Clawbacks – Your Say

25
Which of these remuneration and clawback combinations would best suit your business?
  • If these are the only choices, I would prefer the existing level commission option (46%)
  • 60/20 hybrid and 4-year clawback period, where clawbacks are restricted to replacement business only (20%)
  • Not sure (18%)
  • 50/20 hybrid and 2-year clawback period (10%)
  • 60/20 hybrid and 3-year clawback period (existing LIF proposal) (6%)

Our latest poll offers you the opportunity to have your say on the contentious clawback provisions contained in the new Life Insurance Framework proposals.

One issue involved in considering the proposed clawback provisions is that they exist within the context of the broader Life Insurance Framework proposals. As negotiations among industry stakeholders continue, there exists the possibility that any ‘softening’ of the proposed clawback provisions may be offset elsewhere within the proposed Framework. This is why we have offered this random selection of potential ‘compromise’ solutions.

These alternative solutions address, at least in part, some of the concerns previously raised by advisers in relation to the proposed clawbacks, which include:

  • An absence of ‘fairness’ in clawing back valid remuneration paid to the adviser when the client elects to cancel or lapse their contract due to their own changed circumstances
  • Any clawbacks should only apply to replacement business scenarios, that is, if the policy is not replaced, there should be no clawback applied
  • Clawbacks on the lapsing contract should be applied to the introducing adviser in the event of replacement business
  • The level of clawbacks proposed

At present, the clawback provisions, taken from the 25 June release by the Assistant Treasurer, propose:

  • Three year retention (‘clawback’) period, to commence from 1 January 2016 to apply as follows:
    • in the first year of the policy, to 100 per cent of the commission on the first year’s premium;
    • in the second year of the policy, to 60 per cent of the commission on the first year’s premium;
    • in the third year of the policy, to 30 per cent of the commission on the first year’s premium.

Under what circumstances could you work with the proposed clawback provisions? Are they ok for you and your business as they currently stand? Are they acceptable if they are adjusted to take into account one or more of the points advisers have already articulated? What would be the impact of the proposed clawback provisions on your own advice business, given your current lapse rate experience over one, two and three years?

While accepting a number of advisers may reject the premise of this poll, based on their support for the status quo, we remain keen to know where you stand, and for you to tell us what you think…



25 COMMENTS

  1. The minister and insurers have stated that the lif framework has been designed to address churn. They need to come clean on a definitive definition of churn. We are subject to best interest duty and any reference to churn should surely include a reference to BID. If not…why not?

    • Agreed, none of the above. Why are financial planners constantly under attack!? I saw a FSG the other day that said they would claw it back from the client! Not sure how they will manage that, but the conversation gets stupider as it goes.

  2. I cannot select any of your pol options!
    There really needs to be provision for poaching. No clawback for poached policies, but the poacher receives reduced comm commensurate with what would have been clawed back.
    Now that would reduce a LOT of re-writing. For non-poached policies claw back
    of 60% of the current years comm for years 1 & 2; year 3 + no clawback.
    What is proposed means that we will be doing a LOT of unpaid work. Let’s see the pollies or ins industry execs work for no pay :).

  3. I agree with Dan P. None of the options are workable, so I cannot vote.
    It’s OK to say that any softening of the clawback provisions may be offset elsewhere, and it is no doubt unfair if such a softening also means a commission reduction, but the regulators, government, insurers, etc all need to know how advisers actually feel about what has been proposed and the options provided will not provide an accurate picture. I can appreciate the difficulty in trying to word surveys, but the only option an adviser has to vote for a 1 year clawback implies an accepting of the level commission structure. Again such a result can be misconstrued or even used to justify banning all upfront and hybrid commissions simply because an adviser is voting for the 1 year clawback to remain!
    Sorry guys but this should have been worded better. I suggested a couple of weeks ago that the wording in such a survey could be very direct and that includes leaving commission out of it!

    Something like the following;

    1. Would you still continue as a Risk only adviser under 2 or 3 year clawback provision?
    2. If you did continue in the industry, would you continue writing new risk business?
    3. Would you leave the industry if either a 2 or 3 year clawback provision was introduced?

    • WB – and the clear answer will be:
      1. no
      2. no
      3. yes, would sell and run
      This is of course what the vertically integrated insurers want, less competition. This is what it was all about right from the start. Alleged “churn” was a lie.

  4. I ticked not sure, as I do not accept the 4 other choices.

    A fair model is 60/20 hybrid with a 1 year clawback for lapses outside the control of the adviser who wrote the Business and 3 years if the original adviser replaces the business.

    The existing level commission option, is not an option, as the adviser will go broke.

    You cannot run a Business on 30% in the first year, when it costs double or triple to get the Business on the books.

    When the Retail Life Companies can cut the amount of time and admin costs to us by 50% to write Life policies, then there will be some justification to reduce commission.

    There is no justification to have a 2 or 3 year clawback as there is still no documented proof that churn exists.

    A little honesty and verified proof around this churn debacle is a basic right.

  5. I completely agree with Jeremy re Level Commission and none of the other options are acceptable either. Therefore I will refrain from voting all together.

  6. I would not hire any new entrants to the industry if their wages for 3 years could turn out to be a liability to me. I expect this policy to curtail new entrants to the industry by a very large amount.

  7. I refrained from voting as no option is viable. Get the hell out of free market economics. Under price capped remuneration, AIA the current highest payer, will not be able to reverse a slid in participation rates. What mechanism will they use if price/ rem is not available. I expect Trowbridge if implemented to be reversed as Insurance companies realise they have a lot more to lose from abandoning free markets than I do.

    Josh Frydenberg is a fool if he thinks free markets economics will not prevail in the end. Price caps imposed by Gov on Insurers will not help AIA in the long run.

  8. Come on Risk info – this is an unfair poll as all advisers would agree that reducing commissions and extending the clawback period is unfair and unworkable. Most of us would accept that there could be a slightly higher clawback period if an adviser replaces the business themselves but that is not why most customers cancel – they do so because of the excessive increases in premiums by the insurance companies.
    None of these options are acceptable so I will also refrain from voting.
    I hope that next you will not be running an article saying “xyz% of advisers accept 3 year clawbacks” because your poll isn’t fair. There should be options saying if advisers do not support the higher clawbacks”
    Not a fair poll risk info and siding with the insurers.

  9. Agree with comments. Ridiculous poll not representative of Advisers opinions at all. Quite frankly, the entire Trowbridge framework is out of kilter with the actual reality of the Industry. Churn is not the elephant in the room, education is.

    If churn was such an issue, why are Advisers not making more money than they are – refer to Money Management article ” http://www.moneymanagement.com.au/news/financial-planning/state-pay-%E2%80%93-go-west?mkt_tok=3RkMMJWWfF9wsRokv6nPZKXonjHpfsX87%2BQuUKK%2BlMI%2F0ER3fOvrPUfGjI4CTMpnI%2BSLDwEYGJlv6SgFSLHMMbNn0LgLXhg%3D

  10. Risk Info are you for real? clawbacks why don’t you read the Heath report out from the uk? the industry has been devastated by the reforms now 16.5 Million people do not get financial advice, 11,000.00 advisers has exited the industry and premiums have fallen 22%. and you want clawbacks? no clawbacks no refunds no loss of commission, the industry is saying risk advisers are worth nothing. The consumer sees no value in risk advice what is that? no value in protecting your family oh they say they can go direct to the insurers if they want it. Risk advisers need to have fair cost reimbursed, my business turns over 400k a year and I still only get paid 50k a year. My staff who all work 9-5 get paid better than I do. And you want clawbacks

  11. Risk info WoW great choices like MLC said ‘are you for real’ How would you like to be paid for something then to find out 18 months later that we have been robbed. Would you or someone in goverment who is implementing this law like to have money taken off them that they have no control over? Stand up for us and say get stuffed to them.

  12. I believe that this new clawback procedure was designed by FOFA as a disincentive for “churning”. . The clawbacks should not affect any business that is not churning. Best interest duty should overturn any insurance company from instigating a clawback. Yes a 12 month responsibility period is warranted. We NEED an industry wide “Churn” definition NOW before we proceed with our Business plans after Jan 2016.

  13. I think Riskinfo needs to delve a bit deeper into the whole clawback issue. I agree with all the other contributors that say the poll is unfair, to put it mildly. Has anyone noticed that the “Life Insurance Framework” clawback only refers to commission. Does that mean that salaried risk writers ( bank employed ?? ), who don’t get paid comission, but do get paid on the premium they write, won’t be affected by clawback. If you don’t earn a commission then how can clawback apply to you ( not matter what the percentages or the time frame ). It seems to me we in the IFA space are being set up for a massive fall. The level playing field is looking more and more like the Himilayas.

  14. We all know why they want to change the Level coms now!
    The life Co’s rushed into this cash grab and now they are realising their mistakes because of lack of understand their own industry and being managed by greedy executives…….

    I really don’t understand this Poll, so are the first 3 choices Level structures? why would these be alternate options for Level Comms if option 4 is to favor keeping existing Levels………….. RiskInfo, Peter, who gives you these polls? it looks incompetent.

  15. Poor Poll. My preferred option is no clawback with commissions paid two or three monthly in arrears, the client has had the cover, the insurer has received a premium and we have done the work to have the client insured. BTW I have only used Hybrid over the last 10 years and I can substantiate that any, and there are not many, replacement business done was clearly in the clients best interest.It’s time to name serial churners as I am fed up with being bundled in with the cowboys of our industry.

  16. Our thanks to all advisers who have taken the time to respond to our latest poll. We’ve read your comments and will respond next week with a revised poll on this critical issue.
    Peter Sobels
    Managing Editor

  17. Clawbacks that the adviser has no control over – such as the client cancelling due to changed circumstances – should not be levied against the adviser after the first 12 months, period.

    Similarly, if the insurer increases premiums (particularly in the case of level premium policies) then the adviser should not be subject to a clawback – even if the product is replaced. We would be derelict in our Best Interest’s Duty to not review a policy under this scenario so we shouldn’t be penalised or put in a compromised situation because of actions outside of our control.

    But as I suspect the insurers have already stitched advisers up and no changes will be made to the already announced proposals, I’ll be having clients sign binding contracts such that should they cancel their policy within the first three years, they will be liable to pay me the clawback commission direct.

  18. 1. Why would there be a clawback period longer the current 1 year, if the remuneration %’s are decreasing ?
    2. If an adviser is replacing the existing policy that he/she set up, then I can understand that maybe a 1-2 year clawback provision could apply.
    But for client directed requests due to business failure, moving overseas, redundancy, divorce, pregnancy, illness etc I think the current 1 year period should remain.

  19. What is the cost of managing a clients claim? this has never been brought into the discussion. I have spent countless hrs negotiating with insurance companies on a clients behalf. If commissions are reduced where will funds come from to manage clients claims? or is this what insurance companies are seeking clients to manage their own? also reduction in commission will mean that clients ( who don’t proceed) will need to pay for 1st appointments and therefore less people will seek advice and the insurance gap will actually widen. what about insurance companies service levels? if they did what they are supposed to everytime then advisers don’t need to pay admin to call insurance companies and micromanage every process to make sure it is done correctly. accountability I say

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