Clawbacks Reduced to Two Years

The clawback conditions announced as part of the forthcoming Life Insurance Framework (LIF) have been reduced from three years to two, while the Australian Securities and Investment Commission (ASIC) will be given power to set commission caps and implement clawback arrangements.

Assistant Treasurer, Kelly O'Dwyer...responding to industry concerns...

Assistant Treasurer, Kelly O’Dwyer…responding to industry concerns…

The Assistant Treasurer, Kelly O’Dwyer, made the announcement late today stating the clawback provisions would be 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

Importantly, the Government has stated that base premium, policy fees and frequency loadings will be included in the calculation of the commission caps, with only government taxes to be excluded.

“The Government has responded to industry concerns about ongoing business viability by moving from a three to a two year clawback period. However, through these reforms we are ensuring that there are strong incentives to prevent replacement of policies where there is no consumer benefit,” the Assistant Treasurer stated.

O’Dwyer said the final shape of the LIF legislation will be released as a draft for consultation by the end of 2015, with final legislation to be introduced in early 2016.

Roles for ASIC and FSC

The Assistant Treasurer also stated that ASIC and the Financial Services Council (FSC) will play key roles with ASIC to oversee the implementation and execution of the legislation and the FSC to create guidelines for insurers.

“The Government will amend the Corporations Act 2001 (Corporations Act) to give ASIC the power to create a legislative instrument to set caps on commissions and implement clawback arrangements. Ultimately, the final form of ASIC’s instrument will be a matter for ASIC, as the independent regulator,” O’Dwyer stated.

“The FSC will have responsibility for creating the Life Insurance Code of Practice. Similar to existing codes for Banking and General Insurance, the Code would set out best practice standards for insurers, including in relation to underwriting and claims management.”

Approved product lists and remuneration will also come into sharper focus with O’Dwyer stating that “industry will also have responsibility for widening Approved Product Lists through the development of a new industry standard”.

“I also intend to strengthen remuneration disclosure as part of a broader review by ASIC of life insurance Statements of Advice, including prominent upfront statements about commissions. The ASIC review of Statements of Advice will commence in the second half of 2016, with a view to making disclosure simpler and more effective for consumers as well as assisting advisers to make better use of these documents,” O’Dwyer said.

Recognition of efforts of AFA and FPA

In announcing the change the Assistant Treasurer stated the “industry has come together to reach consensus on the implementation of important improvements to the remuneration arrangements in the life insurance advice sector”.

O’Dwyer highlighted the efforts of the Association of Financial Advisers (AFA), the Financial Planning Association (FPA) and the FSC in shaping the package on behalf of the wider life insurance industry stating “this package reflects the hard work of the industry over the past few weeks finalising implementation details”.

The AFA said the clawback refinements would be ‘received with relief by their members’ with AFA National President, Deborah Kent accrediting the change to the combined efforts of the AFA and FPA, and to the collaborative approach of the Assistant Treasurer.

“In an electronic poll held at our recent National Adviser Conference in Cairns our Members indicated almost unanimously that three-year clawback was the greatest issue in the reforms. That was consistent with the view of our Board. To succeed in having this reduced to two years is a great relief for our members, particularly those that own and operate small businesses.”

“We would like to acknowledge the support and engagement of the many AFA members that have been instrumental in assisting politicians to understand the intricacies of the issues involved. The voice of our members has been important to the debate,” Kent said.

Other Key Measures Announced:

  • The start date for LIF has been confirmed as 1 July 2016, as previously announced, with the framework to apply to personal and general advice, which includes direct sales channels.
  • The Government will ban other volume based payments and grandfather existing arrangements roughly consistent with FOFA by making amendments to the Corporations Act.
  • Life insurance companies will be required offer fee-for-service insurance products to support advisers operating on a fee-for-service basis.
  • Apart from the previously announced review of the reforms in 2018, the Government will also require the development of appropriate lapse reporting data to provide clear evidence for this review and that ASIC works with industry to ensure strong integrity around the data.
  • The Government will amend the Corporations Act 2001 to assist in the rationalisation of legacy life insurance products with any tax implications to be examined as part of the Government’s Taxation White Paper process.

 

 

  • Robert Coyte

    This must be the sequel to Dumber and Dumber!

    The only thing that wasn’t mentioned is that the FSC has full reign to do whatever they see fit.

    • Ken

      Please do not tell me the AFA will hang their hat on this as a major step forward !! But they will !! 1 year is the only option particuarly as there has been no apparent change to the proposed commission structure You cannot have it both ways
      Business sale values will still be Badley effected as there is no guarantee of the new policies remaining on the books
      I think we all knew this would happen but it cannot be accepted as a done deal
      1 year responsibility 80/20 commission 2 year trial Yhat way the insurers still have us doing their work ( claims assistance etc etc ) for a reasonable payment and a responsible acceptable risk by the adviser
      Tell me why that won’t work please

    • Brian Howard

      “This must be the sequel to Dumber and Dumber!”
      Hahahahahahah!!!
      I LOVE IT – some humour is definitely called for in such a sad, sad situation. This would be good to have an out-loud laugh about if it wasn’t so serious. Public servants being paid our tax dollars to just fill their office chair, stuff up an essential industry and play starring roles in the Dumb & Dumber scenario. How much more incompetent can they possibly show themselves to be than coming out today with this pathetic piecemeal anti-solution. I’m yet to be convinced these designers of FOFA even know what they are trying to achieve for the clients – I’d love to hear them verbalise it and then prove it. NOTHING is being achieved for the clients with these non-solutions from FOFA. Please prove me wrong as I’m willing to learn.

  • paulkate72

    Still no good. 1 year is the only acceptable responsibility period. There are too many variables which have nothing to do with churning; therefore 1 year is the only way advisers can operate viable businesses.

  • Roger Smith

    A totally unacceptable outcome! This is a belated acknowledgement that the original
    proposal was flawed. This “throw them a bone” approach is just not good enough. The
    massive upfront commission reduction is “reluctantly acceptable” but not a 2 year
    clawback period. Now we have a proposed “ceiling on commissions” that can be generated. Wow – great negotiating skills once again guys. I would have thought that placing a limitation on earnings was “anti competitive”.

  • James Howarth

    I dont think Kelly O’dwyer did listen at all. Shut the f up and collect the bins.

    The Government has no place making these decisions on the terms and payments of commercial arrangements and the Life Insurance Framework is just one mans opinion.

    Trowbridge was paid for by the insurance companies, and this is clear that the Government does not understand small business, or the level of encroachment into the lives of private citizens.

    As a young employer it is clear that 2 years of salaries of my employees could become a liability to the boss making employing new entrants untenable.

    I say if they do anything at all we arm up and go to war. It is time to tell the Government to back off private lives.

  • Paul

    “we are ensuring that there are strong incentives to prevent replacement of policies where there is no consumer benefit”
    So Kelly O’Dwyer, just like the ASIC insurance report, and the FSC (Trowbridge) report, has completely ignored the fact a statutory best interest duty was recently introduced to prevent any replacement of any financial product in any timeframe, where there is no consumer benefit. The problem has already been solved.
    Under best interest duty there is no need for one year clawback, let alone two. This is a victory for the FSC. It will reduce the number of consumers getting professional advice and help FSC members sell more of their junk insurance products. It is a significant defeat for the interests of consumers.

  • Risk Adviser

    Why are there still commissions on policies which are sold under General Advice and direct. How can they justify paying a commission the 5 minutes of work it takes to set up these policies? The sales person is not providing any service to the customer. There is no needs analysis, no best interests duty, no chance for litigation of something goes wrong and most importantly no SOA. Why are they getting paid the same as advisers when they do no work and don’t have to act in the best interests of clients. They are actually acting in the worst interests of clients by selling expensive and rubbish policies which will not pay out at claim time as they haven’t been underwritten and even if they do pay out will leave the client with insufficient funds.

    Would we be better off just setting up insurances under general advice (for policies with premiums under $5,000 pa) and letting the clients, insurance companies, FOS and the courts work out the claims themselves? it makes sense. No mountains of paperwork and no litigation concerns. Less PI costs too. Obviously the client is worse off but these reforms are aimed at making everyone worse off except for the banks.

    Either the people who are making these decisions are extremely stupid, incredibly greedy, incredibly evil or are on the banks payroll. id say its greed and paid by the banks.

    there has still been no comment from anyone as to how these changes will help the consumer. The insurers will not decrease fees, clients will have less access to advice professionals and in particular they will have no independent adviser to help them at claim time.

  • Roger Smith

    Well we started with a 50% reduction in upfront commission and NOW after the latest round of NEGOTIATED changes with Ms O’Dwyer and the AFA and FPA this could quite realistically be an 80% reduction after the introduction of a proposed “cap on commission earnings”.
    How about capping the amount a Plumber can earn on each job, or a Real Estate Agent on each sale or what about a maximum a CEO of a Bank or the CEO of a Life Company or the FSC, FPA or AFA can earn. Forgive me but I was under the impression that we lived in Australia . I was also under the understanding that “the clients best interest” was paramount. How can you put a ceiling on how much an adviser can earn on each sale when the result will be that the job will be only partially completed because it won’t be in the advisers interests to proceed beyond a “certain point” because he will not be paid adequately. Does the revised LIF now include a payment schedule for remunerating advisers for helping clients achieve a positive claims outcome – of course not and was the “Real Role” of the adviser clearly understood – No. The longer this process takes the greater my belief (unfortunately) is that no one involved in the process has a clue how our Industry works!

    • Great Advice Advocate

      Roger, the difference is that risk commissions are paid by a third party. Plumbers, Real Estate Agents and all your other suggested occupations are not. No one is capping how much you can earn from a client, the Government is simply limiting how much you can receive via risk product commission, that in itself is a massive difference! This announcement is good news as in we now know a lot more detail so lets look at adapting our business models and processes just like we have done in the past with FSR and FoFA and get on with business. I know we will be!

      • Brian Howard

        Spoken like a true life company executive or ‘specialist business consultant’.

        • Great Advice Advocate

          No just spoken like a realist who is working with the facts and getting on with business.

      • Paul

        I just don’t get this philosophy that whatever the regulators introduce, we should all just meekly accept it and move on. This presumes that the regulators know what they’re doing and are acting in the best interests of the community. Much of the time they are not!

        You mention FSR as something we have adapted and got on with. But FSR has been a disaster. It was introduced under a totally misguided philosophy that “greater disclosure” was the best way to protect consumers. But it has just led to a gigantic mountain of paperwork that most consumers have no chance of reading and understanding, and a significant increase in costs. If only the industry had pushed back harder on FSR when it was introduced the community would be much better off. A far better alternative would have been the introduction of a best interests duty, which finally arrived more than 10 years later.

        So it is with LIF. It is a badly designed policy which is not in the interests of the community. A better alternative would be a best interests duty which prevents switching of insurance policies unless the consumer is demonstrably better off. But hang on, didn’t we just introduce a best interests duty under FOFA? So why do we need LIF?

        There has been absolutely no evidence I am aware of, of bad insurance advice under FOFA. All the examples cited by ASIC and Trowbridge and the media occured prior to FOFA. FOFA has already provided the solution to bad insurance advice and churning. LIF will be an unnecessary and counterproductive burden on the community, just as much of FSR is.

        • Great Advice Advocate

          Paul, I agree that our political system and regulators don’t make the best decisions especially when it comes to our industry. I did mention FSR and I agree that was a disaster and counter productive, but my point was in the end we can only do so much and beyond a certain point we just need to make some decisions regarding our businesses and how we operate. Time will tell with FoFA and LIF and its full impact and level of (in)effectiveness but until then we can either continue to fight a losing battle against the regulators who have made up their mind or start the process of once again adapting our businesses to survive and hope some aspects may be amended in our favour at some point in the future.

      • Roger Smith

        Great Advice Advocate (GAA) (whomever you may be). Firstly please identify yourself so that those involved in this discussion can make an informed decision about the value of your comments or whether a vested interest exists. I’m not suggesting that one does but your anonymity and your comments leave doubt in my mind and probably others. GAA please remove this doubt for me. What you have just highlighted is the uniqueness of our roles and our Industry. Simple logic tells me that if the current remuneration basis and responsibility period is so far off the mark, why is it that those who designed it still hold their jobs. How can anyone possibly justify to their shareholders being so errant in terms of their assessment of the cost for procuring their new business (if it is in fact so far off the mark). Remember FEE FOR SERVICE DOES NOT WORK WITH RISK.

        • Great Advice Advocate

          Roger, my identity doesn’t define the value of my comments. There are many people on here who are anonymous as well, if we can contribute to the discussions, share our opinions and have valid points then there shouldn’t be any issue with it. If there are any aspect of my comments that you feel are biased or not constructive to this discussion or thread, then I am happy to be challenged on it.

          • Roger Smith

            GAA, my view is the same of everyone who posts comments anonymously – if I were moderating the discussion I would not accept any such comments as valid comments. If you have nothing to hide give your name!

          • Great Advice Advocate

            Roger, there are a lot of comments you would not accept as valid then! You may be Roger Smith or it may just be a false name, either way I take what you say as your opinion and respect it. If you don’t agree with what I have said, then that’s fine, it is just my opinion.

          • Roger Smith

            My point is why do you have to hide your identity unless you have something to hide, which could be that the proposed reforms do not even effect you. If they do then what’s the problem in backing your comments up with your name. If you question my identity just ask anyone who has been in the Industry for any period of time who I am and for my telephone number or look me up. You can then call me to allay any concerns that you may have that I exist.

          • Great Advice Advocate

            Roger, simply the opinions I am sharing on here are my own and therefore may not represent the consolidated view of my business and my business partners and as a result it is my choice not to reveal my identity. You are welcome to bypass my comments in the future if it bothers you so much but I will continue to share my opinions where I feel I can contribute to a discussion on here (which I feel I have been doing). Sorry to be so blunt especially on a Sunday.

          • Roger Smith

            Interesting comments from someone who has now revealed that the LIF will have little (if any) impact on their business. No wonder you refused to reveal who you are and made the comments you have. When reforms were planned for the Financial Planning Industry we respected the individuals THAT WERE IMPACTED by the changes and made NO comment – ALL I ASK is that you show the same respect so as not to mislead people that these changes are of little significance.They are of great significance to those impacted by them. This is my last communication with you. I wish you well with your Financial Planning business

          • Great Advice Advocate

            Thanks Roger and your comments have clearly revealed the difference between you and I. I work and actively contribute in the best interests of all advisers in the entire financial services industry and you do not. I really do wish you well too, you really are going to need it with that attitude of us and them (especially within our own adviser community!). Cheers.

          • Roger Smith

            Once again you have proven you have No
            Idea. I don’t need luck my future is already secure. I care for the hundreds of Advisers I have brought into this Industry of which clearly you are not one. Perhaps your attitude might be different if you were.

          • John

            So Roger its all well & good for people like ’emkay’ or ‘reality check’ to post under a pseudonym because you agree with them but someone does it who you don’t agree with and you berate them?

          • Roger Smith

            I have made it abundantly clear that if I were the moderator no comments would be acceptable to me if a FULL name was not submitted and that includes you John.

          • Paul Underwood

            Hi Roger and Brian, I agree with both of you that these forums should require a full name as although I like to hear different opinions I am also suspicious of anonymous comments who out of the blue are very pro one side of the debate but not willing to put their name to the comments.

            If you have belief and conviction in the comments that you post then putting your full name to them makes perfect sense to me.

            I suggest you both post your comments on the Australian Risk Advisers Linkedin group discussions as you cannot post without using your full name. I tend to post more in that forum because of that reason.

          • Ken

            Me to Roger these types if forums can easily be manipulated and give a false sense of what the real picture is Plenty of people that have the power to make decisions read our comments in hope that they can see some sort of surrender to there ploys and their comments no doubt read. by those that put these proposals in place and start to think they actually have done the right thing and made a difference
            Yes they have and will the difference is less advice and a better bottom
            Line for the banks and insurers that’s all this has ever been about

          • Em

            I feel the industry ,our industry has become clinical due to external forces based on modelling by governments and licensee which is not considering the cost of the ‘buying in’emotional relationship of client and advisor.i don’t feel the love .

  • Sumpguard

    Still not good enough. A rogue representative goes and churns my hard earned client and I get the clawback. The insurance company increases premiums so the client goes elsewhere for a fairer deal and I get the clawback.

    This is so wrong.

  • George

    I think the criticisms here of the AFA and FPA are way to harsh. They have worked tirelessly to ensure there is more money for advisers.

    No one in the industry pays commission on policy fees. But when this is implemented they will be able to (I know the reporting in the article is incorrect to suggest they will based on the press release – but we all know we can pressure these gutless insurers into paying on these items.) That will get us more money in our pocket.

    No one in the industry pays commission on a GST exclusive basis. Everyone does it today on a GST inclusive basis. We all know a GST exclusive basis means more money in our pockets gents!

    Level commissions wont be capped. I know sure as hell I will be charging the client a fee through the product that they can’t see while it takes those jokers at ASIC years to conduct a review of SOA’s and fix this stuff. We all know we can get the insurers to compete each other up, and get those level commission in the vicinity of 40 per cent.

    And most importantly, the clawback is only 2 years now. If we get the insurers to pay the level upfront then we can grab a quick 66, 22 22 and 66 and in 2 years and one day earn 176 per cent commissions lads.

    Well done AFA and FPA. I applaud your efforts.

  • Brian Howard

    This is a combined reprehensible behaviour on the part of government and industry bodies. Exactly where the scheme was hatched to throw mud at the wall and see how much sticks is now unimportant although self evident.
    .
    A 2 year clawback, in principle, is just as bad as a 3 year clawback. I wonder if the life company and dealership execs would be standing for this if asked to share the pay packet burden with advisers of a 2 year clawback on their wages!? (the advisers being the ones who pay the execs anyway!).
    .
    It is at the stage now where I know there are advisers too scared to put in the time and write new business! We are at the stage where a good number of good advisers are seriously considering leaving the industry due to the amateur flavour exhibited by both government and industry bodies alike. This menagerie is, quite frankly, beyond a joke. none of these changes will have a single bit of effect on the churners – they are obviously not designed to. Nothing I’ve seen voiced will stop churners except direct action by DEALERS and LIFE COMPANIES. These so called “initiatives” by the FOFA regime are for the betterment of life companies and the cost is detriment to the clients and advisers.
    .
    Just imagine if a FOFA change came out tomorrow saying life company and dealer execs had to have a 2 year clawback provision on their wages for client retention OR performance of their duties. This is what FOFA says to advisers. The execs are not at fault for lapses – neither are the majority of advisers but FOFA says the advisers will pay for lapses outside of everyone’s control. Amateurs, inconsistent amateurs that should not be receiving our tax dollars as their wages!
    .
    When the dust has settled and the FOFA clerks have had their way, I hope the special interest groups of the day make sure everyone knows that these government changes are responsible for the underinsurance, family financial tragedies and social unrest caused by all of this. They know not what they do . . .

    • Great Advice Advocate

      Brian, have you told your friends that the commencement date is 1/7/2016 and there is a transition period thereafter? Plenty of time to write risk if a new client requires it now and no need to be scared.
      I would like to know what your lapse rate may be for your business? Have you undertaken an analysis of your business to see what impact LIF would have had on your business if it had been in affect over the past 2 year? Ours is extremely low and none within a 2 year period of establishment. Has anyone else conducted a similar exercise?
      We all run the risk with policies lapsing beyond our control, churners still operating and clawback coming into play, it will be a matter of doing what we can to reduce the risk and the likelihood of it happening.
      With regards to underinsurance, family financial tragedies and social unrest, everybody knows they’re already issues and have been for such a long time, nothing to do with LIF or FoFA etc. Much of the general public just don’t have the interest, understanding or education on the importance of insurance and how it works, that is what needs to change to avoid these from happening.

      • Paul

        I have analysed the impact of 2 year clawback on my business based on historical experience, and it is minimal. However I don’t believe historical experience is relevant, as under LIF I expect lapses to increase significantly for the following reasons:

        1. Insurers have brought in significant price increases in recent times, even on level premiums, and more is in the pipeline. Big price increases trigger lapses.
        2. Insurers will be heavily advertising their junk insurance products which encourage consumers to switch to something they believe is lower cost, without understanding the hidden traps. After all, this is the whole intention of LIF in the first place. Suncorp and TAL are well advanced in this regard and can be expected to ramp up their efforts, with many other insurers joining in.
        3. Less reputable “advice” firms will actively target existing policyholders to switch to fee for service policies with a low fee and no advice, after the client has received full advice on a commission basis from another adviser. There is one firm that already advertises this sort of service heavily online, and it is likely to become commonplace after “fee for service” insurance gets more publicity.

        • Great Advice Advocate

          Paul, thanks for sharing the result from your analysis. I’m glad you have undertaken that exercise and have a similar result. You have some valid points however I feel hindsight is all we have at present as there are more details and variables we need to find out about before we can make such assumptions that lapses will significantly increase.
          What will be contained in The Life Insurance Code of Conduct that still has to be developed? Will there actually be any benefit by widening of the Approved Products Lists? Will there be any efficiencies introduced by insurers to assist us with the changes? With these changes applying to both personal and general advice (including direct sale channels) and throwing into the mix ‘Best Interests Duty’ requirements there are a lot of moving parts and potential outcomes.
          I read that ASIC will review the changes by end of 2018, lets hope the damage is not too great between now and then and we get some improvements in our favour – call me an ‘Optimist’!

          • Brian Howard

            So, ‘great advice advocate’, what do you say about the life company execs sharing some of this burden? What say we arrange a split with them, averaged across the board, so that some ‘charge-back’ effect is applied to their weekly pay packet (same as it is to ours) when charge-backs/clawbacks occur. Remember, chargebacks are often totally outside of the adviser’s influence. They share in the commissions just like we do but it is called wages in their case – it ALL comes from client premiums and new business written. The only difference currently is they keep their slice in a clawback and advisers do not. Should we also extend this to the dealership execs and employees? Can we carry this down to the customer service people and all life company employees? Why just clawback from the adviser? You would have to agree on this basis the principle of any (let alone 2 or 3 years) adviser-only clawbacks stinks, in the case when the lapse is completely outside of adviser influence.

          • Great Advice Advocate

            Brian, I would love to see every stakeholder carry the burden equally or proportionately or whatever. It isn’t fair how 100% of the burden is placed on us the adviser with the risk of clawback but what can we do about it? What is set in stone we can’t do anything about, do you agree? Or do you think we still have some hope of getting some or all of the unfair components overturned? The industry (collectively) still needs to work on a number of details, so lets concentrate on what we can still influence or include in that detail. Otherwise I don’t know what else we can do going forward with regards to these reforms.

          • Ben Sullivan

            Ok GAA. it doesnt really matter who you are. But can you give me any examples of how clients will be better off after these changes? or do you accept that LIF was all about increasing the profits of the banks?

            I also wish that direct policies and policies sold under General Advice were subject to Best Interest Duty as well.

          • Great Advice Advocate

            Hi Ben, I don’t necessarily believe that clients will be better off after these changes, but nor do I accept that LIF was all about increasing profits of the bank. I believe much like FSR and FoFA etc. that Government has had to act as a result of the minority of bad financial/risk advisers and churners. Perhaps in order for an ‘industry’ to become a recognised ‘profession’ from both a consumer and legal perspective that these changes are seen to be required as a stepping stone to that? Not sure.
            Unfortunately I think applying ‘Best Interest Duty’ to direct policies and policies sold under General Advice would have been unworkable as it would have to apply and extend to such financial products as Car Insurance, Home/Contents Insurance, Pet Insurance and the like.

          • Ben Sullivan

            So we are all agreed that the mum and dad type client is worse off under LIF?

            Can anyone give me one potential positive outcome for clients from these changes?

            Based on the decision not to have direct insurers act in the best interests of the clients and the fact that they get paid the same commission levels as advisers but don’t have to waste hours on compliance, are not as open to litigation, do not have to go through underwriting and do not have to help at claim time, would it not be better for advisers to cease advising and start providing general advice only for people who want risk only advice with premiums under $3k pa. It will soon be the only way many practices can operate for these smaller policies.

            Please tell me how forcing mum and dad customers into Direct products and removing INDEPENDENT advisers from the implementation and claims process will help the industry become a recognised profession.

            This year alone I have come across 2 clients who had direct IP insurance policies and one with a direct TPD policy. they had all given up trying to claim and hated insurance companies. I was referred to them by friends or clients and 2 have been paid what they deserve and the other one will be paid before the year is out. I believe another intended consequence of LIF is to remove advisers from the claims process so clients are left to fend for themselves and therefore will most likely give up on their claim due to all the barriers and half truths the direct insurers put up at claim time. Its ALL ABOUT THE BOTTOM LINE OF THE BANKS and insurers!!!

          • Dan K

            Could not agree more Ben. I think I would rather see true fee for service with no VI arrangements and a Govt mandate that says “Buyer Beware”. Then once the stats out (they already are…but maybe this time someone will listen) with Advised Vs Direct that the regulator will do it’s job and ensure that Clients best interests are met and that a replacement policy cannot be enacted unless an independant risk specialist provides written advice. If clients are allowed to self help at the moment in relation to replacement advice the vast majority are DOOMED. The Govt sees fit (and rightly so) to protect consumers against drug companies flogging their product, I would argue that the right amount of money, to the right recipients at the right time will not only save lives, but save the aussie tax payer billions.

  • Paul Underwood

    There are so many problems with these outcomes and not one long term benefit to a client, the exact people who all these changes are supposedly designed to benefit.

    Insurance premiums will continue to rise for a multitude of reasons and client savings will just not eventuate.

    The commission reduction is workable for many advisers, with some short term cash flow issues for some but it needs to stay at a minimum 60% year one and 20% ongoing. The reality is that blind Freddy can see that advisers are being stitched up and it will moved to a flat Level income model in July 2018. So advisers better start planning on how to run your business on level commissions as I have no doubt this is our predetermined future, that is those of us that are still left in the industry after this current debacle.

    The two year clawback of 100% in year one and 60% in the second year is justly unfair. I personally don’t have a problem with two years but the only fair way to implement it is on a monthly reducing percentage so that if a client cancels a policy in the 22nd month then 2/24ths of the commission are clawed back which would be approx. 8.34% not 60%.

    It is absurd and grossly unfair to apply the current structured two year proposed clawbacks as it transfers all the risk to the adviser from the insurance companies. But let’s face it that was always the intention wasn’t it? It was never about what is best for the client!

    This whole sorry saga is a stitch up and a way to get rid of the bulk of the self employed risk specialists so the banks and life companies can market directly to clients with their inferior contracts, more expensive premiums, crappier claims outcomes but of course greater profits for the insurance companies.

    Kelly O’Dwyer, Josh Frydenberg, the FSC, AFA, FPA and all the other special interest and consumer groups should hang their heads in shame, because this outcome has put thousands of small businesses and their staff in a precarious position across Australia and will not deliver better insurance advice to clients.

    The AFA and the FPA have just been played like pawns on a chess board in a game that was predetermined a long time ago, that game being the eradication of the bulk of self employed risk advisers in Australia and greater profits for insurance companies.

    The very real potential that capping of commission income will be brought in completely limiting how clients may choose to pay for their insurance advice, implementation and policies is a disgrace. It would be the same to legislate that real estate agents can only earn a certain percentage of a property sale regardless of the excellent price they may negotiate and that all advertising and marketing costs must be paid from the clients own pocket up front and not from the sale of the property. Imagine the furore if that was proposed, as clients would be saying that they want to choose how and when they pay for the services they wish to receive in the way it best suits them? But of course this approach is fine in our industry where risk advisers are basically the whipping boys and girls of the financial services industry.

    Of course it is not all bad as although the majority of risk businesses will struggle with these changes, opportunities will be there for some to grow their businesses substantially due to the reduction of thousands of risk advisers as they leave or retire out of this once great industry.

    While I will be one of the few risk advisers remaining it doesn’t change the fact that the benefit to a minority of advisers will be based on the demise or exit from risk advice of the majority of current advisers and at the end of the day the Australian consumer will be worse off.

    Overall it is a sad day and a sorry looking future for insurance clients and most advisers in the life insurance industry in Australia.

    • Brian Howard

      Well said Paul and thank you for stating the adviser case so comprehensively.
      You’ve covered a lot of bases and I hope the scheming public servants and clerks who are pushing these changes have their ears and eyes wide open to clarity like yours. Trouble is the servants and clerks hold the power unfortunately and will do what their bosses and influencers say. Advisers and clients needs are last, as usual.

  • Ben

    So Insurance companies can increase premiums , client cancels and the adviser is clawed back? Ridiculous outcome and sold down the river by the AFA. Brad Foz should resign. How could AFA get this so wrong?

    • Brian Howard

      Ben, Yes – well said, it is as plain as the nose on my face. So, can you imagine my disbelief and disgust when certain anonymous commenters on this and other sites praise the AFA and government public servants/clerks for the results! Just beggars belief they seem to be getting away with it. Our industry ‘bodies’ are either complicit or powerless. Either way just look at the results. Sickening!

  • Great Advice Advocate

    I agree George. The FPA and AFA really did have a tough gig and sure it wasn’t the best outcome, however they did work tirelessly for their respective members and our industry to assist in achieving a more favourable outcome for us. Many don’t believe that, but it is evident if you take the time to review their submissions, media releases and websites. Kudos to them both!

    • Brian Howard

      I’d love to know your real identity and George’s too! I’d put money on a life company exec or AFA stooge. Comments like yours scream you are not clients or advisers running your own businesses with the threat of incongruent income supply approaching! You both seem sincere in what you are saying so why not identify yourselves and show the some reality in your convictions?!

      • Brian Howard

        Oh, and you surely realise by now that pure risk writers without an FP business for subsidy cannot charge fees on top of premiums, regardless of what a few false identity people commenting may say. You must also realize that many advisers will be laying off staff to facilitate these ridiculous FOFA changes to commission rates and clawbacks.

        • Great Advice Advocate

          Brian, you’re absolutely correct! Not about me being a life company exec or AFA stooge or that I don’t even run a business with ‘the threat of incongruent income supply approaching’ because of my comments but that I am sincere in what I am saying.
          My opinions I am sharing on here are my own and therefore may not represent the consolidated view of my business and my business partners and as a result it is my choice not reveal my identity.
          No, LIF won’t have the same level of impact on our business as some pure risk writer businesses out there but I do have a valid interest/purpose of being on these forums as we do write risk, we are subject to clawbacks and that the LIF will impact our business as well.
          I feel that just because my views may just be ‘different’ to the majority on some aspects or how I word my ‘comments’ I am being questioned and in some ways condemned, so even if I was comfortable in revealing why identity, I would be reluctant to do so on that basis. As I have previously noted, I am happy to be challenged on any comment otherwise how does one have a constructive discussion on here?
          I do realise that pure risk writers without an FP business face the biggest challenge with all of this and there will be an impact on staff for some businesses but my whole point in my comments is that based on what has happened and what we do know, the options are 1) Quit and leave the industry or 2) Try and adapt our business – I am just encouraging the second as there is huge value in what financial/risk advisers provide to our community! There will be plenty of other challenges ahead for us for sure and I am especially keen to find out about the education requirements and the transition process for existing advisers.

  • David R

    “It has absolutely broken my heart to see what financial advisers have done and what they continue to do to people.” These are the words of Greg Medcraft ASIC Chair. Do you think we have much political clout? It has broken my heart to watch Government and Financial industry blame Advisers for all the ills and get away with it. We are the whipping boys. We are responsible for what we do wrong however we are being held responsible for others mistakes. How many of us have made a complaint to ASIC about bad behavior and nothing is done? Did we design the products, did we create the GFC, did we issue Tax Determinations on MIS, who has had oversight of the industry? How many Insurance Companies have raised concerns about advisers who replaced business on a wholesale basis? Political clout is where a government minister tells the truth about the Australian Submarine Corporation and then loses his job, and no clout is where the ASIC chair basically calls all Planners Crooks and gets a pat on the back. We were on a hiding to nothing and maybe the AFA and FPA could have done better, but couldn’t we all?

    • Ben Sullivan

      “It has absolutely broken my heart to see what financial advisers have done and what they continue to do to people.”

      The majority of the financial “advisers” Greg was referring to work for the banks and the rest are salaried staff who are not building long term relationships with clients. These bank “advisers” sell to one sucker and move on to the next sucker. When they are caught out for doing what the bank management has told them to do they are thrown under the bus and blamed for being bad advisers when they are just following orders, which are…. “drain every cent out of every client in the most efficient way possible”.

      Most, if not all, independent financial advisers who run their own business care about the client much more than they care about the commission. We do what is best for our clients when implementing the policies and work for them when it comes to claim time. We want these clients to be our clients in 30 years time and work to establish a long term relationship. We never work purely for commission. We work because we believe in the products we recommend and we recommend policies which will secure our clients financial future in times of crisis. We are paid commission because its the best way for us to be remunerated. We will not recommend rubbish policies as we are the ones who are there at claim time. when claims are declined it hurts us too because we have a relationship with our clients and it feels like we have let them down. If my client was unable to claim due to my poor advice i would feel personally responsible and do everything in my power to make up for my mistake.

      How do you think bank advisers or direct insurance agents feel when claims are declined? Generally they don’t even know their client has claimed and if they do they hide behind their legal departments and 60 page SOA’s

      By the way, some claims centre employees have targets for the amount of claims they decline.

      Let me just say bank advisers are not bad people, or for the most part bad advisers. It is the banking culture and the pressure to make $ that ensures they cannot act in the best interest of clients. If you have a target, mandated by your sales manager, you do whatever you can to make it or face the consequences. Bank staff (upper management) do not see clients as people and don’t care about fostering relationships, especially with mum and dad clients. They make their targets and get paid any way they can with no regard to the long term client consequences of their actions.

      Instead of attacking independent advisers, why doesn’t someone in the government do something about the banks who have continued to use their power to make laws to the detriment of Australian society.

      And don’t even get me started on direct insurance policies. At least if you go to a bank you have some advice, an underwritten policy and a pretence that the adviser is working in your best interests. Direct policies should be banned.

      But unfortunately direct insurance policies are what many clients will be stuck with in the future and middle class Aussies will be wasting their money on policies which they don’t understand and rarely pay out.

      So much for building trust in the life insurance industry. No one is ever going to trust an insurance provider or a bank. People only trust their advisers, however they do not realise all the work which is involved in the risk advice process or the claims process and will not pay upwards of $2k upfront and an ongoing fee for our help.

      sorry for the spiel. got a bit carried away.

  • Reality Check

    I agree with David R. It breaks your heart to see how corrupt the FSC (banks and insurance companies) have been in stitching up the adviser market.
    All of the insurance companies have been quickly raising rates leading up to this and not a single one of them is willing to state how they will be looking to cut their over expenditure (overpaid execs and BDM’s for a start) to give clients more affordable cover.
    Already the FSC is trying to position level commissions by 2018 ( Andrew Bragg, FSC comments) just to rub it in further.
    Even the AFA are slapping themselves on the back as a job well done. But fail to mention that the reduction from 3 to 2 year clawback has come with an increased clawback in year 2 than previously proposed.
    The fact is we can never again trust insurance company execs or our own industry bodies.

    • Great Advice Advocate

      Reality Check, David R, Ben, Paul, Sumpguard, George, can you all identify yourselves by stating your full names? It’s the only way your comments will be valid.

      • Reality Check

        Its fairly obvious you are a stooge by your comments below but without stating the obvious however valid our comments are they will not be taken seriously by the FSC anyway!
        PS. Sorry I couldn’t address you other than “stooge” because you haven’t identified yourself.

        • Great Advice Advocate

          Excuse me Reality Check, none of my comments were bias nor in favour of the FSC, AFA, FPA or the Government, so how does that make me a “Stooge”?
          I simply acknowledged that the AFA and FPA had a tough gig and I felt they had worked hard despite the outcome. Just like how I feel there are many pure risk writers who also work hard, do the right thing for their clients and provide an important service.
          It would also be easy for me to address you as “Churner” as I couldn’t address you as anything else as you haven’t identified yourself either, but I don’t assume everyone or anyone on here is a “Churner” nor a “Stooge” because they don’t agree with my opinion or don’t disclose their full/real name.
          It doesn’t matter how much or as little risk you may write LIF will affect you and your business, its just to what degree, so I may not be a ‘pure risk adviser’ but I am entitled to have my say.
          Appreciate everyone who has treated me with respect and without berating me (obviously this does not extend to you Roger, Brian or Reality Check!)

    • Dan K

      They go even further than Reality Check “As the financial advice profession matures, we expect all financial advisers to move to a fee-for-service model” (Andrew Bragg, FSC comments). This is what we are up against.

      • Reality Check

        Absolutely Dan, if the FSC can get rid of Risk advisers which is their intent, they think they will be able to sell more business through the bank aligned planners and dumbed down direct products. More profit less risk of paying claims. Who cares if its worse for customers, they will make more money.

        • Dan K

          I agree. It is so obvious. Where are the consumer groups? why can’t they see this plain as day? Dear valued bank client. We are now fee for service but we will waive our “advice” fee if you use this product. or even dont bother with a risk specialist that will charge you a fee, use our robo-adviser (read direct product flogger).

      • Brian Howard

        Based on this, Dan, I’ve said many times that we ‘pure risk’ writers need a separate licence. We cannot operate on a fee basis – it is simply not possible. I dare someone try to explain how it is. we need separation from ‘full service’ financial planners/advisers as we help in a different way, use different products and need an alternate remuneration. Clients plain and simply will NOT pay a fee ON TOP of a premium regardless of how much they love the adviser, they will go direct. A fee on top of the premium effectively doubles their premium in the first year. Unworkable. A separate licence for risk would stop this debate dead and everyone could go on running their business and all the pollies and special interest groups could look for their next target to justify their existence.

  • Peter Hawks

    Now that the dust has partially settled let’s see what has actually occurred. The life companies who in the past have helped advisers fund their business with upfront commissions have now succeeded in passing on the cost to the adviser who must either absorb the cost OR pass on to the consumer. Are they going to reduce the premiums? The answer is NO. In fact some life companies have recently INCREASED their premiums. Therefore the consumer will be no better off as indeed either will be the adviser. Various organizations are trying to rationalize the changes away as if they are no big deal, normally a strategy for a loser.