Australian Securities and Investment Commission Deputy Chairman, Peter Kell, has told the insurance industry the regulator is not seeking to remove commissions for life insurance advice.
Addressing the media following the release of ASIC’s Life Insurance Advice Report, Mr Kell said that while the report had identified a link between upfront commissions and poor insurance advice, the regulator did not expect commissions to be banned.
“I’d like to be clear: ASIC is not recommending or suggesting that commissions be prohibited,” Mr Kell said. “Commissions for life insurance are allowed under FoFA. They are part and parcel of the life insurance industry. But given that’s the case, ASIC’s message to the industry is clear: the industry needs to ensure that remuneration and incentive structures do not undermine good quality, compliant advice.
“We found a positive correlation between high upfront commissions and non-compliant advice. The industry as a whole – insurers and advisers – needs to ensure that the interests of the client are more regularly prioritised as part of the way this sector operates.”
Mr Kell said that ASIC undertook the review for three main reasons:
- Life insurance is a very important product for Australian families
- We have consistently found, in our surveillance of financial advice firms, instances of poor quality advice around life insurance
- The industry itself has identified issues in relation to sustainability, remuneration structures and practices, and lapse rates
“We saw too many instances where the adviser did not consider the needs of the client, where consumers were recommended policies they could not afford and were of questionable value. There were too many instances where consumers were switched to a different policy without good reason. This failure rate is simply not good enough,” he said.
The industry as a whole needs to ensure that the interests of the client are more regularly prioritised…
Regarding the concerns some in the industry have expressed about the methodology used in determining which case files to review, Mr Kell said ASIC had taken a lot of care in selecting what it believed was a representative sample of advisers active in the sector.
“We focused on advisers who were active in the life insurance sector, who sold a fairly significant amount of life insurance,” Mr Kell explained. “We spoke to insurers to help us identify those advisers. We didn’t think that should bias that result one way or another, but that helped us to identify those who were active in the industry. I might note that we were recommended two advisers who we already had intelligence on as providing poor advice. We actually excluded those from the sample so there could be no suggestion that we were biased towards poor advice.”
The regulator also excluded CBA’s advice licensees, Macquarie Private Wealth and Professional Investment Services, who have all been subject to recent regulatory action.
When asked how ASIC could suggest the issues were ‘industry wide’ given the size of the sample of the review (79 advisers across nine licensees), Mr Kell said the licensees reflected a cross-section of the different types of firms operating in the sector – small, medium and large.
ASIC was unable to release any details of active investigations that had resulted from the findings in the report, but Mr Kell confirmed that some ‘follow-up investigations’ were underway.
“We will take enforcement action if necessary against either individual advisers or against licensees, if the conduct warrants that approach. But we are also sending a clear message to the industry that they need to collectively address this issue; to look at how current remuneration and incentive practices can be improved,” Mr Kell said.
If industry do not show some initiative here there will be further enforcement and regulatory action
He added that ASIC was already working with key industry associations to support them in addressing this issue. Mr Kell also noted that the report includes a checklist as to how to provide better quality advice, and how to identify potential risk factors that might lead licensees to deal with problems earlier.
“We’re very committed to following through on these results in our engagement with the industry because I think it’s in all of our interests to raise standards.
“If industry do not show some initiative here there will be further enforcement and regulatory action and there will be further reputational damage, and I think that industry leaders understand that that is unsustainable.”
Maybe the regulators are the cause of these never ending issues.
Has there ever been an industry that is so over regulated. When will these people take responsibility for the catastrophic cost and consequences of these failed thought bubbles?
So according to Mr Kell its not commissions then as such. So what he is really saying its an upfront v hybrid debate That is, ASIC thinks that churning will reduce IF we move from 110/10 to 85/20 or similar. But ASIC is muddying the water to achieve a desired outcome of NIL commissions, despite denials
Churning is when large volumes of business moves insurers. Its when insurers offer one-off special premiums, limited underwriting and Take Over Terms to build a book.
Twisting is when an adviser moves insurers on an individual scale to benefit the client, often at client request. Its not a problem. The adviser is merely acting in the clients best interest, as required, and its only possible when the clients health has remained static.
ASIC it seems is attempting to build a case against churning ( and twisting ) by focusing on the quality of advice that’s involved. If an adviser is churning 150 cases per year the advice documentation quality must go down, and that’s what ASIC found, but wont say yet..
The problem is churning, not commissions. Foregoing 35% of upfront commission each case for about a year or so WILL NOT stop churning, not at 150+ cases per year. The insurers know this, but don’t want to destroy ASICs argument.
BUT the ASIC report did highlight a glaring fault in Licencee AUDITING, begging the question – are the advisers in question licenced by insurer -owned licencees, where the parent insurer is actively seeking to build a book, and AUDITING is given only tacit acknowledgement.
Churning on the scale seen recently occurs when advisers change licencees, particularly when that licencee is owned by an insurer. Anyone who denies that pressure is somehow not applied when the adviser changes to an insurer-owned licencee better clear the sand from their ears. And the starting size of the insurer does not matter-it happens all the time, that’s why insurers own licencees..
Yet consistently ASIC attacks advisers, and ignores the complicity of insurers and licencees in this matter. How cosy and self-serving.
I am always gobsmacked by the constant assumptions made about cause and effect. Just because something is associated with an outcome doesn’t mean it was the cause. This happens all the time in all sorts of situations. Just because upfront commissions were associated with poor advice doesn’t necessarily mean it was the cause; maybe it was just poor advice. I read through the case studies and cannot understand how anyone of these could pass an audit. If i presented any of these SOAs to my licencee’s auditor, they’d fall over laughing. Who the heck checks this stuff!!!!
Clearly this advisers licencee is in breach for failing to perform Audits
Something else niggles me, and that is ASIC is placing undue importance on the stated SIMPLISTIC objective of the client to reduce her cash flow impacts of her existing premiums.
We are supposed to act in the clients best interests, which may, or may not, be reflected in the “objectives “stated. We may have to state some home truths
Here’s just a few questions, and there are a lot more one could ask ASIC and not just this case.
Does ASIC want the adviser to meekly accede to the request and put as much cover in super without reviewing sum insureds. Does ASIC know D & TPD cover in ISN super has increased in cost by an average of 35%, and is still increasing – todayus savings may be illusory. Does ASIC care that the cover in an ISN fund decreases each year very rapidly as the client ages. This lady is 50 – her life cover in super will halve in 5 years in some funds.
What about trauma – you cant put that, or Own Occ TPD in super. Is trauma cover suddenly no longer required. If this were my client I would be discussing the merits of covering the mortgage on the HOME with a mix of Own Occ TPD & trauma ( outside of super ), despite the latters cost. All of that increases her out of pocket expenses, but that does not suddenly make the advice inappropriate, and forces her to prioritise and re-consider her “objective “which is actually just a wish list
Does ASIC expect us not to talk to her re obtaining IP, despite her riding instructions on overall cost.
I guess the point is that no two cases are identical, and neither are the solutions. Advising is not a black & white science. All of us have biases, ( some address IP first, some death cover ) and there is nothing wrong with that.
Finally, if we assume nothing has been left out of the advisers fact-find for effect, then this licencee involved is clearly NOT doing audits of advisers files
Name & shame them ASIC. By not doing so immediately you are blackening the name of ALL advisers and Licencees
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