It’s time for licensees to step up and implement their own solutions to the issues surrounding quality insurance advice and adviser remuneration, Brad Fox has declared.
The Association of Financial Advisers (AFA) CEO issued a call to action to all licensees to make their own moves to address the concerns raised by the regulator in its recent review of life insurance advice.
“The Australian Securities and Investments Commission (ASIC) Report [on retail life insurance advice] was about advice quality,” Mr Fox told riskinfo. “Adviser remuneration is the most emotive issue to come out of that report, but it’s not the most significant part of the solution. What’s key is that advisers are delivering high quality life insurance advice that is well documented and appropriate for the client.”
He said while the AFA was continuing talks with other industry stakeholders to try and achieve a unified position on the future of the life insurance sector, there exists a clear opportunity for licensees to take a leadership position by adopting new remuneration standards and advice quality controls.
“In recent months we have seen excellent examples of licensees stepping up to take leadership positions on issues like adviser education standards and professional association membership,” Mr Fox said.
…some licensees will seize on the opportunity to address consumer perceptions by mandating that their advisers accept no more than a hybrid payment
“I would not be surprised at all if we see announcements from licensees mandating new standards ahead of an industry wide solution being agreed. I think it is totally conceivable that some licensees will seize on the opportunity to address consumer perceptions by mandating that their advisers accept no more than a hybrid payment. This would certainly have the AFA’s support.”
Mr Fox said licensees were central to addressing the quality advice concerns raised by ASIC in its report.
“Licensees will no doubt be taking a more proactive supervision role with respect to replacement product advice and there are simple yet effective ways for insurers to support licensees to do this. Insurer reporting to licensees can identify unusually high levels of replacement insurance advice, and licensees can also identify advisers showing a surprisingly high preference for using a particular insurer.
“Our members are governed by a code of conduct, which states that their remuneration must represent fair value for their clients, and that they must prioritise the interests of their client above their own. If an adviser was found to be churning – that is providing replacement policy advice which leaves the client worse off, for the purpose of earning commissions – then that would be a violation of the code and the member would be subject to disciplinary action.
“In the last five years we’ve had no complaints about an adviser in relation to their insurance behaviour. But if this was occurring, we want licensees to know that they can, and should, work with us to identify wrong-doers and to take the appropriate action.”
He also acknowledged that with the proposed reforms to advice education and professional standards, recommended by the Parliamentary Joint Committee on Corporations and Financial Services, licensees, regulators and professional associations would need to develop stronger working relationships.
“As we go through the changes to lift professional standards, it’s very clear that there will need to be more communication between the various bodies about advice failures. We don’t yet know how that engagement will work in a process sense, but the bottom line is professional associations don’t want members that are doing the wrong thing. In that regard, we are here to help licensees.”
The interesting part of this article is that Brad Fox has no mandate from the membership of the AFA to run a policy of reducing remuneration for whatever reason.
Either Mr Fox gets that authority via a member plebiscite or he ceases and desists for this policy.
If he does no wish to cease and desist then it is likely there will be a special general meeting of the AFA membership to terminate all of the present board members and to start afresh.
This policy has no member support and has been very damaging to the AFA and the advisers that are its members, and Fox wonders why he is getting critism everywhere.
Before a surgeon commits to radical and potentially dangerous surgery, it is the normal custom to fully analyse what is wrong, then come up with a plan to fix the condition.
Brad Fox has made a comment that he is happy to get rid of upfront commission, yet it still is unclear if commission is the reason for the condition.
All Advisers who have a few years experiance and specialise in the Life Insurance area, know that bad advice, inefficient processes by Insurers, confusing and conflicting regulations that limit retail Life advisers, while encouraging direct product floggers who get away with murder and a plethora of other inconsistencies, is the real cause of the issues Life Companies are facing, yet no-one has faced up to these areas and instead have focused on a easy target, commissions, as this is the only thing they can think of that is the cause, based on their limited experiance and knowledge of our industry.
We are hit over the head every day about knowing our clients and giving appropriate advice, yet the very Industry and regulators who keep telling us this, do not appear to have the necessary expertise to know their industry and make appropriate recommendations.
Should these people be held responsible for their actions if they destroy the retail Life Industry through well meaning but irresponsible regulation or actions that do the opposite of what they are trying to achieve?
You do not get a GP to do surgery, you utilise the surgeon that knows his stuff with a proven track record.
I would suggest to every Adviser, Licensee, Insurer, Regulator and all the other lobby groups, that for every action, there is a reaction and that the only way to make sure the reaction is not a collapse of the Life Industry, we should maybe start looking at the root causes and remedy these, before we throw out the baby with the bath water, or in our case the income producers for what is a large pool of employees that will join the unemployment pool, which is already too high.
Well said Jeremy – I agree totally.
I agree with Mr Fox
Our industry needs to progress to a profession, and practices of the past need to make way to practices more aligned to our client’s needs. Our advisers have worked on a hybrid basis for more than 12 years, growing a successful business.
The AFA needs to play a leadership role in guiding the industry to a sustainable future. Those who want to maintain the practices of the past will be relegated to the past.
Fully support the comments by Brad Fox leadership is required well done AFA here self regulation leads to a better outcome we do not need the regulators to deliver and outcome we all do not need or want this should and hopefully leads to the dealer groups not letter adviser in to the system to recyclable product as they all do now.
They all know who theses people are and we must stamp them out of our Industry good on you Mark and Brad
I think me fix needs to have a good think about whom he represents and step down from his ivory tower retract this statement or resign
Good comments by M. Reed & J. Wright! Its one of the reasons I am no longer a member of AFA. AFA dont seem to look after adviser interests any more!
An issue that bugs me is that in the early 2000s we were forced to join licensees after most of us were very happy opreating under the General Agent arrangement and have numerous life companies to select from. It was said at the time, we would become genuine brokers of life covers and super products.
Now, us advisers are getting accused of grand misconduct when we change a clients cover to different insurers for price and in many & most cases insurers not paying claims, thus us advisers dont trust a particular company anymore.
Thus we are not true brokers anymore!!
Seems life companies would love to get rid of us and use the internet as sales tools and then dont have to pay as many claims out due to some disclosure issues which is very common with internet policies.
As usual the gov cannot see the wood for the trees and dont realise that less people will have cover because independent advisers are no longer in the indusrty, thus people will rely on a gov handouts when a crisis occurs in their family. – ie gov pays more dole & disability payments.
This only increases the deficit. Maybe the pollies are to stupid to think this far ahead!! Nothing surprises me with the calibre of our elected representives anymorel
I take Brad’s comments to indicate that we as advisers and licensees will benefit from a proactive position rather being dictated a result to – so good on you Brad, you have my support.
My understanding is that the Gov wants to see the issues identified in the ASIC report dealt with and with 93% of hybrid advice being good, then hybrid is a logical place to land.
I have been using hybrid since 2009 so I find it difficult to understand how established businesses cannot.
Unfortunately, this train has departed so we have to do the best with this situation. It is important that advisers are represented and I believe the AFA is doing a great job representing its members in the difficult situation.
Merv I am an AFA member and this has my full support. The AFA constitution would have required the AFA Board (who are all advisers) to sign off on this. You are missing the mark big time, and in my view well out of line with your comments.
With all due respect, you need to know what battles you can win and those you are certain to lose.
Like it or not at every conceivable level, it has been accepted that Upfront commissions will be a casualty of this process, those who think otherwise are not reading the situation very well.
The challenge here is to ensure that we are able to maintain and build our profession. Like Mark Hoskin we also moved to a Hybrid model a number of years ago and whilst there was some initial financial pain it has ensured that our business equity has increased and we will continue to be profitable and sustainable.
I think Brad Fox and his team the AFA are doing a great job supporting their membership.
AMP just “stepped” up. max 80/20 on all new insurance deals post 1 July and limiting upfronts to 20% if a policy needs to change in the first 5 years.
The AFA first and foremost represents the interests of it’s members.
It is starting to become very clear that the AFA through this particular commentary is “encouraging” licensees and advisers to “take the lead” in basically moving on an issue that has not yet been appropriately assessed and modelled before they are pushed.
This is totally inappropriate to be running this line when the membership of the AFA has not been consulted as to which direction they wish their representative association to be moving in and which issues they wish to be pursued on their behalf.
The ASIC report was flawed in it’s process, The Trowbridge Report was flawed in that it was based on some submissions that was not privy to all members of the LIAWG and the Terms of Reference of the LIAWG were not adhered to (as stated by Brad Fox) as it did not deliver a unified response.
Anything the AFA states publicly will be seen as a representation of it’s members position on these matters and I do not believe for one minute that the AFA members would accept lying down and accepting “the next best option”, when in reality, the current model is no where near broken, it has just been hijacked by vested interest groups and the big 4 banks that care nothing about the quality of advice to the consumer, but all about the bottom line profit to their shareholders.
We cannot have a situation where wholesale change is being encouraged which will damage the remuneration of advisers to such an extent the profitable delivery of quality advice to the consumer is totally compromised.
The AFA must consult their membership as to which direction and stance the AFA take on this matter.
I am of the opinion that Mr Fox has gone too far . He has no mandate to set advisor fees. I allways thought a body like the AFA WAS IN PLACE TO LOOK AFTER MEMBERS .THAT IS WHAT IT WAS WHEN IT WAS THE LUA. It carried no weight then and it doesn’t now.
He was on a hiding to nothing, look at the line up . The AFA and one licenced dealer the FCA,
Sun corp and Trowbridge (APRA) Talk about a stacked deck.
It matters little what submissions were submitted , it is clear the outcome is what was planned from the beginning
FOLLOW TROWBRIDGE in the future see where he lands. IT WILL BE A PART OF his
CONFLICTED PAYMENT!
WONT NEED TO WORRY ABOUT EDUCATION OR EXTRA LICENSING I READ ABOUT,
any body new will start as a bank teller. Like the bank planner I see regularly when I;M IN THERE
NICE LADY, WHEN SHE IS NOT TALKING TO A CLIENT IN THE OFFICE WITH THE DOOR SHUT…. SHE IS ON THE COUNTER AS A TELLER
THAT IS WHERE WE ARE GOING!
Merv, whilst you may be correct in one sense about the lack of a clear mandate, I think it would be foolish to assume that we can walk away from this without some restructure to the current remuneration model. Therefore, Brad is right in that we should be on the front foot with this. Perhaps, the AFA can lead the response and the AFSL’s and others will follow. It is said that there is opportunity within a crisis…the AFA can come out of this with a galvanised membership. Let’s just give them a little more time, we need to stick together as much as possible.
As advisers and independent business owners we need to be progressive with change and understand that upfronts are gone. I started using the hybrid/level model from year 3 in our business and we haven’t wavered.
Like Modern Adviser and Gary I agree, if we unite and get on the front foot to embrace a workable solution such as hybrids or a version of that ahead of any mandated ruling by government, surely that will be a step in the right direction showing politicians and the public that we are serious about making a difference and eliminating churn.
If we don’t do something we may regret what is done to us!
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