Over 150 participants, mostly AFA members, tuned into a Life Insurance Framework webinar debriefing session last week, hosted by AFA President Deborah Kent and CEO Brad Fox.
Ms Kent and Mr Fox jointly covered all aspects of the proposed changes, and also provided their members with a background as to how the AFA and the industry had arrived at this point.
Advisers were left in no doubt as to what their future remuneration options could have been, had the AFA not become involved in industry discussions following the release of ASIC’s Review of Retail Life Insurance Advice in October 2014 (Report 413).
Whilst Ms Kent said that Report 413 was effectively an industry ‘game-changer’, she noted that the David Murray-led Financial System Inquiry report also played a highly significant role in the debate suggesting level commissions.
…if the industry did not develop a solution to the issues raised in ASIC Report 413, the Government would intervene
While debate still continues about the nature of the findings in Report 413, Ms Kent said that the Report, together with FSI Recommendation 24 (see: Ban Upfront Commissions – FSI) was the catalyst for creating a hardened political stance in Canberra that adviser remuneration for life insurance advice, including so called churning practices, must be addressed. The message to the industry from Canberra was a clear one, according to Ms Kent, namely that if the industry did not develop a solution to the issues raised in ASIC Report 413, the Government would intervene.
Ms Kent told riskinfo that had the AFA not become involved in the Life Insurance and Advice Working Group, which became the base used by John Trowbridge to develop his Reform Model, there would not have been any adviser ‘voice’ or representation at the negotiating table.
“While Trowbridge was not where we wanted to land,” said Ms Kent, “…it provided a point from which we could start negotiating to get a better outcome for our members and for all advisers.” She added that following the release of the Trowbridge Report, the FPA came on-board with the AFA to work with the Financial Services Council in developing the consensus model that is the New Life Insurance Framework.
Trowbridge was …a point from which we could start negotiating to get a better outcome for our members
“With the FPA entering the debate and ultimately agreeing to a shared blueprint with the AFA, this was critical to creating a united advice voice on the issue,” said Ms Kent.
In developing the Life Insurance Framework, Ms Kent noted the AFA consulted with the FSC, consumer group representatives and other stakeholders, including legal firms who specialise in client advocacy. She said that some of the consumer representatives advocated nil commissions going forward, alongside the level commission stance advocated within the David Murray-led Financial System Inquiry recommendations.
Conceding more work was needed in fine-tuning the proposed clawback provisions, Ms Kent pointed out the proposed 60/20 hybrid model was exclusive of GST (ie the model is actually 66/22) and is not capped in terms of premium size, as had been documented in the interim arrangements proposed under the Trowbridge Reform model.
“We also understand clawback is a major problem for advisers and appreciate these are very valid concerns. We’re continuing to address this issue,” she said.
While adviser remuneration and clawback provisions remain critical elements in the New Life Insurance Framework, Ms Kent also called on the industry, particularly the regulators and life companies, to work to ensure the costs to the adviser of providing life insurance advice reduce significantly over time.
Ms Kent remains a passionate advocate for the delivery of advised life insurance to Australian consumers, pointing to their value at claim time, in particular: “There’s not one adviser I’ve spoken to who has not had to fight for their clients, at some point, to get a good claim outcome,” she said. She added that the Internet will not replace advisers, but they must work hard to establish their own ‘uniqueness’, in order to create a compelling reason as to why their clients should remain clients.
Continuing her message to advisers, she said “Your future is bright. It’s not ‘doom and gloom’.”
Ms Kent said she expected the Government to address the New Life Insurance Framework within its broader response to the Financial System Inquiry, expected to be released in the next few months.
The clawback in its current form is un-workable for insurers systems and outrageously punishing to decent and ethical life risk advisers
I still cannot accept that the AFA/FPA agreed to this form of clawback. Even Trowbridge ( 14 April ) stated he did not support clawback as proposed by the FSC
“Its hard to administer clawback and its very tough on the adviser. It is put forward ( by the FSC ) as a solution to the churning problem but I don’t like it ”
Stage 2 of this fiasco should be that we immediately engage a heavy-hitter Liberal lobbyist ( Graeme Morris or Ian Kortlang ) and we go back and demand a fix.
It would not the first time targeted lobbying changed a recent Abbot Government decision.
Finally, Ms Kent surely is joking when she calls ” on the industry, particularly the regulators and life companies, to work to ensure the costs to the adviser of providing life insurance advice reduce significantly over time.”
Advisers will be receiving 50% of the former commission scales almost IMMEDIATELY by 1 Jan 2017, yet we have to wait “over time ” for smaller RISK SOAs and insurers to fully automate the underwriting and new business admin . Experienced RISK advisers know that’s a “system ” expense the insurers will just not agree to.
The Framework means advisers get the water torture and the insurers get off without any contribution at all. Any savings to insurers will be soaked up by those insurers who are currently bleeding from Group Super’s massive losses.
Here’s my message to the AFA/FPA. Get on the phone to a high quality lobbyist and start NOW on pulling back clawback.
What has been agreed to on our behalf in terms of clawback is totally un-acceptable !!
Totally agree Bill. Let’s hope they take notice of you and for that matter everyone else who can see this 3 year clawback in particular is just so unfair!
Well said BillB. I have a further question for the AFA.
What consensus did they have for extending the claw back to three years. I have been overseas for four weeks and thought I had a good relationship with AIA and phoned a senior manager for clarification. Regarding three year responsibility he said ” well upfront commissions are only a loan after all” Silly me I thought it was remuneration for work performed.
Im also bemused how the extended clawback provisions will improve advice and address churn.
AFA membership has gone through the roof in recent years and they have stopped representing members. Members need to decline their dues this year. Maybe we should have clawback for services not rendered?
Well said Bill the clawback as it stands is unworkable highly unfair and will
cause huge cash flow issues to most advisers Not to mention the reduction in sale value of a book with 36 months of doubt built in
Out of all these ridiculous changes this is the one that’s going to cause a real mess and neede addressing now Surely the insurers can see this how about a show of support from them for once and lets get this fixed before the pain really starts
Firstly we all agree that upfront was dead in the water…….hybrid was our best outcome and supported by ASIC report that only 7% failed under this model. But the 3 year clawback for hybrid is not variable….because of many reasons …..And no mention is made of level commission position clawback or group rates. I do believe we should ask insures to provide payments to advisers to compensate for business dropping off in year two or three”…………if they don’t the premiums should reduce as Trowbridge outlined.
I use an argument that sorts out the truth from pure fabrication or misguided beliefs and it only takes three words. HOW, WHAT and WHY
HOW did you form your opinion? Based on WHAT information, WHAT questions did you ask and WHY did you come to your conclusions and recommendations?
Sadly we are yet to hear a proper response to our valid questions from any of the participants involved, though who still seem determined to tell us our future, without answering HOW WHAT and WHY.
This article just shows how out of touch the AFA are with the membership. The clawback model promoted by the AFA is going to torch the selling of risk big time. I will be unsurprised if advisers also have separate contracts with clients to debit super plans for fee for service charges if clawbacks happen due to whatever.
This AFA President is fairly out of touch with what the members really want and needs to look at the IFA polling and if necessary run an AFA poll.
Most of the AFA members now have no confidence in her administration and they should all go.
Remember these are the people who were completely duded by Trowbridge who could not believe his luck.
Yes get a high powered lobbyist but also get a new President and CEO of the AFA who in essence have sold out advisers.
Spot on Mervyn. Time to take out the trash. Seems that certain people in AFA have political aspirations.
Generally agree with comments so far and I’m sure the silent (and busy) majority out there are very angry about the double edged sword: reduced incomes and up to 3 year clawbacks.
Can you just imagine the reaction from the CFMEU or ETU or AWU or any other union if their members faced salary or wage “clawbacks” for work done if something hadn’t met expectations or mistakes were found? They would go absolutely ballistic and there would be nation wide strikes.
Yes, high up front commission remuneration was always going to be an issue but still doesn’t get to the root cause of poor advice.
As for up to 3 year clawbacks, totally unacceptable and needs to be killed stone dead. No business or individual should be subject to that type of ongoing liability, especially when it is no fault of the individual or business.
We need to fight to review this.
It’s easy to say it’s not all doom and gloom when your on a salary. try working as a Risk only adviser on commission only.
But then again, silly me for choosing a career as a risk only specialist, I could have done something else with the last 10 years of my life and for an industry that would appreciate the commitment.
I think risk only and full advisers should have been separated or at least distinguished between the two and how they operate, no care has been given for risk Only advisers, but I’m not surprised as the Banks don’t have Risk Only advisers.
Wow now we have a wonderful new world and everyone on one side of the table is running around patting themselves on the back and singing praises of the fantastic new agreement that has been reached.
So now because of this great change we should also tell the Doctors , Real-estate agents, accountants , politician’s, in fact why not get them to ratify and rubber stamp it, once that is done every one should as from July next year be excited about taking a 40% cut in earning. how far do you recon it would get and I’m sure I would be drug tested and considered an idiot for even bringing the idea up.
Boy are we being sold a lemon, by a bunch of snake oil salesmen.
Following on from Jeremy Wright’s comments – “HOW did you form your opinion”? Can anyone explain why our profession is facing decimation off the back of such a shoddy, flawed piece of research as the ASIC “Review of Retail Life Insurance Advice”?
There are anywhere between 15,000 – 18,000 financial advisers in Australia. The report carried out ‘Targeted surviellance’ on 202 files from 79 advisers. A representative sample? ASIC asked insurers to supply the names of 3 advisers who had written the highest amount of new premium for 2012 & 1013, but who also had the highest lapse rates. In other words – Churners! The conclusion being that 37% of ALL risk advice does not meet required standards. A case of shaping the research to support the hypotheses?
If the AFA & FPA were serious about representing risk advisers they would be going to government & the media highlighting such issues and focusing attention on the real motives of the bank’s and insurers. But maybe they’re too wary of biting the hand that feeds them to really go on the attack.
Do these people live in the real world. At no stage am I going to get 60% upfront. They have not taken into account dealer group splits. The dealer group is paid the 60% of the commission not the adviser, Then the dealer group ttakes another 20%, which leaves me with 40%. Dealer group also charge another fee for Pi cover, which leaves me at 35%.
I can not have drop in income of that much. There is no way I can cut corners to make up 65% lose in earnings, No way.
There as been no discussion on dealer group remuneration. Are the insurance companies going to pay the extra to cover my dealer group fees.
Gee through the independent advisers a bone.
Jody go to a dealer that charges a desk fee.I did . The fee includes my insurance.
My practice is built on hybrid commissions so whilst a cut to 66% is not desirable I can probably work with it. The sinister thing is the claw backs.
The insurance companies fail to take any responsibility for the alleged churn happening in the industry. they know who the culprits are and it should be dealt with at that level.
The AFA obviously doesnt give a stuff about its members if it thinks this acceptable. They are so busy congratulating themselves for this business destroying decision, they make me ill. This industry has been set up by banks, insurers & ASIC’s deceitful report to destroy the IFA.
Well I cannot and will not take on business where I will receive 50% comm (dealer group split) and have to wait for 3 years before I know it is mine. That is not a working business model for anyone.
So the end result will be the IFA’s get wiped out and the customers continue to receive conflicted “advice” or none at all. Win win, provided you are a provider of course.
I refer to mark’s comment on the AFA not being prepared to “bite the hand that feeds it ”
That issue has been bothering me for some time. Both adviser representative bodies receive sponsorship from fund managers and insurers – its on their websites. The AFA refers to them as ” partners ” and all the retail life insurers are listed. Correct me if I am wrong, but these same insurers are all members of the FSC
If advisers took sponsorship from an insurer. ASIC would regard the adviser as having an un-resolvable CONFLICT. In ASICs view, conflicts create a perception, even if there is no basis.
What members would like to know is that, in terms of recent negotiations with the FSC, how does the AFA resolve what at first glance appears to be a conflict caused by acceptance of funds from its partners. I make no accusations what so ever, I would just like an answer, as I am entitled as a member
A good percentage of advisers are willing to accept the remuneration changes but all risk advisers are in agreement that that the 3 year clawback is unfair, unworkable and a stitch up by the insurance companies.
If the AFA is supportive of the 3 year clawback then they are basically siding with the insurance companies (who are heavily funding them!) against their adviser membership.
The answer here I think is pretty clear. If the 3 year clawback goes ahead all advisers should and must resign from the AFA.
If 80% of advisers resign from the AFA, it sends a pretty clear message that the adviser market have been inappropriately and unfairly represented in these negotiations.
Just watch the insurance companies cancel their financial support of the AFA also if members start leaving in droves.
Sense a lot of hostility and misdirected passion in here. Just like many of you I’ve been in the industry for a long time, but personally I don’t want to go down the same road as ‘Kodak’ or ‘Blockbuster’!
Times and regulations are changing, we all need to adapt and evolve our businesses to survive. I’ve read this report a number of times, and putting my emotions on this topic aside about the unfairness of the clawback, I can see that the AFA have been pushing hard for concessions on what the big end of town may of wanted, and I’m glad they have been able to get some. A whole lot more would have been fantastic but in reality we all know deep down that it was never going to happen regardless of what the AFA or FPA and their members wanted.
I personally would have hated to think what may have happened if the AFA hadn’t stepped forward to represent us, their members and all advisers in general. So hey, lets turn our hostility and misdirected passion into positive action and continue to lobby Government and ask your association what we can all do to help!
Good comments James. I sincerely doubt the AFA (of which I’m not a member) would be selling out whom it consists of – Advisers. It has been made very cleasr that if the industry didn’t change, the Government would change us. I don’t agree with all the proposals either, but I reckon they will be a lot more palatable than a legislated approach, which would have to go through both the House of Reps, then be agreed to by those classy Senators as well.
In nearly four decades in the insurance business, I have seen a lot of change. As an industry we have always found ways to adapt, let’s stay positive and continue to look after our clients.
Passion is un-avoidable in this debate. And I am not sure if its miss-directed
The hard facts are the AFA/FPA accepted, on our behalf, a clawback provision that is un-workable.
The AFA in particular has bought some of the hostility on itself, because it decided not to give progress reports on negotiations back to its members. I would bet London to a brick that the bank’s negotiators ( sorry, FSC ) kept their members in the loop. That’s why you can’t say that things might have been worse if the AFA had not been there – there was no feedback.
Remember Trowbridge said the FSC idea of a 3 year clawback on the originating adviser was unfair to advisers and un-workable for insurers ( Risk Adviser interview, 14 April )
Mr Trowbridge was the man who started this mess and he did not like the clawback, yet the AFA/FPA duo apparently conceded this willingly. My secondary question is what was the quid pro quo for our concession to the clawback. We got nothing in return, unless you think 80/20 for 12 months was a win.
We should have gone in with an army, with at least one Liberal based lobbyist ! This was particularly important as the Minister had an ex-FSC employee on staff, plus the two ex-bankers in Hockey’s office. The AFA knew of this “inside advice” because I told Brad Fox in March or even earlier, having heard it on the Canberra grapevine. The lobbyist’s job would have been to go behind the negotiating table and counteract the pro-bank advice the Minister was getting
But I agree with some of your sentiments – lets move on. Lets engage that lobbyist ( not the one used 3 years ago ) and go in hard. I regard the Framework as a second ambit claim – the FSC are expecting us to come back and point out the flaws. The AFA will lose even more members if it does not go back in swinging !!
This is what the AFA should be doing right now-ITS NOT OVER !! We have to tell Josh there is a long term threat to the viability of the life insurers if those insurers stay in un- profitable Group Super and advisers are no longer submitting fresh underwritten new RETAIL business. Insurers will not survive on fully underwritten in-force business alone.
Incidentally there was an AFA webinar, but I doubt many saw it because of a fault in the software that sends emails to Members. I only found out late after the event because a colleague was told by a third party
Some may adapt and survive as you say, but one thing is for sure – a life risk business developed under the new rules will never sell for the value life risk businesses did last year. As others have said, why would anyone buy a business with an un-known 3 year liability. It would be like buying a retail store and taking on the businesses debts, known or un-known
What you said makes so much sense. The ASIC review which started the mess was a stitch up
United we stand….Divided we fall. As a life risk writer for the past 25 years I have seen plenty of the good, and not so good, times in the industry. This is definitely one of the not so good moments, that threatens to drag on, and on, and on. The reduction in up front commissions has been coming for quite some time. I can remember when life companies paid commission on policy fees and frequency loadings. Over time, and one by one, they withdrew those commissions, but as they were for realatively small amounts advisers let them go without offering too much opposition. Similarly when BDMs spoke of commission rates of 120%, without mentioning no payments on GST, frequency loadings,stamp duty or policy loadings, and again without meeting a chorus of LIAR LIAR, we gave them the confidence to really sink the boot in; which they have now done.
So what can we do now. I’ve read that there are somewhere between 15,000 and 18,000 IFA’s in the country. It isn’t possible for each and every one of us to march to Canberra and bombard politicians with our independant views. The AFA, whether you like them or not, can speak on your behalf. I am a member and so I have written to them with my major concerns which are: 1. the definition of premium ( my view is that it is the actual annual amount a client pays ). This is the amount commission needs to be calculated on. 2. the definition of clawback ( my view is that it excludes policies lost by claims, client financial hardship, family or business breakup. A signed statutory declaration ( being the signed cancellation letter by the client ) should be sufficient to get an exemption. Secondly the clawback percentage is based on the commission paid in the 12 month period in which the cancellation occurs. Thirdly to reduce the %’s to 75, 50, 25 to acknowledge the vast majority of advisers are not churners and need to earn something in the first year. I am absolutely certain there are many other views out there that are worthy of scrutiny by the decision makers.
Even though a lot us us are dismayed, hurt, and/or angry we need to try to offer up solutions to the problems that have been thrust upon us.
When the going gets tough, the tough get going.
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