Findex Continues Push Towards Commission-Free Risk

Advisers in the Findex Group have begun using a commission-free risk product to deliver fee for service insurance advice to their customers.

Michael Wilkins, Findex Chief, Adviser Services

Michael Wilkins, Findex Chief, Adviser Services

Utilising BT Protection Plans’ existing adviser service fee feature, representatives of Centric Wealth and Financial Index Wealth Accountants are able to deliver commission-free life insurance advice. The product allows advisers to dial down commissions to zero, if required, substituting an annual, transparent administrative service fee, while providing a net premium for consumers. Findex estimates that the product could yield client savings of up to 30 per cent, depending on the individuals’ circumstances.

The advice group has confirmed that advisers and clients can negotiate the fee the client pays, relative to the work that needs to be done by the adviser and the size of the premium.

From 1 July, according to Michael Wilkins, Chief, Adviser Services at Findex, all new life insurance policies recommended by Centric Wealth and Financial Index Wealth Accountants representatives will be free from commissions. Mr Wilkins said where an alternative product is deemed to be more suitable for the client, the group will utilise its own revenue collection model, where the client will pay Findex an agreed fee for service and the commissions will be stripped out of the premium.

We were concerned about the futility of high commission products in that they simply encourage churn

“Over time we are confident that all major suppliers will be able to move to a commission free/fee for service model. However, we will use our own collection model in the interim so as to ensure the best interests of our clients continue to be met,” Mr Wilkins said.

He explained that while the Findex group had been looking for suitable partnerships with responsible life insurers for several years, well ahead of the Trowbridge review of the life industry, the history of the industry and its legacy systems, combined with the dominant culture of high up front commissions in the advisory industry, have been impediments to change.

“…We were concerned about the futility of high commission products in that they simply encourage churn,” Mr Wilkins said.

“We welcomed the Trowbridge Report but have always believed in aiming higher by seeking 100% commission-free model. We are delighted that product developers such as BT have been able to create a product that is consistent with our philosophy.”

Mr Wilkins said the commission-free insurance advice framework would be rolled out to all the group’s divisions later this year, once appropriate systems have been put in place.

Findex first announced its intention to move to a fee for service risk remuneration model in May this year.

  • Damian Eales

    That is fine for the holy than thou Financial planners who charge fees, Risk Advisers who do offer financial planning cannot charge high fees. And I might add, I’ve seen the insurance advice given by some planners and they are correct in not charging commission, because their advice SUCKS big time!

  • John Curtin

    It is a free society If you think you can make a living selling life insurance on fee for service good on you. I suspect you are using it as a loss leader for your more important investment advice. I strongly doubt that you would remain viable selling risk only. On the subject of churn, if you are changing policy because the client is better off, this is not churn, it is working in the clients best interest.

  • WB

    A few questions please Michael.

    1. Does the advice provided to clients receiving advice on commission free insurance include advice on investments as well? I.e. the fee your clients pay, does it include a fee for investment advice, or is this just risk only?

    2. If this is risk only, then are you saying that your clients are “happy” to pay a fee to the adviser as well as an ongoing insurance premium? (Although they may receive a 30% reduction in the premium, they are still paying this premium).

    3. Do you receive trail income for risk only?

    I agree with John Curtain, I also cannot see how you can survive moving forward delivering risk only if you don’t receive commission and charge a fee instead. Therefore would you please elaborate – is this risk only or does your advice also include investment advice?

  • Steve

    I agree with Damian here that this initiative should not be promoted as a “holier than thou” over risk advisers receiving commissions.
    Saying that this “could yield client savings of up to 30 per cent” is very misleading.
    An average customer would save much less on a full commission dial down and if the fees they are paying are more than 20-30% of the premiums they pay then the clients are actually worse off (and we know from experience that the fees are generally much higher).
    Planners with fee paying clients who write a little risk insurance as part of the package with full commission dial down is not something that’s new and works well for high net worth customers. I’m sure we have all come across customers who’s planners have been double dipping them by charging fees and taking commissions so at least a purely fee model is better than this.
    But most clients wanting advice on risk insurance are actually much better off under commissions and simply cannot afford and do not want to pay fees.

  • B

    Holistic advice :Accounting + investment + risk= Large annual fee for Service.
    Once again high netwealth clients will be the target and the average Australian Family will go without!

  • Jeremy Wright

    There is an inherent danger with Financial Planning firms who wish to provide holistic advice by broadening their offerings to include nil commission, fee only Life Insurance advice.

    This danger is that they will underestimate the time and cost to provide best interest Life Insurance advice and end up cross subsidising the losses from Life Insurance, or they will cut corners which will leave the door open for litigation Lawyers to attack your Business when a client is facing financial ruin from disability or illness.

    It is very easy to attack once the horse has bolted and when clients face the reality of being uninsured in some areas or under-insured and the Bank is foreclosing on their Business or home, then proper documentation ( not a good relationship ) is the only defense and in the future, claims against Financial Advisers who have not provided sufficient cover, as well as best interest advice, will rise.

    The real cost in providing appropriate Life Insurance advice has been vastly underestimated and this will only come to notice in the years ahead.

    It all gets back to risk and reward.

    The risks to be a Life adviser are rising and the rewards are dropping. Do the math.

  • Unhappy Planner

    This is irrelevant as they provide full service financial planning. He never mentioned what the average fee was either.

    If he really cared about the best outcome for his clients he wouldn’t strip the commission out of the insurance and charge a separate non-deductible fee.

    He would rebate the commissions against the fee and enable a higher ongoing deductible amount to the client.

    The client is WORSE OFF under their proposed remuneration model.

    The industry just can’t help itself seeing Insurance as an extension of holistic financial planning. I honestly don’t know why.

    Why can’t our industry differentiate that Insurance advice is separate to financial planning and needs to be treated on its own merits.

    RiskInfo I challenge you to find a RISK ONLY fee for service model that works. No cross subsidisation from other services allowed.

    • WB

      Good question Unhappy Planner.
      Past editions of RiskInfo have included comments by individuals who claim that with Risk Only, clients are or will be “happy” to pay a fee to their adviser AND the insurance premium. I have challenged them to back up their words by providing readers of RiskInfo proof of this supposedly wonderful model, but to date, no one has!
      Some “consultants” claim that where a client “values” the advice, they will gladly pay a fee as well as the premium. But again, they will not share with the readers of RiskInfo the details of how this works.
      As you say, maybe RiskInfo can track these people down and ask them to back up their claims with facts!

  • BKY

    Michael Wilkins…the ability to dial down commissions has been around for as long as I can remember…you are not unique. The issue is that dialing down the comms to zero only saves the client 30% in premiums. Understanding that completing a “Proper” Risk Advice file requires about 15 to 20 hours of client meetings, research, SOA, applications, filenotes etc forget claims management at this stage. This means you need to charge a minimum of $3,000 (more if you think your time is worth more than $150ph) for your time. What this then means is the client needs a yearly premium of about $10,000 (net comms reduces it to $7,000) for the client to break even in year 1. Then the following year comes around and as a risk adviser your promise is to be in your client’s corner at claim time but nobody ever thinks it will happen to them so issuing an ongoing management, review and Claims service of at least $1,000 for what the client thinks will never happen can be a challenge. Once you’ve resold the client the value of having someone in their corner at claim time, then you prey like hell that they don’t make a claim because $1,000 will be burned in no time at all. Also I must warn you that Life Insurance is not the same as General Insurance (GI). If a client doesn’t pay the GI broker their fee, then the client doesn’t have their renewal cover placed and then uninsured. If this was the case with Life Risk, then it would be vastly different but it’s not. I’ve tried Fee-For-Service Risk and given clients the option and 100% of the time clients understand that Commissions are better for them and me. After all isn’t about making sure that a transaction is mutually beneficial?

  • Michael

    I’m not sure that this is technically commission free at all it depends on what they are using.

    BT’s insurance administration fee simply discloses to the client the amount of the premium that is being used to pay the adviser (up to 30%). The adviser is still paid as if they were collecting commission. The ONLY difference is that the clients renewal statement separates out the amount of the cost that is from the premium and the amount that goes to the adviser.
    Instead of “dialing down” commission you “dial up” the adviser service fee.

    Here is an example:
    Normal case: Premium $1,000. Commission paid: $890 (on hybrid) – Disclosed premium to the client $1000.

    Adviser service fee case: Premium $700. Insurance admin fee $300.
    Commission paid: SAME: $890.
    Total cost to the client $1,000 (the same)

    If you have the BT quoting software just go to policy group, select “insurance administration fee” from the commission options and get paid on any commission structure you like (upfront, hybrid 1, hybrid 2, level). The difference is that your clients policy schedule will show the base premium and the amount of premium used to pay you.

    This has been around since BT’s product launched and it was made because BT Protection Plans was being built at the height of FOFA scoping where commissions being removed was a real threat.
    Think of it like this: An asset based fee is basically the same as a trail platform commission.. the only difference is that the client can see it on their statement.

    The insurance administration fee is exactly the same thing.

    It’s there now. So if you want to be a “commission free” adviser jump on in. You’ll still be paid the same but not you to can join the party of continued conflict under another name.

    Mind you BT also allows you to charge an adviser service fee which is a set dollar amount added to the premium and debited monthly. They could be using this instead and charging a fixed fee for their insurance advice.

    Again, anyone can do this now. Simply dial down the commission and add a set $ amount to any policy. you can have this amount added to the monthly premium for the first 12 months and then set a fixed review fee for ongoing premiums.

    I would be doing this myself if it wasn’t for the fact that BT doesn’t suit all clients. If they did I would have moved to a fixed fee system for insurance months ago.

    • James

      It looks like some snazzy packaging & marketing here to promote a product feature BT’s had for years.