A second licensee has voiced support for a separation of risk advisers and financial planners, as part of its submission to the Trowbridge-led Life Insurance Advice Working Group (LIAWG).
Wayne Handley, Bombora Advice Managing Director, told riskinfo that the need for the industry to recognise specialist advisers was a major keystone of the group’s submission to the LIAWG. He said Bombora was 100% in support of the call to separate risk specialists from financial planners, and recommended that a risk-only advice designation be established (see: Trapnell Calls for Separation of Risk Specialists).
“All of the professions to which the financial advice sector aspires have specialisations. Look at accounting, law and medicine – they all have specialist practitioners. Consumers clearly understand that the professionals they deal with are either generalists, or specialists, which means they can make an informed decision about who to see when they have a particular need,” Mr Handley said.
He argued the advice industry needed to acknowledge the vastly different skillset employed by risk advisers compared with financial planners who sometimes provided risk advice, and how this impacted on the end customer.
“The difference between a client’s experience when they sit in front of a financial planner who does a little bit of risk, versus a risk specialist with decades of insurance-only experience is massive. And at claim time that difference is even more pronounced.
Poor advice will, in the majority of cases, be causally linked to poor education, training and experience
“Historically, the industry has put risk specialists together with financial planners, and ignored the ever growing complexities in insurance advice. The industry is not meeting the need for dedicated training, support and specialist recognition. This may well be one of the reasons we’re seeing issues with the quality of risk advice today – because the industry has had such a focus on financial planning.”
Bombora also used its submission to caution the LIAWG against automatically concluding that upfront commissions are the sole driver of bad advice.
“It’s not surprising, when you reflect on the ASIC research and the current environment, that the majority of cases of poor advice would appear to be linked to upfront commissions. If the majority of advisers are taking upfront commissions, you must expect that’s where you will find the majority of incidences of poor advice to be,” Mr Handley said.
“We argue that you must look at poor advice in isolation, and look at why advisers are taking upfront commission in isolation.
“Poor advice will, in the majority of cases, be causally linked to poor education, training and experience. We should understand the background of those advisers.”
Mr Handley explained that the need for upfront commissions is, in the majority of cases, linked to the cost of advice.
“This includes the significant cost of compliance, the cost of servicing the client over time (especially at claim time), and the concept of ‘swings and roundabouts’, where, over a period of time, the total commission received for advice and contracts that are placed meets, or hopefully exceeds, the overall costs of the business.”
He also pointed to the cost of providing advice that is not taken up by the client, or is incurred when the application fails at underwriting stage.
“If you only measure upfront commission on a completed case basis you are not measuring the overall activity, and therefore costs, of the adviser,” he said.
If there is an advice issue, let’s worry about the advice component, not the remuneration of it
Mr Handley called on licensees and associations to accept the challenge set by the ASIC review and drive improvements to education and standards.
“We must recognise that there is a continuum of professionalism and competency in those licensed to provide risk advice. That is where the problem lies. When we begin to adequately train and support risk advisers, and measure and license for risk competencies, we will see a significant improvement in the quality of advice.
“If there is an advice issue, let’s worry about the advice component, not the remuneration of it. If we fix the advice quality issues, then remuneration will take care of itself. We’re advocating for an informed, balanced debate, not a knee-jerk reaction to a flawed causal link between poor advice and upfront commissions.
“Ultimately this is about education, training, culture and leadership.”
This article makes so much sense! I could not agree with you more on the separation of ‘riskies’ it is a different skillset and the ongoing education and training required to keep up with the ever changing insurance products in the industry so advisers are able to act in the best interest of the clients is enormous and overlooked by many stakeholders in the industry.
Thanks Paul appreciate your comments – it is essential that this happens for us to be recognised as the professionals we are and of course for consumers
Some great points Wayne, it is staggering that no one has picked up on the supposed causal link between up front commission & poor advice…..? Can’t help but think though the “education & training” issue needs to be overlaid with relevant communication & numeracy skills which judging from recent studies of our education system are sorely lacking in the last 2 decades of secondary & tertiary curriculum. Culture, ethics & leadership are essentials & much of this probably needs to be taken away from the current host of “training boffins” who have never been in the field.
Excellent points !
The Business model of a Life Insurance Company and a Investment focused Company is different, so you would assume the way advisers are trained and regulated would also be different.
It is a nightmare for everyone ( advisers, staff, regulators, Insurance Companies, Banks, Investment planners dabbling in Insurance, clients etc; trying to pretend they understand all the complexities and regulations and that is why other professions have specialists.
The real cost is Billions of dollars in unproductive areas that do not fix irregularities but rather add to the confusion and has created an explosion of cheap Insurance with no benefit to Australians, apart from an illusion of having some Insurance, though god help them if they need to claim.
The Life Insurance Industry generates Tens of Billions of dollars and could easily double or triple that if we seperate and run the Life Insurance model as a specialist area, which would simplify compliance, reduce costs and finally provide all Australians with the opportunity to attain decent life Insurance that will be in their best interest.
Well stated !
Wayne, you have done an outstanding job with your submission. This is really the best way to tackle in the issue in the first instance, rather than taking drastic measures which solely focus on commission. Well done Wayne.
Thanks Brad – appreciate your comments !
I keep coming across examples of bad advice from financial planners who consider themselves generalists in all aspects of financial planning, including risk and some of the advice is poor when it comes to insurance. Risk is such a mine field that even at my great age I’m ashamed to admit that I keep learning something new that is also important in the field of insurance.
A well thought out and presented position ………….. thank you Wayne Handley. Let us hope that the voices of balanced reason from Handley, Trapnell and Harrison undermine the insidious pressure being brought down upon the ‘independent risk specialist financial advisers’ by government, industry funds and some insurance companies [all for different reasons].
Separation of Financial Planners and Risk Specialist Advisers seems reasonable and the separation should be on the basis of education, experience and or both, how easy would it be to put a course together or adapting existing courses to obtain a ‘Professional Accreditation – Risk Insurance Specialist’.
Perhaps the questions should be asked of the ‘survey’ ………. of those that provided risk insurance advice what education/experience did they have at the time of giving said advice?
Secondly of the test sample how many clients were offered risk insurance cover?, and how many actually actually took up the offer of insurance?
wtrofoz
Yes and with the “risk specialist” accreditation they should be the only ones licensed to switch an existing policy to a new provider. Taking away the “generalists” ability to switch products could possibly reduce so called poor advice…. jus an idea
Totally agree – well balance and considered reasoning is the best approach
This is a very interesting proposal – and a very good one. Well done Wayne.
I wonder though how the powers-at-be would view this and whether they would support it? After all, the truth would gradually come to light that most problems in recent years stem from bad advice given in the areas of investments. And that would pretty much destroy this ridiculous argument that life insurance commissions need to be reduced or banned. Golly – the industry funds may then have to rethink their “compare the pair” advertising campaign! Heaven forbid…..
Thanks Warren – we firmly believe this is the best way forward for everyone – we trust the right people are listening .
Guys, I’ve seen some pretty crook advice provided by so called risk only experts that are downright dangerous… but that doesn’t mean all Risk only Advisers are crook, nor does it mean that all financial planners don’t know about the contracts they are offering.
Here’s a few questions you should all ask yourselves,
Which company offers the best life policy ?… not based on premium but on policy conditions.
If you think they are all the same, then you don’t know your stuff.!!
Which company has the best Income Protection policy contract in the market for any particular occupation.. not based on premium but on policy conditions ?
If you think they are all the same, you don’t know your stuff !!
If you rely on some research capability other than actually doing your own research and reading the policy document,…. you are in trouble.
I can tell much of the so called research is flawed on many fronts and those that rely on it solely,… better increase their PI.
How many companies do you know that don’t require your client to go to A current Affair, 60 minutes or a good lawyer.
One respondent in a previous post has already named two major life companies that it’s more akin to being in a war zone when it comes to claims.
Sorry, but the first time you Risk writers mention putting Life insurance and TPD into super as the clients best option, you have crossed the line into the realms of a Financial Planner….. and most do.
If you don’t advise the client (in writing) that their Life cover in super is subject to tax (16.5%) for non -dependents (adult children) then you better increase your PI.
If you don’t mention (in writing) to those under age 55 that any TPD claim subject to a ” condition of release” will be subject to tax (21.5%), then you better increase your PI.
If you do mention these things, then you either need to be a tax agent or be registered with the Tax Agents Professional Board for financial planning otherwise, ASIC will be looking for you.
Sounds like a good idea doesn’t to have a separate licensing arrangement
Good on you Alleycat! Bloody well said!!
Well said.
Is it logical to think that reducing the income by changing the way we are remunerated will solve the problem of poor advice???
However just think, if this logic works, it should be applied to all professions!!!
Legal, Accounting medical etc. Imagine the ramifications!
I keep seeing advice where the financial planner ( or worse still, an accountant ) has flippantly suggested the client go to Aust super or the like for their death & TPD cover because its cheap.
The lump sum tax issues are ignored in the advice, and they are never mentioned in the “Insurance PDS ‘published by ISA funds, printed off the net.
BUT ignoring tax for the moment, having your TPD in many ISA funds now is bloody dangerous.
In a blatant attempt to keep premiums down, some ISA funds are playing with the small type
All these Funds have done is add one word to their TPD definitions – “rehabilitation ” That word allows the insurer and/or the Trustee the discretion to allow them to force a disabled person, who would normally otherwise satisfy the “standard “Any Occ ” TPD Definition, into ongoing, indeterminate Rehabilitation at the Members expense.
In those circumstances, what Rehabilitation Service, looking a gift horse in the mouth, wouldn’t claim that they might get the claimant Member back to work, or least change them from being permanently to temporality Disabled, or from Total to Partial Disablement
A client might die before all Rehabilitation offerings were exhausted. And what’s the bet the ISA funds will not set up a Rehabilitation business, just to keep in it house. Now that’s potential for CONFLICTED ADVICE with a big “C ”
These poor buggers need a specialist risk adviser to save them from themselves and their generalist advisers
Bring on specialist Life Risk Adviser Certification
Well, I can not say any more on the subject than what this excellent article from Wayne has said. Please Wayne, shout your message from the roof tops in a way we advisers cannot do. In your position as an AFSL holder make sure you let people with some clout hear your very well articulated message, as you’ve written here. Reminds me of the people I worked with in the days I was actually excited to be in the industry – now there’s an admission I’m not happy to hear myself make. Be less than honest if I said otherwise . . .
Almost puts a lump in my throat to see an AFSL take the industry by the horns so well, verbally, and come out with such a clear and strong message – just like Don Trapnell at Synchron. Good on both of you. Where are the other AFSL’s? Why does this sort of passion and clear intent only come from the independent AFSL’s? Thank you Wayne!
Brian, I completely agree with you. I think one of the main messages that’s come out of the last five years of mindless ‘reform’ is: “Advisers, you’re on your own.” You can count on one hand the number of people that at least act as though they’re on our side.
The licensees (bar the few you’ve mentioned) don’t give two stuffs about their advisers.
They’re barely aware of the hoops their lawyer-heavy compliance departments make us jump through every day. In my limited experience, they see us as troublesome employees constantly putting their AFSL at risk.
What’s particularly irksome about them is their completely redundant and unnecessary existence.
Advisers should be licensed through the professional associations. Licensees should not exist. I’m pretty sure Pfizer doesn’t licence doctors.
But I have to thank them – their silence on this topic speaks volumes about their motivations.
And, if we manage to survive this latest attack on our livelihood, I hope their silence is also the latest nail in the coffin of our utterly broken licensing system.
Planner, They are far from silent on the issue. Have you read the FSC (representing the major insurers and due to vertical integration the majority of advisers) submission to the Trowbridge enquiry? They are actively advocating for a 20% Level Commission Structure and 5 Year Responsibility Period!!!
Brian- thanks so much for your encouragement – we will continue with the message !!
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