Adviser Thumbs-down to Trowbridge Reform Model

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Will the Trowbridge Reform Model remuneration proposal (level commissions supplemented by an Initial Advice Payment) sustain a viable advice practice?
  • No (87%)
  • Yes (8%)
  • Not sure (5%)

riskinfo readers, mostly financial advisers, have delivered a resounding ‘No’ vote to John Trowbridge’s proposed Reform Model for future life insurance advice remuneration.

As we go to print, 84% of advisers have said they do not believe that an ongoing 20% flat commission, supplemented by a $1,200 Initial Advice Payment, will be sufficient to deliver a viable advice business to serve consumers. The remaining 16% of the many hundreds of votes we have received in our latest poll are split evenly between support for the proposed Reform Model and the ‘undecided’ category.

Summarising some consistent themes in the adviser responses to our poll question, we have been told:

  • Existing legislation provides sufficient scope to deliver the desired outcome of quality advice for more Australians, while aligning the interests of all stakeholders, but the legislation needs to be enforced more effectively.
  • A proportion of advisers will either exit the industry or stop delivering life insurance advice because it will not be economically viable.
  • The Reform Model does not take into account additional business expenses, including office rent, PI and other liability insurances, office costs, motor vehicle etc…

We’re keen to report any financial modelling that may have been undertaken so far, which supports the viability of an advice practice operating under the proposed Reform Model. And we’d like to see that modelling extend across all the different types of advice practices that exist, including risk-focussed and holistic advice firms, established and emerging businesses, vertically-aligned and independent practices, who service small, medium and large client bases, etc…

In the meantime, it appears there will emerge little support from financial advisers for the Trowbridge Reform Model proposal.

We’re also keen to explore whether, if the overarching message from advisers is that the proposed Reform Model will not work, then what will? Do advisers prefer to retain the status quo? Or do you generally support some degree of change, eg banning ‘upfronts’ and operating in future with either hybrid or level commission? And if only flat commissions will be available in future, what is a level that would deliver a viable model for your business, while serving the interests of all stakeholders, especially the consumer?

Tell us what you think, as we keep this poll open into next week…



27 COMMENTS

  1. Banning commission upfront is not a good idea. It will destroy our business. Client will not be provided the same level of service. Personally I will be leaving the industry if the proposed changes proceed as I anticipate I will not gain sufficient revenue to continue the business.

  2. The supposed rationale for the Trowbridge changes is to remove the costs associated with churn. How do you fix that?

    By introducing a statutory best interests duty so that clients are only switched if it can be clearly demonstrated it is in their best interests.

    Trowbridge, your work has already been done for you by FOFA. Let it take effect before coming up with new solutions that have unnecessary negative impact on consumers and advisers.

  3. I support a hybrid (current arrangements)to level model(30%) but this report allows the only winner to be the insurance companies.as much as this report wants premiums to reduce companies will not so clients don.t win and advisors don.t win. capping commissions is silly and now recruiting will be even harder and underinsures will get worst. If the clients do not get a reduced premium the report has failed consumers and advisors.but if this is consultative it is a good place to start. I believe Trowbridge did listen to the 137 submissions because he came up with an admin fee every 5 years capped at $1200 per clients. I believe there is an favoured outcome between the right level commission and the right hybrid without caps.

  4. Life code of conduct. 1998 similar issues to today. Life sold on basis of premiums not client needs. High upfronts do not build a business ongoing revenue does. And that is a fact

  5. I understand that the existing upfront commission model can be used by some financial planners to profit from churning, however the Best Interest Duty (BID) obligation should discourage this type of behaviour. I agree that serial offenders need to be dealt with, so perhaps a system could be introduced when a policy is being replaced, which requires the financial planner to send a copy of the BID Working Paper with the application to justify the replacement. This would be better than the proposed 5 year rule, as justifiable replacement business would allowed. When we review a client’s insurance needs and existing arrangements, we have an obligation to act in the client’s best interest, which sometime means replacing an existing product with a new one. If a client contacts their financial planner and says that his premiums are getting too expensive and he would like the financial planner to shop around for a cheaper premium, it is the financial planner’s obligation to recommend a replacement product if it’s in the best interest of the client. Due to the underwriting process that we need to put clients through, most financial planners don’t actively churn insurance products anyway. If a Reform Model needs to be introduced, I believe the existing Hybrid commission model capped at 80% (plus GST) in the first year and 20% (plus GST) ongoing would strike a good balance, as well as enhancing the value of financial planner’s businesses over the long term. The proposed $1,200 IAP is significantly inadequate to cover the upfront costs in most cases.

  6. A maximum $1,200 up front does not remunerate the work and cost involved in landing a large case and nor does 60% on smaller cases. Until Mr Trowbridge can guarantee that each and every client will continue with their plan for at least 7 years and stay loyal to the adviser who writes the case, advisers can not hang their hat on level commissions and must be significantly rewarded for bringing business into an insurer.

  7. It great to see a great practical response from Scott Kilvington that gets down to the real issues.
    Everyone seems to forget why we became life brokers – to help clients get better premiums with life comapnies that advisers trust and have a relationship with & hopefully pay claims.
    Life companies love pinching business from other companies, thus the continual product improvement and benefits.
    All busineses need at least 80% upfront to cover the costs to get new covers on the books. It is very time comsuming now!! Advisers with big renewal books seem to forget get this. They are the ones who have benefited in the past from the higher upfront comms and now want to puff out their chests to say 80% is too high.
    Pot calling the kettle black!!
    If comms are below 80% how will new advisers be attracted into the industry.

    • Some very good thoughts and comments just with a caveat and not to be too Negative with my response.
      We as an industry have contributed like the life companies have accepted the risk covers from the fleas that exist in our industry, ripping off people and the life companies and their PDM BDM or whoever all know who theses people are and yet still accept new business from them Why? because it is profitable for them. We and the Professional bodies AFA and FPA with the life industry must self regulate this problem if we do not take responsibility then Legislation will do it for us.

      We all know that commission is only a way for remuneration for what we do for our clients were it is a upfront or ongoing still we must value what we do and charge for it no issue at all that is the piece that Trowbridge missed this mark but a lot of what he has suggested may actually apply to help in the longer term. I ask the Life offices to take reasonability stop this now by not accepting adviser who you now have this problem.

    • I absolutely agree with you. I have been in the industry for the past 10 years and have taken the step of starting up a new practice within the last 12 months. In this time, there have been a huge number of changes within the industry, FOFA being one and the Trowbridge report being another. I rely on the higher upfronts to survive and will continue to do so until my business has reached a level where I have a large book of renewal business. How am I supposed to cover the overheads, loan repayments etc, let alone pay myself a wage under the proposed model? This, combined with the increased cost to serve, is going to make it nigh impossible to survive.

  8. All the enquiries of the last few years keep on being focussed on biased surveys and none of it has really gone and asked the consumers what they want.
    Even last year survey by ASIC that according to the regulator showed that 37% of the files surveyed had some form of technical non compliance if done by a private enterprise would have been tagged as unfair and unrepresentative of the real market.
    For a starter it concentrated on individuals that have moved dealership thus attempting to highlight that maybe a person, while getting used to a new compliance regime and check list, might be more prone to overlooking some steps of the new process.
    Further once armed with the list of advisers that had changed dealership, I do believe, that ASIC went to the insurance companies and requested to be supplied with a list of the business written by these advisers and requested to audit the policies that had a higher premium and even after all this filtering and attempt to manipulate they could only come up with 37% of files that had some technical problem as only less than 7% I do believe had serious faults discovered.
    Now if a survey that was designed to expose serious problems with our industry could only expose that less than 7% would have failed what would be the percentage if the terms of the survey would have been completely random? Much lower I am sure and yet we allow them to keep stating that advisers are a bunch of opportunistic individuals. Would Lawyers, Accountant, Doctors not to mention Economists allow this sort of campaign to take place?
    As far as the comments about remuneration apart from the Medicos that are partially funded by the government which other profession would allow regulators to decide what they can charge?
    Why should we not decide what we would like to provide our services for?
    By the way if the Trowbridge report should be implemented and we check what the average premium for insurance is across the industry the insurance companies should really worry because I suspect that the cost of providing insurance will increase and the clients will see a rise in premiums, just check the maths.

    • Spot on Sergio, I have always respected ASIC but that latest survey left me lamenting. Most serious minded people would understand the survey is not in any way indicative of the life insurance adviser at all or indeed the industry.
      If the Trowbridge recommendations were implemented the losers would be the consumers and the advisers. If you want to know the winners ,follow the money trail.
      Not hard to work out whom they will be.

  9. I am not sure how the existing remuneration model has become the sole focus of our Industry. Personally, I do not believe that “churn” is as great an issue as certain groups are accusing us of. There are, as adequately articulated above, ample provisions already legislated to prevent this from being an issue.
    Do clients not have the right to the best Product available to them at any given time? If there are enhancements to Product (which Life Companies are always, in the spirit of market competition, striving to achieve) is it not the Advisers obligation to ensure that their clients have the best Policy for their purpose?? If he does not do this, is he providing the best advice? And, if he does offer this service to his client, should he not be remunerated for his diligence?? Other professions are not challenged on performing their duties – or accused of malpractice for performing them.
    I believe that most Advisers are honourable, and have strived to provide a professional service in what is a very emotive and often challenging vocation. Rarely do you receive a phone call from a prospective client requesting life insurance. Life insurance is generally not bought, but sold – often a hard sell (God knows why!)
    As has been mentioned in previous exchanges, a lot of Advisers have had experience with helping their clients during a claim. We don’t get remunerated for this, and often, spend many hours assisting and supporting our clients through the process. And in some cases, are instrumental in ensuring their financial affairs are “tidy” before they pass. And often, we do it without compensation. How many of us have emails form clients thanking us for the wonderful work we do??
    Trowbridge, do you have many emails thanking you for the wonderful work you do??
    In terms of remuneration – seeing as it is such a major issue, it seems that a Hybrid structure is the most reasonable – in most cases. For premiums below $2000 p.a., upfront should still be offered.
    And that is all I have to say about that!

  10. I hear FSC went to the trouble & cost to obtain a legal opinion from trade practices lawyers as to the legality of imposing standard commissions across all insurers. They must be a little concerned that they could be accused of being anti-competitive- aka – creating a cartel

    Apart from Don Trapnell & Co, there has been no public comment from Licencees. I don’t expect comment from those owned by the instos, but where are the rest. Don’t they know if advisers depart, or lose gross revenue, so do they. And Trowbridge wants to eliminate bonuses paid to Licencees.

    Remember, each Licencee, in theory, is able to negotiate a different commission deal ( and more importantly, volume bonuses ) with individual insurers. It just so happens no licencee has ever asked for a different deal on advisers commissions compared to other Licencees because the flexibility in the system, hidden from advisers, was in the volume bonus

    So lets see. The premiums are fixed by the product manufacturer, and agreed to by advisers and clients when we use the product. At present, commission is “negotiated ” between Licencee and product manufacturer, not adviser. Trowbridge proposes threat the insurers mandate a standard commission rate

    Anyone remember ” retail price maintenance ” where the manufacturers dictated a standard retail price and thus the profit margin

    That is why Trowbridge suggests that the power to decide commissions and thus the profit margins of advisers be somehow enshrined in regulation/legislation. He recognizes the potential of ACCC intervention

    If Licencees have the guts and the finances to lodge a High Court action, that might be really interesting. The advisers have no contractual connection to the insurers

    I am no TP Act lawyer but it appears to me that the fundamentals of this situation is that the FSC, a self-appointed body claiming to represent all insurers, with their arguments promulgated by a so called independent advocate, is clearly taking advantage of market power, under the guise of some yet-to-be proven consumer benefit. This proposal apparently has the endorsement of a regulator seeking to create a world in their own image, driven by a anti-business ideology

    The FSC proposed, a few weeks before Trowbridges final report, a flat 20% level commission with no fee. Gee, was that a guess on the FSCs part, or were they applying influence

    By adding fixed commissions to a fixed premium across all insurers that looks like a Twiggy Forrest cartel to me, if all insurers endorse the FSC common position

    Now where did the pool raised by the AFA to fight Opt In and FOFA end up?

  11. The time and effort involved in getting a tricky medical underwriting case over the line can be huge. Even a clean-skin medical case may involve significant effort getting all the “financials” in the case of a self-employed client (not customer please). It is notoriously hard to predict in advance how much adviser, admin and support staff time might be expended on any particular case. One thing is for sure, $1200 will not cover it by a long way.
    I find the premise that a maximum fee by design should be insufficient to cover the cost to serve to be nothing short of offensive. This makes the presumption I think that currently churning is the norm rather than the exception, which is clearly not the case. There will always be the odd dodgy operator who will do the wrong thing no matter what rules are in place. There must be far better ways to weed out any remaining bad apples without making the whole industry unsustainable. We already now have a best interest test. When backed up by intelligent periodic dealer compliance and a vigilant regulator, identification and punishment of any problem operators with systemic breaches should be easy and swift. This is the type of reform we should all be happy to support.
    Whilst I have used upfront occasionally on some smaller cases where recovery of my cost to serve is at stake, I tend to go hybrid as this remuneration model tends to best align with the amount of work involved both initially and on an ongoing basis. I also find it hard to justify in my own mind a commission greater than the first year’s premium. (In my opinion, changes to the remuneration model (if any) do not need to go beyond fixing a standard maximum % across the industry – for both year 1 and ongoing – at a similar level to today’s hybrid model.)
    Legislating a similar maximum commission to apply to any/all managed investment schemes would surely have also been a simple solution to the misleading (now ancient history) investment commission debate.

  12. I think BILLB is on the right track. How many industries have been attacked on the basis of establishing retail price maintenance ,many and the fines were large!

    However I also remember an act to do with restrictive trade practice applied every where but mostly popped up in sport with controlling bodies telling sportspeople where they could take par.
    Swimming tennis and motor sport come to mind.
    Bob Jane took c.a.m.sd. to court because they would not allow entrant who were member of c.a.m.s. at his track. He won c.a.m.s. ate humble pie (exspensive pie).

    For us though I think these bodies will look the other way.

    Here is a problem for the churning claims. I have just made contact with a client who has a product from 2001 Term and Trauma over 1ml. and 600k compared to the industry he is paying an average of $`150.00 p/m moreThere are no acceptable partial payments on the trauma.

    PLEASE MR TROWBRIDGE WHAT SHOULD I DO?

    There are two policies to be written as his business expense is way out of date
    We have already had two meeting with one coming up after easter. It is a 45 minute drive each way and each meeting has been about 30 mins.
    Under the trowbridge system 20% plus $1200.00 PLUS 20% WONT CUT IT.
    I would leave it as it is and take the substantial renewals as they are.IS THAT RIGHT.

    • No, Assurance Man (Maybe), of course it is NOT right for you to leave your client holding policies that are no longer suitable.

      What should you do? Well, under the Trowbridge system, you should either update the client’s cover and get paid the $1,200 plus 20% trail commission for doing your job, or the customer will find another adviser who will serve them better, and then THEY will get the commission instead of you.

      What do you think trail commission is for anyway? It’s not meant to be money for nothing, it’s for doing your job and making sure your client’s policies are still relevant to their needs every now and then.

      Consider this – you’ve been getting paid 10% trail for the last 13 years (since 2002) on this policy, and you’ve done nothing for it, as a result of which by your own admission they’re now paying $1800 a year too much in premium. That’s about $5000 in your pocket since 2002 for doing nothing since you sold the policy — shame on you!

      Your claim that $1200 plus 20% of premium (which will be at least another $1000) won’t cut it, given you’ve had 2 meetings that soaked up 4 hours of your time (but only 1 hour with client) seems to suggest that you want to be paid an awful lot for your time.

      Maybe you shouldn’t keep driving 1.5 hours for a 30 min meeting. It’s rather inefficient to keep doing that, and who’s paying for it? Ultimately your client is. I realise F2F meetings are better initially, but you should consider telephone/email follow-up after that, or ask them to come to you for a change. Especially given it’s an existing client. This is an example of the inefficiencies that shouldn’t be allowed to continue, and won’t be viable in the ‘new world’.

  13. The other issue is for non Self-Employed advisers who are employed under a commission based remuneration package themselves. Personally I receive a portion of the upfront commission paid as part of my income. Assuming this goes through I would get XX% of 20% as opposed to the current 80% (we only use Hybrid) or a new structure would have to be negotiated and it will either be at the cost of the company director (my boss) or the loss of my job as it is not sustainable.

    And what happens when there is extra costs or reduced profit? It has to get made up to stay sustainable. Which will more than likely be at the cost of clients.

    The shortsightedness of some of these ‘professionals’ is truly baffling. It’s easy to make strict recommendations when you’re not the one being affected.

    I truly feel sorry for anyone just starting or looking to start in this industry. Starting a new business (specifically for riskies) won’t be an option under these new conditions.

  14. We agree the proposal as is, is ridiculous and has to be against the Trade Practices Act somewhere ?? Restraint of Trade ? I somehow get the feeling that this report never intended to go 80% 20% hybrid commissions first up. Mr Trowbridge had to know the resounding NO impact that would come from advisers ! Or he is “sillier” than we think. The industry will revolt “back” peddling will take place and we will end up with the 80/20 hybrid model that most people think will work. Its a big game that is being played out behind the scenes for our benefit .They want us to think we have eventually won.

  15. Legislate at the prospectus/pds level

    All insurers pay the same commissions – suggest Hybrid 80% Year 1 then 25% Renewals

    Any policy ‘churned’ within 7 years of starting gets paid at Renewal commission rate

    It then comes done to Product Manufacturers to develop competitive products.

    Advisers will look after their best interest obligations to their clients.

    Keep it simple !!!!!

  16. Can somebody tell me why the AFA have employed the very person responsible for the report in the first place?

    Here Mr Wolf, can you mind my flock of sheep for me please?

    And I thought the FPA were hopeless – Thanks for nothing.

  17. It is correct,Life Insurance Adviser s are paid a handsome up front commission.After 35 year association with this great Industry ,I can report thier is a very good reason for this,
    1. People dont queue at my office door each day to buy Life insurance.
    2. Finding new clients each week is HARD,HARD,HARD.
    3. Making a sale to a Family or Business to buy Life insurance is HARD,HARD,HARD.
    4. The 3 to 4 appointments needed to finalise a deal plus the paper trail is all a battle.
    5. Sometimes trying to sit a client down to reveiw thier life insurance is like hurding cats.
    6. I sometimes beleive they would rather get root canal at the denist than reveiw thier life insurance.

    Advisers are renumerate well for a good reason,thier is NO free lunch in this Life.Dont be fooled.
    Selling life insurance on the front line is very HARD and nothing has changed since I sold my first Life policy in Feb 1979.
    If it was that easy and over paid….guess what…..everyone would be doing it.

    • It is hard, Greg. Having been in the industry a long time as you have, some things haven’t changed. I was told ‘life insurance is sold, not bought’. That hasn’t really changed. I was also told ‘this is the highest paid hard work in the world and the lowest paid easy work in the world’. Neither has that changed.
      What’s this got to do with the discussion in hand? Well, we’re remunerated appropriately for the hard work that life-risk is. If we’re not remunerated accordingly, as Mr Trowbridge’s report if adopted will bring in, why would anyone want to enter our industry?
      More than that, even longer term advisers will feel that they’re just spinning their wheels, being paid a minimum for what is essentially a maximum amount of work. If the report is adopted, our industry will be in dire straits and so will the already-underinsured public.

  18. Minimum IAP fee can not be below $2,000 plus GST per client/insured together with a minimum 25% plus GST ongoing flat commission.

    Does anyone know whether TROLLBRIDGE’s $ or % include or exclude GST???? I bet they are inclusive of GST hence even LESS $$$ for the poor adviser.

  19. On more than one occasion I had clients whose policy did not get issued as the required medical reports were not furnished by the GP for over 3 weeks. On more than one occasion I had clients who did not have time to do their blood tests for over 3 weeks. On more than one occasion I had to chase clients for several weeks before I could sit down to talk about insurance. Sadly there have been occasions where clients have not gone ahead and chose to be underinsured or uninsured for some reason or the other. You ask me to be content with $1200, Mr Trowbridge or are you asking me to leave the industry or just be dependent on Centrelink. Now I do have 3 kids so Centrelink may be more forthcoming and considerate and viable than what you have planned for us and may I say your report has no consideration of the best interests of our clients !

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