Advisers Moving Away from Upfronts

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Advisers have already begun transitioning to hybrid commissions and fee for service for risk advice, according to the latest findings from Investment Trends.

Senior Analyst, King Loong Choi
Senior Analyst, King Loong Choi

The June 2015 Planner Risk Report, released this week, revealed that advisers have already begun to move away from upfront commissions for insurance advice. Comparing the use of upfront commissions by advisers in the last 12 months against the results of the June 2014 Planner Risk Report, Investment Trends said while upfronts remained a key component of financial planner revenue, there was a clear shift away from this model.

“Planners are typically already going through the process of phasing out upfront commissions and replacing it with hybrid commissions and fee for service,” said King Loong Choi, Senior Analyst at Investment Trends.

“The implementation of capped upfront commissions, as per the Trowbridge recommendations, would see this process speed up, and challenge those not already doing so.”

Planners are typically already going through the process of phasing out upfront commissions

Association of Financial Advisers (AFA) CEO, Brad Fox, agreed that there had been a move towards hybrid models, despite the lack of finer details on the Life Insurance Framework.

“There is ample evidence of successful transitions by risk-focused advisers to hybrid models over the last three to five years,” Mr Fox said. “Many businesses that have made the transition have seen stronger recurring cash flows and greater business valuations. We believe if practices devise and employ a watertight transitioning plan and execute it correctly, they will get positive results.

“Advisers have told us they need support to adapt to the proposed changes and want the opportunity to workshop how to most successfully use hybrid commissions, how to help clients accept a separate advice fee perhaps alongside a commission, and how to deal with the three year clawback danger,” he said.

The AFA is currently running a Life Insurance Framework Roadshow to assist advisers to explore their future remuneration options. Click here for more information.

The Investment Trends report also showed that four out of five advisers expected to make changes to their business models if the changes proposed by the Trowbridge report were implemented. The research was conducted shortly after the release of the report, but prior to the announcement of the new Life Insurance Framework.

“Our research shows more planners anticipate they would move to a holistic advice model and use superannuation and insurance advice to help recoup some of the lost revenue. Those who already provide risk advice as part of their comprehensive advice, meanwhile, feel they may need to charge more for this advice,” said Mr Choi.

Other key findings from the report include:

  • On average, financial planners use 3.9 insurers, up from 3.7 in 2014
  • 35% of planners stopped using at least one insurer in the last 12 months
  • One in five planners said they were in the market for a new insurer relationship
  • 89% of planners use risk software to assist with their insurance recommendations, with XPLAN the most-used software

The top four insurance providers by number of primary planner relationships are:

  1. OnePath
  2. AIA Australia
  3. BT Life
  4. TAL


10 COMMENTS

  1. I repeat what I said on another forum yesterday – is this survey talking to Risk only advisers or the pretenders who earn less than 20% from Risk. I am sick of people, including Research Houses, taking a position in this debate to push an anti-commission agenda. Who did Investment Trends talk to ?

  2. I am yet to meet a Risk only adviser who is moving to Hybrid commission or fee for service and I have spoken to many Risk only advisers. Maybe the researchers need to canvass Risk only advisers rather than Financial Planners. I too am tired of these so called research results.

    • Not sure who you are speaking to but pretty much all of the risk advisers i know solely use hybrid. Those who are continuing to use upfront are the ones who will be the first to go under and they will also be the loudest. Calling these research results into question really only highlights your detachment from the industry (or at least those at the fore of it.)

      • The problem Rob is that the “Investment Trend” results include Planners who provide both advice for Risk as well as Investments/ Superannuation. Planners who provide such holistic advice charge fees for their advice and can offset the reduction in Commission against such a fee.
        But here, we are talking about the Risk Only adviser – a point has been made time and time again in past issues of Riskinfo. Leaving aside whether an adviser chooses upfront, hybrid or even level commission for that matter, the issue is that Mum and Dad clients will not pay a fee to their Risk Only adviser AND an insurance premium. Again, leave fees paid to a planner out of this.
        So I do not believe that your accusation of Jeff Suggars is fair. I would also question the criteria used by “Investment Trend” in their research. Did they speak to Risk Only advisers or (as the article strongly suggests) have they included Planners who provide holistic advice and charge a fee accordingly?

        • Their website does say that the report looks at the ‘contribution of risk to overall practice revenue’. It would be interesting to know those numbers.

      • Rob, Jeff Suggars has been in the industry probably many more years than you. From his comments here he’s far more credible too. Are you from Disneyland?
        Then you have the temerity to refer to Jeff as being ‘detached from the industry’. If you don’t have anything of value to add to a discussion as deep as this one is, why comment at all?

        • Hi Paul,
          At no point have I called into question Jeff’s experience, however experience really is irrelevant when it comes to this topic. The fact remains (and this FACT has been backed up by Australia’s largest insurers), the biggest risk-only advisers in Australia have been writing on Hybrid/transitioning to hybrid for years. For Jeff to come out and suggest “no one” is moving to hybrid is nothing short of misleading. Transitioning to hybrid is something that is unquestionably beneficial to the industry (adviser polls have reflected that this very much is the sentiment of advisers), when those like Jeff come out and slam it – it actually harms the industry, even if his intentions aren’t to do so.

        • Sorry Paul, Jeff’s response really does highlight what i said. It is no insult, but rather fact. Those risk-only advisers at the fore of our industry have been transitioning to hybrid for years. To suggest that no one is doing so is either Jeff intentionally trying to mislead others or it is him simply being detached from those at the fore of the industry. I assume/hope it’s the latter.

          Those who are sitting there stamping their feet while others are adapting are the ones who will be forced out of the industry/left behind.

  3. Once again, the old adage, never let the truth get in the way of a good story, as per the
    ‘latest findings’ from Investment Trends, who state there was a clear shift away from upfront Commission models to hybrid and fee for service.

    Their credibility is blown apart with their parrot like, fee for service, fee for service mantra. They just need to finish with, ‘Pollie wants a cracker.’

    There is a good reason why all these ‘Trends’ companies never tell the real truth around fee for service in the Retail Life Insurance area. It is because they cannot find any real evidence to back their ridiculous statements up with, apart from percentage calculations and anyone with a basic understanding of this form mathematics, knows that a 25% swing sounds impressive until you find out that it is 25% of a 2% minority.

    The AFA has made a comment saying advisers need support to adapt to the proposed changes and how to help clients accept a separate advice fee, perhaps alongside a commission.

    This seems to me that the AFA have thrown in the towel and surrendered to ‘proposed’ rather than regulated changes.

    The AFA needs to fight, not run from the 3 year clawback debacle and demand accurate information, rather than the hodgepodge of misinformation thrown around to date which they appear to have taken as gospel.

    The AFA needs to listen to real information from real experts, not get advice from theorists.

    Having the ear of the Government brings with it a responsibility to attain the truth and fight for it AND NEVER GIVE IN TO ANYONE WHO DOES NOT OR WILL NOT TELL THE TRUTH, OR THOSE WHO WISH TO DAMAGE OUR REPUTATIONS AND
    BUSINESSES WITH LIES AND MISTRUTHS.

  4. Really the information here is not correct, fee for service is not in the best interest of my clients, and OnePath you have to be joking don’t you ? No hybrid for me how about Risk info print the real truth about all this hype?

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