- Current hybrid commissions (73%)
- Level commissions plus fees (10%)
- Modified hybrid commissions (9%)
- Level commissions only (7%)
- Funded level commissions (2%)
We are seeking your input on how you may prefer to be remunerated in future for the life insurance advice and solutions you deliver.
This poll is based on the five alternative future remuneration options outlined in the Life Insurance and Advice Working Group (LIAWG) interim report, which was released just prior to Christmas.
The interim report, overseen by independent chair, John Trowbridge, offers five alternative remuneration approaches for advisers that may replace the existing upfront commission model. Mr Trowbridge emphasises these are not recommendations from the LIAWG, but are an initial set of alternative approaches put forward for industry discussion, prior to the release of the Working Group’s recommendations, which are to be handed down in late March.
The LIAWG is a joint industry initiative between the Financial Services Council and the Association of Financial Advisers, created in response to ASIC’s damning Review of Retail Life Insurance Advice, in which the regulator’s primary concerns focused on the quality of existing life insurance advice and what it saw as a correlation between upfront commissions and poor advice.
… the ‘no change’ option to life insurance remuneration is not acceptable
In offering these alternative approaches, Mr Trowbridge has commented that the ‘no change’ option to life insurance remuneration is not acceptable. However, he equally emphasised that any future remuneration approaches that did not include commissions should also be ‘…taken off the table.’
This poll is not about whether you think upfront life insurance commissions should be retained. This will form part of the industry-wide conversation that will be passionately debated over the next two to three months, on which we will report. Rather, we’re asking that, if you had to select from the five alternatives put forward for discussion, which would be your preferred approach.
In more detail, the five alternative remuneration options and arguments, taken from the interim report, are:
- Level commissions only – rate would be set between 20-30%
- Main argument in favour: all upfront commissions (including hybrid commissions) carry with them conflicts of interest that are difficult to manage in all cases and might be best avoided altogether.
- Level commissions plus fees – level commissions, at a rate to be considered, supplemented with an initial payment (fee) from the insurer to adviser
- Main argument in favour: introduces level commissions, with their consequent avoidance of conflict of interest, while simultaneously maintaining an initial payment that is “unbundled” in order to offset an adviser’s initial costs of providing advice.
- Level funded – variation on level where commissions are level but to offset initial costs, on each policy inception the insurer lends the adviser funds that are repayable over 3-5 years from renewal commissions
- Main argument in favour: Upfront commissions are seen as undesirable but the adviser’s cash flow is a genuine issue that needs a solution.
- Current hybrid commissions – maximum commission rate for first year of 80%, level commission thereafter
- Main argument in favour: some degree of upfront commissions are justified because of the high arranging costs of insurance but the current norm of around 120% initial and 10% ongoing commission is distortive while, say, an 80%/20% arrangement is better balanced.
- Modified hybrid – comprising initial remuneration of a combination of commission at a level less than the current hybrid plus a fixed dollar payment, renewal commissions could be as per current hybrid arrangements
- Main argument in favour: retains the essence of existing hybrid arrangements that offset the upfront expenses of advisers but ameliorates the problem of initial commissions that seem excessive on large policies and inadequate on small policies.
As we seek your measured responses to such an important issue, advisers can click here to access the Interim Report on Retail Life Insurance Advice by the LIAWG.
We note the language used in our headline reporting the release of the LIAWG initial report suggested that upfront life insurance commissions would be phased out: ‘High Upfront Commissions to Go’. It would have been more accurate for us to have reported in our headline that Mr Trowbridge believes ‘High Upfront Commissions Should Go.’
Well we have a poll that does not have all the questions , ie: No commissions is not an option. I suspect the poll is about a risk company trying to plan new products and not loose the huge profit margins made on commission products. Most consumers think it is advisers that want commissions retained, but in fact if commissions stopped and risk was priced competitively then the huge long tail margins would go for the life companies. Think about this if the first 3 years is about cost recovery of underwriting , commissions of 140% and re insurance costs , then after the 3 years if the policy stays on the books we have huge margins. The no commission argument hasn’t hit the life Insurance companies, they are happy to have all the focus on the advisers.
Change will happen, it most likely will be a new entrant that will price nil commissions correctly and the rest will have to follow,
The current discussion of the Powers that be in Parliament appears to be that we are nothing but rip off merchants, making a squillion on selling inappropriate policies to the people we want to help, our clients.
Their solution to this would appear to be reducing upfront commission to a level rate of 20%-30% as opposed to the current rate of up front of around 100% of first years commission and ongoing service of 10%.
It also seems that if you are reviewing your clients policies and find something better at a cheaper rate you are accused of churning by changing to the new policy even though your client is better off.
All the talk seems to be about level of commission we should receive on the new policies and not including the economics of making a sale.
So lets have a look. The average commission on new business for all the policies sold to the client after completing the Fact Find etc. is around $1000.
What is the cost to the adviser. First you have to get the appointment, which can be from a number of sources, cold calling, telemarketing, referrals, reviews etc. The most common is cold calling or telemarketing, the cost of which works out at around $100, however on average you sell one in 3, so actual cost is $300. It usually takes up to 3 appointments to complete the sale. 1st appt around 1.5 hrs, 2nd presentation .5 hrs and 3rd completion 1.5 hrs. Total 3.5hrs . Back at the office research, quotes and Statement of advice 2hrs. Total all up 5.5hrs our hourly rate is around $150. Therefore $150 x 5.5 = $825. Then there is the incidental costs of travel, office costs etc. approx $50. This leave approximate on costs of $1175. This is not taking into account the end result of the other appointments where a sale does not result.
We can see from this that you are already behind $175 on making this sale, which you will eventually make up on servicing. The boffins want to make our up front 20%-30% which would mean we would be making a loss on this sale of at least $875.
It doesn’t take Einstein to work that you won’t be in business very long and the only ones left will be those who have been in business for a very long time and the banks.
The other consideration is that if level commission was mandated then the client would be badly affected ongoing, for example if you were to do a review and found a cheaper policy, the adviser would actually be losing money on changing to the new policy, as he would already be receiving 30% on the old policy and the new policy would be 30% on the lower rate. This is not a great incentive to review these policies.
As for the concept of fee for service on selling life insurance, it is a ludicrous concept that is totally unsustainable as evidenced in the UK.
With these rates who could afford to work as an adviser, with the amount of regulation, compliance and constant attempts to reduce income.
I want to know who in this army of burecrocrates thinks up these ideas ?? How many beers does it take before some ludicrous plan pops into their heads.
We are all theives according to Mr Kell and his bi partisan supporters with nothing in mind but “ripping” off our clients at any opportunity ! Not once have i seen a positive response to an enquiry ?? Why? bad news sells and keeps these people in a job !!
Honestly when was renumeration on a risk product the focal point for advice ??? When did receiving10% more constitute providing bad advicethe advice would be the same in 99.9% of cases ?? Isnt the fudiciary duty placed on all of us taking care of that.??
Where too next i wonder ?? i do hope they have a good look at the mess the British made when they altered commission on life products only to reverse it almost emmdiatly when they saw the mess it created.
While im at it !! You cannot have a poll that correctly shows the 19,000 advisers points of view unless they all get on line and vote.
I pity anyone trying to get a start in this wonderful industry today i am still trying to work out who i am going to have to retrench to keep ourselves on top of the running expenses of a practice with 8 employees ??
Everyone i know at least has a
Our expenses continue to rise which has eaten our profits and this is based on the current commissions paid.
If commissions reduce and expenses do not go up, the end result is still a loss.
The cost to provide advice has risen dramatically over the years, due in part to the copious rules and regulations the very people who now want commissions reduced, instigated.
It appears Life advisers have created thousands of jobs in compliance for Government as well as Life Companies, so there may be a self serving interest to preserve those jobs at our expense, by creating even more work, then to really take a dig at us, by demanding our incomes be reduced also.
Many of these hangers on are probably earning higher salaries than the Life advisers after paying expenses.
I find it quite amusing that your poll doesn’t have “current commission levels” as another option in the poll. It would be interesting which option would come out trumps. Irrespective, if the media could portray the real reason behind the “2014 wave” of level/hybrid commissions being pushed. Now we find that that’s not good enough, lets introduce the “2015 wave” which is “there should be no commissions”. If the media would only question who is pushing these agendas. I’d say, Life Offices/Banks, Industry Super Funds, ASIC and generally any political and social group that has got a lot to gain by having the Independent Advisers decimated!
That hits the target pelerctfy. Thanks!
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