s happened to group insurance in the last 3-4 years.
Minimal adviser involvement in that sector and Insurers still made a massive loss!
Meanwhile it was Retail (adviser channels) that kept insurers profitable.
Perhaps a starting point to the commissions issue would be simply to change disclosure – separate commission disclosure from insurance premiums. (i.e. required to quote premiums on a non-commission basis). That way lower end consumers still benefit from the affordability of a commission structure, while higher end consumers will prefer fee for service.
Also banning 100%+ commissions. I don’t think too many advisers will miss them.
ASIC seem to have a curious understanding of what it means to be a profession.
It seems that for ASIC professionalism only exists if there is no conflict between the practitioner and the client.
They are holding financial planners to a standard that is impossible to achieve and a standard that doesn’t existing within any of the traditional professions.
All the traditional professions (including medicine, law, dentistry and so on) accept that a commercial conflict of interest exists.
Professionalism is about high minimum levels of competency (including very high educational standards), self-regulation, client’s interests as a priority and sound ethical standards. Not one of the existing traditional professions restricts its members from accepting conflicted remuneration.
ASIC are also labouring under the belief that there are methods of remuneration for financial planning advice that are conflict free. This is simply not true. A nuanced and sophisticated understanding of financial planning and the financial planner’s motivations make it clear that there is a degree of conflict between the adviser’s interest and their clients regardless of the method of remuneration including hourly fees. Indeed, the legal professional has long struggled with the very clear ethical challenges inherent in a fee-based model.
And yet, as ASIC obsess about remuneration as a measure of professionalism they all but ignore those characteristics and elements that do define a profession.
For ASIC, it seems that someone with the very basic educational requirements and six months experience is more “professional” than an adviser with multiple qualifications, with specialist accreditations and ten years experience just as long as they are remunerated in the ASIC-approved method. I agree that education is not the be-all and end-all, however it is a far more sensible measure of professionalism than how one is remunerated. Most of all, the traditional professions agree.
Here we go again. Ill informed bureaucrats sitting in their offices who are so far away from reality. These people need to be reminded that their role is to manage Government policy, not have an agenda to bring a professional industry to its knees, something they seem hell bent on doing.
I have been a life risk adviser for 28 years and never once has commission determined where I place my business. First and foremost it is the client’s interest that are looked after by putting in place appropriate cover with the best possible policy in the market.
ASIC needs to realise that consumers do not buy insurance, it has to be sold. Australia already has a significant under insurance problem, one that will be considerably worse if consumers had to pay an adviser a fee to implement cover.
Direct insurance is not the answer. Peoples needs have to be examined and the correct cover put in place.
Maybe it is time advisers stood up to these left wing brainless idiots who seem to want to represent the industry super funds rather than the consumer.
Which is the bigger transaction, arranging Life, Income Protection, and or Trauma Insurance or buying and selling a home? I’m currently selling my home and the agent is cheerfully charging a commission on the sale, then happily adds the significant cost of advertising.
When’s ASIC going to tell the real estate industry that they cant be called a Profession as they are compromised by taking commission? Not Likely, wouldn’t want to upset the REIV.
For an organisation that contains the word commission in it’s title they are so far off the mark it is laughable…For their degree qualified staff please try and learn why this system actually works well for clients, advisers and insurers –
A dvisers
S ell
I nsurance and get paid by
C ommission
Get out of your ivory tower ASIC and go and meet with the many hard working advisers to learn how we help so many Australians every day and what we actually do as your comments are ill informed and show very little idea.
Typical of public servants. Live off the public purse, never done a real days work in their lives and sit back and judge others who work hard for a liviving and add real vaue to the lives of so many Australians.
All jokes aside, it is a disgrace that a body whose job it is to regulate an industry has absolutely no idea how that industry operates. This is clearly obvious from the comments they have made. Either that, or they have somehow become a political mouthpiece for the ISA and some elements of our own industry who have never quite accepted ‘risk writers’ or ‘lifies’ into ‘their’ industry. They criticise how the life industry works now – and has done for a very long time – yet allow the direct insurance ‘time-bomb’ to continue on its path of destruction without a single thread of criticism. Shows how astute they are!
I won’t be quite as critical of ASIC as our other writers, but unfortunately ASIC is looking at a perfect world not a practical one.
It would be lovely to be able to charge a fee to spend a day or more researching PDS definitions, working out how to structure all the policies for the best client outcome and putting it all into an SOA that has more information than the client would ever want that just confuses them. The reality is we are the only profession who’s advice invariably leads to a product being required.
Imagine saying here’s what you need Mr client, now go out and find the best product to do all that for you. They can’t do it and we have to. But the client will rarely be prepared to pay for us to do it and then pay for the insurance as well.
So, if ASIC can come up with an alternative to commission that allows me to charge an adequate fee to provide the advice and someone will actually pay it, I am happy to go fee for service on insurance. I think I might have quite a wait.
I have to agree with many of the comments here that cross reference commission charged in other sectors. It is disappointing that the good work of many dedicated planners who offset policy commission in lieu the price of their advice is ignored when reports like this are released. If we are going to avoid further tarnishing of Life Insurance, an overall review of Life products and their distribution that includes Direct policies is needed. Otherwise we risk a dose of the UK’s mass mis-selling PPI saga. For my part the need for greater policing of lapses by Life Companies under a framework set out by the FSC has never been greater.
Professionalism is in the heart not in the way we are paid
Are ASIC personell more professional because they work for a salary
Their stuff ups around HIH and fai can hardly be called professional
Get off our backs and look for the crooks who scamper off with millions of other peoples money, underneath their very noses
ASIC remind me of the cop with radar ,,,,, we are the easy pickings to make them look responsible …. And professional ? That they are doing something.
They are far more like the keystone cops John…!
“ASIC gave one example where an adviser recommended a 50-year-old client on $56,800 a year to raise her annual life insurance premium from $1,676 per annum to $10,772 per annum. Half of this was to be paid through her superannuation, a figure that exceeded her annual superannuation contributions.”
Should premium alone be the determining factor of whether this advice was appropriate or not?
Don’t let the truth get in the way of a good story springs to mind here and as there are usually two sides to a story perhaps ASIC can provide full details of the client (occupation? health issues? smoker? debts? dependants? partner? will? her goals? details of current covers?, etc.) as it only states her current and recommended premiums with no mention of the current or recommended insurance benefits.
Given the recent comments by ASIC how about ASIC produces an SoA based on the facts to show everyone what ASIC would recommend for her as I think many readers would be most interested to see it including how ASIC intends to be paid for their work? (Upfront/Hybrid/Level commission or Fee for service)
Over to you Peter Kell…
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