The Association of Financial Advisers has expressed concerns that the measures contained within the Trowbridge Report are likely to increase the cost of life insurance advice.
AFA CEO, Brad Fox, said the recommendation to move to a 20% flat commission model, with an additional Initial Advice Payment, would lead advisers to charge their clients an additional fee in order to recover some of the costs of providing advice.
“Unless it becomes less expensive for the adviser to provide the advice, or insurance premiums reduce substantially as a result of these recommendations, then fewer Australians will be able to afford life insurance advice,” Mr Fox said.
“It is common knowledge that cash flow is the biggest reason small businesses fail. If advisers are to earn less than it costs them to provide financial advice, it is only a matter of time before they go out of business or stop providing this type of advice. The social cost to Australia of fewer people getting appropriate insurance would be enormous. We are not being alarmist – consider what it means for government funding of disability support pensions and other forms of payments and service support.”
If advisers are to earn less than it costs them to provide financial advice, it is only a matter of time before they go out of business
In its submission to the Life Insurance Advice Working Group Interim Report, released by Mr Trowbridge in December 2014, the AFA supported the removal of high upfront commissions. However, the Association argued for a hybrid commission model to be employed because “…it strikes the right balance between removing the publicly unacceptable high upfront commissions, yet provides sufficient revenue to ensure advisers can afford to give quality, personal, strategic financial advice to each client”.
“Our interpretation of the recommendations is that they will do more to resolve the sustainability issues of insurers than achieve the twin objectives of raising advice quality and increasing the number of Australians with appropriate life insurance,” he said.
Mr Fox said he believes there is a need for careful, robust risk assessment and modelling of the effects of the recommendations, before any change is enacted.
“All stakeholders must question how these recommendations will help Australians access quality life insurance advice. Will the price of life insurance fall, will there be a mechanism to ensure that outcome, and will there be enough financial advisers to provide advice to those Australians who need financial protection?”
As a retired risk writer, I have no axe to grind. The Trowbridge report is obvious written by a man with little or no idea of the costs of finding new clients, underwriting only to have the case rejected,
running an office with all the normal business costs. In my opinion it is a recipe for devastating the industry & will result in even more under insurance than Australia has presently.
The report seems to be based on the assumption that people ” line up ” to buy Life Assurance.
They don’t. It is a “character purchase” & very few people voluntarily contacted me in over 40 years I had in the industry. ( probably less than 5% )
The report should be titled The Anti Widows Life Assurance Report! That would be the effect, if implemented. Many advisors would be working for around $10 per hour, after all costs are taken into account.
It is disturbing that at a time when the compliance, training & technology costs to advisers are skyrocketing, this is suggested. Why is the Industry being persecuted because of the actions of a few, almost continuously for the past 10 or so years?
Well said, Graham. I agree with your remarks – they reflect the true nature of things in the life-risk industry.
Changes are on the way and only those who can adapt will be left. Indeed, many will significantly prosper, including advisers astute enough to recognise the opportunities. I wish I was one of them!
That’s spot on!
Increase our compliance and education and training costs and at the same time slash our incomes. Makes perfect sense to me- NOT!!!
Good luck to all those insurers and customers out there. The only policies that people will have will be those cheap and nasty direct sales ones that have no advice provided and NEVER pay at claim time.
Trowbridge looks to me like a bankers lackey. He has little to grasp of small business and particularly risk specialist business. As Graham says above, people do not line up to buy what we offer, it is not a simple sale.
A $1200 payment means the banks and insurers wont have to reduce their insurance “because we have to pay the advisers”.
The churning is a lie, a small number do it & if the companies cant stop a little adviser by reducing their fees to level, they shouldnt be in business.
IFA’s are being set up to fail, this is the perfect model to do it. This is a witch hunt!
Brad Fox. Please comment. You say,publicly unacceptable high up front commissions. Publicly. Excuse me but my clients are the public, and they do not find commissions unacceptable or high. In fact they find them totally acceptable and reasonable. Who’s side are you on! You may have never been a risk writer your self, by these comments. The AFA was founded by risk writers. And by the way I am also a financial planner. Have some guts mate, and stick up for us, not go with the biased minority who have a self interest, you know that. Your interest is supposed to be our interest.
Agree Graham. The only winners here will be the direct insurers and no win no fee lawyers as they will have plenty of clients seeking advice for declined claims. The heart of the issue is churning. Fast forward 10 years and what the next issue ‘clients not being recommended to replace cover as 20% ongoing commission is to great.. give me a spell
I agree with Rob. I have been in this Industry for over 25 years and Run both a Risk and Financial Planning Business. I was a member of the AFA , but I haven`t been for many years and this is why. The AFA does not run any events in the country at all and only caters for the the Melbourne set. They are supposed to have the advisers best interest at heart but in my 25 years I would have to question that.
Brad, who says our comms are publicly unacceptable.? Have you at any time really sold a Risk Policy.? I have never ever had one of my clients baulk at my upfront earn. It is always fully disclosed and my clients are happy to proceed.
I`d like to see Trowbridge and his other hangers on survive if we took 90% of their wages. What a joke.!! Do these people live in the real world or some fantasy land.!!!!
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