The Trowbridge recommendations are a “starting point” for the industry, according to Synchron’s Don Trapnell.
Responding to John Trowbridge’s report on retail life insurance, released last week, Mr Trapnell said that while change was necessary, the industry must first assess the impact of the recommendations on consumers, advisers and advice businesses.
“The Report marks a starting point, however before we knee-jerk to implement such wholesale changes, we must ensure they actually do benefit consumers and are meaningful,” Mr Trapnell said.
According to Synchron, Mr Trowbridge missed a golden opportunity to conduct modelling that demonstrates to Government and regulators the real effect of the changes proposed.
“The changes will require insurers to conduct extensive systems reviews and that comes at a cost. Therefore, we do not believe insurers will be able to reduce premiums. As suggested by the Report, advisers will be able to make up the commission lost by charging the client a fee – this of course means there will be an increase in the cost of insurance advice for consumers. It’s difficult to see how this could possibly make consumers better off.”
…we do not believe insurers will be able to reduce premiums
Mr Trapnell said he was concerned the recommendations would force small business advisers out of business and a whole range of people from their businesses onto the job market.
“The Report suggests that businesses will recoup losses in a few years’ time. Small businesses simply cannot withstand losses for that period of time and would be forced to shed staff and cut costs simply to survive. If the recommendations are implemented, we estimate that job losses, both direct and indirect, suffered by Synchron practices alone would number around 500 people.”
Mr Trapnell and Synchron Independent Chair, Michael Harrison, are about to embark on a ‘fact-finding mission’ to the UK, to observe the effects of the country’s Retail Distribution Review (RDR).
“We decided some time ago to go on a fact-finding mission to the UK to observe the effects of the RDR on the advice profession, how UK legislation and/or regulation has changed as a result and whether there are lessons Australia could learn from the experience,” Mr Trapnell said. “The release of the Trowbridge Report has confirmed our belief that this kind of review of a market that is similar to our own, is not just necessary but absolutely vital.”
…we estimate that job losses… suffered by Synchron practices alone would number around 500 people
Synchron will visit a number of major stakeholders in the UK, including insurers, large and small independent advice businesses, and the Personal Finance Society, an adviser association similar to the Association of Financial Advisers (AFA) in Australia.
“The question we will be trying to answer is this: if the UK has been through a similar experience to Australia, why has it resulted, or conversely not resulted, in the implementation of recommendations similar to those contained in the Trowbridge Report and how has that affected the profession as a whole,” Mr Trapnell said.
To find out more about the RDR, click here to read our article in the latest edition of riskinfo Magazine, which looks at the possible impact of the removal of upfront commissions from life insurance advice.
Good on the Synchron men, great to see people at the dealership level doing something significant about this and gleaning their very own up to date research at their own expense!
Too many people in high places sitting on their hands and “considering” things. Look what happened decades ago when the govt said “fix it or we’ll fix it for you! The life companies didn’t move to action then to fix churning so it will be interesting to watch how they deal with the results of their decades of inaction now that it is forced upon them.
As usual the client will end up paying for life company inaction and government cluelessness. Thank God for dealerships like Synchron where people get things done – good on you Don.
Don Trapnell is a credit to this industry and everyone should take careful note of what he has to say.
Synchron is the only dealer group that seems to have anything to say on this matter – maybe that is because it is independently owned and therefore doesn’t have affiliation to a Life Company?!
Everyone seems to be losing sight of the big picture here – the client’s best interests.
My question to Mr Trowbridge – how does a system that necessitates a fee to be charged to a client (that was not previously charged) and system changes by Life Companies that will INCREASE premiums, make it more affordable for a client?
We already have a serious under-insurance problem in this country. Making insurance less affordable is just plain stupid.
Lets address the real issue – why do we allow life companies (or any fund manager or bank) to provide financial advice? How can they possibly provide unbiased, impartial, or independent advice? If I went to Ford and asked them what car I should buy, I am pretty sure they would not advise a Toyota, a Holden, or anything other than a Ford – no surprises there! So why do we think any different of the financial services sector?
We have spent a lot of time in recent years eliminating any potential conflicts of interest with adviser, yet no one has done anything about the most obvious one – if the fund manager/life company is my employer, what greater conflict of interest can there be?
The only place that financial advice should be delivered is INDEPENDENT OF ANY FUND MANAGER, LIFE COMPANY, OR BANK. Advisers would then have no reason to do anything but act in their clients best interests. When we get this bit right, all the rest of the pieces will fall into place!
So Mr Trowbridge, how about we look at the big issues first and then we will see if there are any small ones left.
I’ll second that! Unfortunately the “Trowbridge” report was not as independent as many believe: This from John de Zwart this week.
Trowbridge Report announcement
Good morning,
Last week the Retail Life Insurance Advice Final Report by John Trowbridge (Trowbridge report) was released.
I participated in the working group as a representative of the Association of Financial Advisers (AFA) representing advisers and independent licensees. Other working group members represented the Financial Services Council (FSC) and the life insurance manufacturers with John Trowbridge as an independent chair.
The original mandate for the working group was to develop an industry wide response to ASIC’s Life Insurance Report issued in October 2014, which identified high levels of poor advice.
The working group sought submissions from stakeholder groups and approximately 130 were submitted in January and February. The quality of independent adviser submissions was excellent, reflecting positively on our sector and also identifying the often misunderstood and hidden behaviours of the institutions in encouraging replacement business.
The working group’s mandate changed in the week prior to the Final Report’s release and became the Report of the Chair, representing his views and not a consensus view. Whilst the AFA representatives objected to this change in mandate, the FSC supported the change.
The Report now reflects the views of John Trowbridge and has many similarities in regards to adviser remuneration with the FSC’s Life Insurance Sub Committee recommendations.
While I am personally disappointed with the process and some of the final recommendations, Centrepoint Alliance and the AFA will continue to lobby hard for a more level playing field for independent advisers and licensees.
There is going to be significant noise over the coming months, possibly years, as the recommendations are further debated and worked into regulations or legislation, systems and products.
We recommend you:
• Continue to focus on growing and improving the sustainability of your business;
• Raise your concerns with your insurer. Ask to see your insurer’s submission as many were private to John Trowbridge and the FSC secretariat. If they decline, you should question whether they support independent advisers;
• Raise your concerns with politicians, particularly the impact this will have on small business and quality of advice. Few understand the cheapest insurance for healthy individuals is through an adviser – not through industry funds or direct insurers; and
• Please do not vent frustrations at regulators or politicians publicly. This entrenches views of self-interest amongst the community. Our goal is affordable independent quality advice for all Australians.
At Centrepoint Alliance, we believe Australians need independent quality advice. Our strategy and services are focused on helping advisers deliver sustainable quality advice to their clients. While we do not support the remuneration recommendation as it stands currently, there are many constructive recommendations in the Trowbridge report and we hope this helps more Australians receive independent quality advice.
Regards,
John de Zwart
Managing Director
Centrepoint Alliance Limited
You are right of course. Problem is fund managers, banks & insurance co’s are paying for FSC and therefore, paying Trowbridge & his ilk.
Unfortunately, the banks etc are interested in profits only and are deliberately making out as if the advisers are the ones who dont care about consumers.
This whole witch hunt is being manipulated by the very companies advisers have to support and the powers that be are too stupid to realise this will only end badly for the consumers they allegedly want to protect. Pathetic really.
Very good comment Tony the Life offices and Banks created this issue not the advisers take responsibility for what they have created never once have they said we created this system they only look at share of revenue and what cross sell of product or clip to make more increase in profit from the Channels to pay shareholders. They say one thing and always do another.
A fully independent Adviser channel to deliver great advice for more Australians is what we need not a Dealer group linked to a Fund manager or product provider who share revenue to deliver service to a channel that sells there products.
The only way his will happen is for a full Royal Commission into the banks owing every link in the chain so we can actually stop and avoid a way back to the old way of Tide agency which is what they want and nothing else.
It looks like I was right according to de Zwart’s letter…THE TRAIN WAS COMMING AND WE WERE RAILROADED. I HAVE ALLREDY SAID THE WORKING GROUP WAS LOADED.
WE are under attack from all sides. Look at the Commonwealth bank fiasco, advertising to people to come and see them if they think some thing is wrong.
What would happen if a small indepenant dealer got into that sort of a mess? My Guess.
A cancellation of the licence and every body who offended and a couple of years not allowed to practice.
What happened in the bank ? Move a few lower people out who cant fight back pull the covers over the upper eschallon and they are out of reach.
I think it all happened because the guy working there has to earn points to get paid and points come from home products.
The same mentality that let that happen is now telling us how to run our business
Yet more proof on this topic….. from another source:
Like the Trowbridge Report, handed down by independent LIAWG chair John Trowbridge on March 26, the FSC’s submission – dated February 5 and signed by FSC director of policy and global markets Andrew Bragg – called for an overhaul of the remuneration system for financial advisers recommending insurance products.
Recommendation number 1 urges the removal of “high upfront commissions from inception” and that the industry move to a “level percentage commission structure so that the upfront commission for life insurance advice is no greater than ongoing commission on an ongoing basis”.
Like Mr Trowbridge’s “reform model”, the FSC’s “proposed model” argues that the level should be lower than current market rates, offering 20 per cent – the figure recommended by Trowbridge – as an appropriate level.
The FSC submission proposes an “optional additional first year adviser service payment” to provide “partial, but not total, compensation to advisers for upfront costs”, similar to the “initial advice payment” (IAP) recommended by the Trowbridge Report.
Both the FSC and Mr Trowbridge recommend that a responsibility period should apply and that existing arrangements for “clawback” of payments should also apply to the service payment/IAP.
The submission suggested that its “proposed model” be implemented by the industry through a “self-regulatory mechanism” or through legislation if this option is unfeasible.
It called for a code of practice for life insurers, adding “this would likely be a code which is agreed by the FSC’s life insurance members” and said 12 months would be required to prepare an appropriate code.
I have said it before ! This was never going to be a review of what causes bad advice. It is all about the bottom line for the Banks and independent insurers not aligned with a bank.
In 2004 I addressed a group of so called financial advisers of a big 4 bank in the Hunter Valley NSW at the request of a State Manager at that time. Their problem was their retention rate was less than 60% and 50% of the losses had occurred under a 12 month period. Why ?? Could I address them and see what was going wrong ?
To my “shock” was the limited knowledge these people had, most had been in the industry for less than 2 years had been pushed through a course and then let loose on the banks clients.
They had limited knowledge of what information and products they were advising on and once the client had been sold the policy there was no follow up at all to see how it was going, than to make it worse they would be moved to a new branch and the client upon returning to speak with the adviser was informed that that person was no longer at that branch. No wonder they were losing business at the rate they were.
1/ Little or limited Education on the products they were providing. 2/ Not being available to address concerns for these people who had entrusted their life savings or risk exposure to for getting appropriate advice,3/ No follow up to win the clients trust and assure them you were there for them year in and year out.
These are things we as professional advisers do “DAY IN AND DAY OUT” usually free of cost to our clients.
Commissions are not the issue here its education and “soft” skills that look after our clients and keep them on the books. There will always be some “smart A^%@#S that will try and take advantage regardless of the rules we put in place. We as professionals need to keep an eye out for them and report them accordingly. That is self regulation.
Here, Here!
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