The Association of Financial Advisers (AFA) has reaffirmed that its approach to commissions under the Life Insurance Framework (LIF) was the best outcome for advisers, citing recent discussions with senior Federal Government and Opposition representatives.
Writing to members late last week, AFA President Deborah Kent stated the Association had continued to meet with the Assistant Treasurer, Kelly O’Dwyer and Shadow Minister for Financial Services and Superannuation, Dr Jim Chalmers regarding the progression of the LIF and professional standards legislation.
Kent said that a joint position within the advice and life insurance sectors, which was reached with the Financial Planning Association and the Financial Services Council, was necessary to avoid greater reductions in commissions under LIF and this had been borne out in the meetings.
“Our recent meetings confirmed that if the industry did not reach an agreement on transitionary arrangements for commissions, the alternative would have been likely in the form of a level commission structure as recommended in the FSI report,” Kent stated, referring to the Financial System Inquiry which called for a ban on upfront commissions in favour of 20% flat commissions structure.
“… if the industry did not reach an agreement on transitionary arrangements for commissions, the alternative would have been likely in the form of a level commission structure…”
While the LIF legislation has passed the House of Representative and has been recommended by a bipartisan committee to pass through the Senate, Kent said its progress was dependent on events within Parliament including the calling of an early election.
However, the AFA was continuing discussions with both sides of Government and the Australian Securities and Investments Commission (ASIC) about the 2018 review of life insurance advice with Kent stating the AFA had secured support from O’Dwyer “…for a fair and representative review based on granular data”.
The AFA said it would also meet with ASIC to discuss the types of policy information it would seek from insurers in the review and would request that insurers provide detailed data for the review.
“To understand reasons for policy cancellations we are calling for life insurers to record and provide ASIC with segmented, granular data on policies over the next three years,” Kent said.
“Ongoing engagement is critical and we will continue to advocate strongly for members to ensure that policy replacements that are in the best interests of clients are not captured as a policy lapse.”
Deb, You also forgot to mention the “Substantial Consumer Benefits” this legislation will bring, you know the ones that are being kept secret by the FSC and Government.I am sure though that you have asked this question of them, haven’t you? You also forgot to mention the “Sustainability” of our industry even though combined Life Insurance Company Profits for year end 2015 was $3.2 billion. The reduction in Adviser commission though will help the “Sustainability” no end with these companies. Thanks for getting Advisers such a fantastic deal.
Its interesting my Licensee makes it compulsory to join the AFA, under the threat that they can revoke your AR status if you dont join… then we have the AFA supposedly “lobbying” the gov’t for us, yet they (AFA) are conflicted themselves by receiving huge sponsorship from them (banks/insurers). So it sounds like “yes we can guarantee you huge spikes in AFA memberships/revenue, but you need to step away from lobbying against our LIF legislation”
Confused Claude??, so am I.. Its like they are all doing it on purpose, or dare I say some sort of Collusion so the funding from various Big Banks and Insurance Companies continue to hit the coffers of the FSC, AFA and FPA. They are absolutely desperate to eradicate the Small Business specialist Risk Advisor as its affecting their bottom line and have consumers have direct insurance.
So just to confirm. Insurance companies have seen record profits and have still been increasing premiums at record levels during the LIF process. Advisers through flawed ASIC data (which wasn’t questioned by the AFA or government) have been unfairly targeted but insurance companies will reap the rewards whilst only having to come up with a charter that hasn’t even been delivered.
And the outcome? Many risk advisers will go under driving increased business towards the dodgy direct channels. Customers wanting independent risk advice will now have to be charged fees from the few risk advisers that may survive. No new advisers will be able to afford to enter the market. The underinsurance problem will grow.
And the AFA actually think they got a good deal for customers and advisers!!
The insurance companies have completely flawed lapse data. A customer cancelling or reducing because of affordability is still counted as a lapse.
If the AFA had negotiated a deal which said that any adviser replacing their own client in the first 2 years would be subject to a clawback this would have been completely understandable.
The deal negotiated by the AFA makes it simply unprofitable in the future to provide independent risk advice to customers once you take out the costs of doing business and the income losses through normal affordability cancellations and reductions.
The AFA leadership were simply too weak to stand up to the FSC’s self interest and are too heavily funded by them.
The AFA is simply a waste of time and money being a member of.
And Kelly O’Dwyer has simply sided with the company giants against small businesses who she is supposed to represent to the cost of customers.
Well said Reality Check. What amazes me is that about the only group who can clearly see what is happening now and what will happen are the risk advisers!
It’s like the risk advisers are the ones at the front lines of the battle, with the AFA, FPA, FSC, and for that matter, the govt, all running the battle from Headquarters. Requests for help and support is past back to these illustrious leaders but because they are not on the front lines, they don’t understand the seriousness of what their “soldiers” are up against. By the time the battle reaches headquarters – and it will get there – it will be too late!
Agreed WB
Good points there! Its interesting that if poor advice was rife throughout the Industry it would relate to a spate of FOS claims for Risk advice… yet its all quiet at FOS. The Insurers are making nice profits too, so is “churn” really even an issue… Advisers are just Political Pawns these days!
The only place I can see where churn is actually rife is in the direct space. These groups think nothing of selling a client a policy to replace the cover they already have with no checks on best interest. But this is where Kelly O’Dwyer and and the FSC want to puch them in the future.
Can we back up a bit please.
Has the AFA been hiding under a rock for the last 12 months. There has been an
explosion of data and information exposing the FSC as a totally unreliable source to listen to regarding what is best for all Australians around the future of Life Insurance advice.
The AFA and FPA are either;
1) Ignoring all this updated data that they should have researched anyway,
2) Incapable of exposing this total fiasco and half backed solutions for what it is;
3) Do not have the experience or capability to represent the advisers they purport to
be representing.
4) Have thrown in the towel and are trying to appeal to the FSC and Government good will, to get a scrap of a deal.
Either way, all they are doing is showing themselves to be weak and incapable of doing
what they are paid to do, which is;
tell the truth, point out the lies and mistruths that have been thrown into the ring and draw a line in the sand by threatening action if the relevant bodies do not start acting in a responsible and fair manner.
The amateurish way the AFA and FPA have acted to date, shows they have been out of their depth from day one.
“Why” Because they have never truly understood what it takes to run a professional risk practice, nor understand what is needed for Life Companies to also run a mutually profitable long term Business in a continually changing an evolving world.
If they got there way and went to 20% level then the majority of planners wouldn’t waste their time writing insurance and Aussies would be left under insurance . Who else would take a massive pay drop?
I don’t think 20% was ever seriously on the table just the threat which allowed the FSC to increase profits and the AFA to make an excuse for their weaknesses.
It doesn’t matter much anyway now if we think about it.
In a couple of years if we write a $100 pm insurance we will be paid $792 (including GST).
If the customer cancels in month 23 due to affordability or changing circumstances we pay back $475 of this meaning a profit for all of our work of $317 (including GST).
The insurance company however has now made a profit of $1825 in this scenario.
For us that’s roughly 30% of what we currently would make in this scenario or a 70% loss of income for every client who we may lose through no fault of our own.
Just to survive this you would probably have to charge the customer a fee of $500 – $1000 plus which your mum and dad clients simply won’t pay and will go direct.
Bottom line everyone is that in a couple of years we cannot make money giving risk insurance advice with the costs of getting new customer and business costs.
If you have a decent trail it will be more profitable just to sit on it and not write new business.
If you don’t have a decent trail it will be best plan to do something else to feed your family.
What a disgrace, here we have a Liberal government and two industry bodies that we all know represent no one but themselves supporting “Corporate Socialism”.
ASIC a left wing instrumentality took a random small sample of recalcitrant advisers as the “blue print” as to how all in the industry are motivated & behave.
Nothing could be further from the truth.
It would be no different than me taking a random sample of former and present female politicians from various states including a former PM and using that to deduce that all female politicians are incompetent. God knows the path of destruction left behind by those former female politicians is far worse that what a handful of advisers have done. But we also know there are plenty of men past and present from the political divide that are equally incompetent as history has shown, but to base judgement on such a small sample is not reasonable.
If the AFA & the FPA had any real concern for their members and the public they would not have capitulated so meekly, allowing the government and other self interested groups to lead their members like lambs to a slaughter.
M/s Kent, Messrs Fox etal and the FPA, don’t feel too proud of your lack of intestinal fortitude, your members will remind you in due course.
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