Financial advisers fighting to hold on to the current commission remuneration regime risk losing it all together along with any chance to clear up the poor practices of the past, according to the head of a financial services legal firm.
The Fold Managing Director, Claire Wivell Plater stated that changes to the way advisers are paid for providing life insurance advice are inevitable due to inappropriate advice practices in the past and because of a growing shift towards client determined remuneration models.
Wivell Plater made the comments in a recent blog post in which she stated advisers resisting the change to commission remuneration may end up with nothing as commissions are reduced as a result of resistance to change.
“The real risk to life advisers is not the change from upfront to level or hybrid commissions. The real threat is the complete abolition of commissions for life advice,” Wivell Plater said.
“The industry should see the opportunity to move to level and/or hybrid commissions as an olive branch and a chance to assist to clean up the churning practices that have so bedevilled the industry in the past. It’s the chance to “encourage” life risk advice practices that have a shot of universally being in clients’ best interests, without throwing the commission based remuneration baby out with the bath water,” she added.
“The real threat is the complete abolition of commissions for life advice…”
Wivell Plater said anyone who ignored the evidence of misconduct and inappropriate advice raised through industry inquiries, FOS determinations and ASIC reviews and pushed for a retention of the current system was ‘living in a parallel universe’.
She was also critical of the efforts of advisers fighting the changes, to be introduced as part of the Life Insurance Framework legislation, describing it as “noise emanating from the vocal group of life advisers who seem to believe they can push back the tide on life commissions caps”.
Wivell Plater added to her criticism by stating that “…advisers whose business models depend on 100%-120% upfront commissions and 10-15% trail demonstrate short term thinking” and stated a recurring income model based on a 30% ongoing commission would result in higher overall valuations.
She rounded out her criticism by stating risk advisers did less to secure their commission payments than general insurance advisers who had to earn their payment each year.
“It’s not as if life brokers have to do an awful lot to earn the ongoing commission. Stay in touch with the client, review their insurance needs periodically and only make a change when it’s really needed,” Wivell Plater said.
“Contrast this with general insurance brokers who, at best, earn 22-25% level commission and potentially have to completely re-market their non-automatically renewable policies year on year.”
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I agree that the current system must change to a Hybrid and / or Level Commission basis. It is the level of the Hybrid Commission that is the issue to be able to sustain a viable business. A 2 year Clawback period for BOTH models is absurd and reflects as you say someone ‘living in a parallel universe’. Commonsense is what is required to put this issue behind us. Happy to discuss and provide input at any time.
“The Fold ” ?? It even sounds like a Stephen King book. Where do these people get off with these ridiculous statements. The fee structure for Solicitors is outrageous to say the least. I operate in both areas Life and General and I can assure you all there is plenty to be done 12 months of the year not just at renewal time in both areas.
People who do not know how this business really works need to refrain from making stupid statements as mentioned the damage they do now and for the future of Australian life business security could be unmeasurable.
A useful point of view, perhaps overstated in some areas. Commissions exist because few people buy life insurance without agents and being insured only through industry funds is a scary, uncertain ride as has been shown in recent years.
However, I agree that the noisy elements wanting no change are inviting a backlash. Pressure politics often works but is dangerous when you don’t have anywhere near the balance of arguments on your side.
Abolishing up-front actually together with 2 year clawbacks IS in the interest of consumers as it makes selling massive policies that don’t get renewed or cancelled fairly early uneconomic and the new 20% trails create an incentive for the agent to keep the client insured, an incentive that is smaller with the low up-front year two onwards commissions of 10-11%.
Yes, the life insurance companies have used it to reduce our income but I expect that will hurt them as least as much as us in reduced new policies.
Claire Wivell-Plater refers to “a growing shift toward client determined remuneration models”. What do clients know about advisers’ remuneration models? Zero, in all but the very savvy ones. Most people who’ve never worked on a commission-based income have no idea what it’s like to do so. So why comment on it? Besides, the public, because of layer-upon-layer of complexity now in our industry, have no idea how it all works much less understand how we get paid. Where does she get the ‘growing shift’ theory from?
She doesn’t understand that few people actively seek to purchase life-risk insurance, especially lump sum products (IP perhaps some might). So if people don’t seek to purchase it and then we as advisers seek them out and inform them, after exhaustively looking at all options available, that our advice is going to cost them $2K, that will usually spell the end of the meeting. No one has benefited and we as advisers don’t get paid. And the under-insurance issue mushrooms out even further.
Finally Claire makes the point about general insurance brokers and their remuneration arrangements. All well and good, but the public is more likely to seek coverage for their ‘stuff’ than they are for their lives. This really wasn’t a helpful post.
Agree Paul. How many times do you see potential clients who have their home, contents and car insured but all they have in terms of personal risk insurance is $70,000 of life & TPD with their industry super fund? They owe $25K on the car, $350K on the home and $5K on their credit card and the amount of cover they have would hardly make a dent on the mortgage. Getting these people to have adequate cover is the goal, but tell them its going to cost between $1,500 – $3,000 plus their premiums and they just laugh.
I note that there was a story yesterday that featured in conjunction with the Bank CEO’s going to Canberra. It was a story of one of the banks ‘uncaring’ attitude to a couple where the wife was dying of cancer and the pressure this put on both the husband and the dying wife in her last few months. While it is distressing, these people present a perfect example of what I’ve summarised above and what most people face. If these people had actually sought advice, its most likely that she would’ve been getting a trauma payment on diagnosis, even $50K would’ve been enough to cover their mortgage payments for 2 years, she would’ve had IP kick in, and when the diagnosis turned terminal her adviser would’ve been their to assist with that claim as well.
All stuff she would be unlikely to get from her Industry Super fund. Compare that Pair.
Ms Wivell-Plater gives her self, her ignorance and her bias too much traction with her comments. Firstly there is no such entity as a life broker. She is commenting on a business structure that does not exist! Comment- It is not as if life brokers? do an awful lot to earn their ongoing commission. That smacks of ignorance, bias and resentment. She does not understand what it takes to put business on the books, service a clients needs during the year, and importantly assist clients when a traumatic claim threatens financial stability. She shows a complete lack of ignorance again. Come sit with me for a week in my office Claire and let me show you what I do, because your are speaking from a biased uneducated viewpoint. I have to ask myself, why are you making these comments. What has brought you to these ill-informed comments. The legal profession has just as many rotten eggs. And on the issue of life advisers practices, did she investigate the statistics of churning. I’ll bet she didn’t as there are no statistics. And also on the issue of fees for insurance. Has anybody ever queried the $5000 a day fee the legal profession charge sometimes for their services, or the 30% ripped off injury compensation and super fund TPD claimants by lawyers who camp outside hospitals. A client of mine recently claimed compensation for asbestos poisoning. The claim paid was $110,000. The lawyers fee was $120,000. How is that fair.
Spot on Rob with your comments about the legal profession’s absurd fees. If there has ever been an industry that’s manipulated the system for its own financial gain, that would be it! Cheeky b-stards pointing the finger at our remuneration structures and the work we do.
In my 30 years in the profession I have set up life insurance
for several thousand clients. I have NEVER had a client phone me to ask for
life cover – not one – ever!
If I had told the 1000s of clients that do now have that cover, that my advice would cost them $3000, not one of them would have continued on to take out the cover. Therefore there would now be 1000s of folk who, when something dire happened, would be looking to the government for assistance. And that assistance would be nowhere near as good as the assistance my clients receive (costing the government $0).
Fancy a person from the legal profession lecturing others on bad practises, a bit of a giggle really.
The churning she refers to involved very few advisers, and almost every bit of it could have (should have) been stopped by the ins coys who knew full well what was going on, but ignored that to improve their bottom lines, and then took delight in ensuring all advisers got the blame, leaving them squeaky clean.
An all time low being lectured to by the legal profession by how to treat your clients. In saying this it is a typical gutless lawyer response…accept this deal or you may get a worse deal rather than fight for what you believe is right.
The author being a lawyer is well aware that the current law around Best Interests would cover all practices of churning or otherwise but for some reason chooses to ignore it as does everyone else. Why do people persist in “looking busy” when all we need to do is enforce the current law?
As is usual comments from someone who has no idea how the majority are remunerated and why… is just so self serving.
Advisers did not invent the remuneration structure, it was the creative invention of the Life insurance industry to get non employees to market their products.
Well Claire Wivell- Plater, the proposed LIF changes are neither practical nor are they workable. If you think that advisers can live with a 2 year “claw back” option with no defining qualification exemption for the discontinuance of a policy, you’re kidding yourself.
Discontinuances during that 2 year period, will most likely lead to many not willing to participate in the promotion of risk advice.
It’s a nonsense for you or the Life Insurance industry to think that if the Life Companies decide to increase their premiums by 20.0%, 50.0%, or 85.0% as we have recently witnessed over the past 18 months, the clients will wear it.
It’s a nonsense to think that if Life companies withdraw what is perceived as the best contract in the market place, and offer an inferior one as a substitute, its unlikely clients will want to stay with that company.
It’s a nonsense to think that clients will want to stay with a company who’s reputation for not paying claims is highlighted in the public arena,
It’s a nonsense to think that the “fortune telling” advisers out there can predict that unemployment, divorce,change of a job with a new employer offering risk cover as part of a new remuneration package, loss of a house through mortgage default, movement to another state, additional costs for child care and costs associated with increased living costs will not influence clients to maintain their insurances.
Yet this is part of the LIF changes you think we all should accept.
It’s already been well posted here that advisers do a lot of work for clients that largely receives actually zero, by way of remuneration.
Clients who, after submission that are medically loaded, often don’t proceed. Who do you think pays for that ?
The answer is no one !
Clients who are offered limited terms after submission, often don’t proceed, so who pays for that ?
The answer is no one.
The current remuneration model was designed by the Life companies to compensate for those contingencies and to offset adviser costs associated with future claims.
Perhaps you can answer the following obvious questions.
If the previous remuneration structure was so flawed because of “churning”, why do you think no company was willing to name and shame those offenders ?
If you think the current remuneration structure was so flawed that even though it’s successfully lasted for more than 100 years, why do you think no Life company was prepared to be the first to move to reduce their commission structure but waited for the government to do their bidding for them?
If you think the current remuneration model being proposed is workable, might I suggest you give up your well paid salary, and work on a commission basis at about 50.0% of what you receive now and see how well you fair.
Thank goodness! Someone obviously has evidence of “the churning practices that have so bedevilled the industry in the past”. I look forward to Claire making this evidence public so that we as an industry can finally have a definitive answer as to what constitutes “churn”.
I really am getting fed up with all of the ‘solutions’ being postulated for a problem that no-one (apart from Claire) has been able to define. Don’t get me wrong, I’m not saying ‘churn’ does not exist. I’m saying that half baked research does not cut it for me.
ASIC – do the job properly. Investigate, research and analyse thoroughly and then give your findings to the powers that be.
Politicians – don’t be forced into decisions just for political expediency. Make sure you have all the facts before pulling the trigger. The decisions you make today will create outcomes that are as yet unforeseen.
AFA – remember your purpose for being!
And just one final point on the rubbish comparison Claire made between advisers and general insurance brokers. GI brokers will put a client’s policy to the market every year at renewal. If the current provider offers a premium that is higher than an alternative in the marketplace, that policy will be re-written with a new provider. No clawback here!
I am angered by this article on so many levels…
1) Life insurance and general insurance are not the same; quit comparing them. One is bought, one has to be sold. One normally takes months to work through and implement while the other is transactional and is usually done within weeks at the most. One has a claims process that can take 12-18 months, general insurance claims takes weeks. To say “risk advisers did less to secure their commission payments than general insurance advisers who had to earn their payment each year” is utter rubbish and shows no understanding of the process and compliance obligations we’re now forced to follow with our clients. One also has a massive underinsurance problem – general insurance doesn’t have the same problem, as far as I’m aware.
2) In response to your comment; “The industry should see the opportunity to move to level and/or hybrid commissions as an olive branch and a chance to assist to clean up the churning practices that have so bedevilled the industry in the past.” I say this – there isn’t an industry in the world that doesn’t have unscrupulous people in it. NOT ONE!
The reviews and enquiries conducted into this industry have been manipulated and configured to validate an already desired outcome by the life insurance companies, banks and industry left wing super funds. There are far more than 200 advisers in this industry believe me – which is the number (roughly) of cases that ASIC ‘handpicked’ to review.
I reject your claim “this industry needs to clean up its churning practice that have bedevilled the industry” because the life insurance companies could have very easily eradicated it themselves and the advisers they knew were systematically churning but didn’t because of THEIR own conflicted internal remuneration structures that paid huge bonuses to their BDM’s and management that rewarded short term NEW BUSINESS. The commercial decisions should have been made years ago to amend the remuneration structures of the advisers known by the insurance companies to be systematic churners, instead of letting the process go unchecked which have now impacted us honest advisers. They seem to still be reporting record profit margins in any case!
3) The case for Upfront commission is still very strong in my opinion for NEW ADVISERS; not established advisers. I agree that Hybrid and Level for established advisers should be imposed but new advisers need to get themselves financially established. If Upfront Commission wasn’t available when I started 8 years ago; I wouldn’t have joined the industry and claim payouts of over $2 million wouldn’t have been paid to my clients so far.
I’m sorry but legal specialists are also masters of manipulating whats right and wrong for their OWN financial gain so I take these comments with a grain of salt – despite them angering me. This is probably just another person paid for their comments on this issue by the manipulators of these reforms.
Hi Warren, the ASIC Report 413 final sample of advice was actually based on 202 files from 79 individual advisers as some advisers had multiple files provided to ASIC for review.
It was a very small percentage of the advisers in Australia who implement risk insurance for clients and was targeted at those advisers who had the highest number of new in force policies and the highest number of policy lapses in the same period (2012 and 2013 financial years).
it didn’t take into account the large majority of risk advisers who are providing high quality insurance advice and ongoing service to their clients.
Well that just makes the ASIC Report even more tainted than I stated to Claire, Paul.
This is just disgraceful what’s happening to our industry. These ‘tourists’ who must be paid for these outrageous comments have no idea what they’re saying or the damage they’re potentially going to do. How dare a legal professional point the finger too – pot calling the kettle black tenfold!
Hi Warren,
I can completely confirm what you suspect to be true, is actually true! I have worked in the general insurance industry for 30 years now and only recently (last 2 years) become a life insurance adviser (yes I know, timing is everything and what was I thinking!!).
I cannot believe the witch hunt and compliance pressures that are being applied to life insurance advisers. I have worked on one client on and off due to medical pre-assessment and client saying yes then no, then yes again – finally been able to get an accidental income protection policy over the line. The commission income I received hybrid at 90% I would consider as pro-bono for the actual time spent on the file. I know not all cases are this difficult, but most are very time consuming and when you do actually get them ‘over the line’ you really deserve all the commission earned – and then have to work at it to make sure they don’t change their mind and cancel or lapse.
LIFE INSURANCE AND GENERAL INSURANCE AND THEIR UNDERWRITING AND CLAIMS PROCESSES ARE NOTHING ALIKE!!
People get that they need to protect their physical assets. There are just too many of them that don’t get that they are the most valuable assets to themselves and their families. People just don’t think anything will happen to them!
Too many guru’s outside the industry trying to tell the industry how to work.
If this continues, so so many terrible ”unintended consequences”
Perhaps the insurers should look in their own back yard. Clear and immediately cease practices like Takeover Terms which were created by the insurers to easily facilitate the churning of business from a competitor to themselves. As outlined below this is all to do with the sales performance and market share of the insurers concerned, boosting bonuses for BDMs, State Managers and Senior Execs on a short-term basis. It wasn’t increasing the overall pool of insured people, just moving from one to another. But now advisers are getting the short end of the pineapple because they played the game as it was encouraged by the insurers.
One of the insurance companies (cant remember which one it was with accuracy) stood up last year and said that it had banned a handful of advisers from writing business with them, following the advisers taking a chunk of business away to another insurer. I’m sure they weren’t complaining when they initially got the business on the books, which may have been placed via these same Takeover Terms and potentially with the insurer offering paraplanning services to assist with the transition.
Absolutely correct. It’s replacement business when placed with the Life Office and “Churn” when they lose the business. It’s up to the Life Offices to fix the endemic inefficiencies that exist within their organisations and to not just keep increasing premiums when confronted with “stress testing “. If the finger is to be pointed anywhere it should be at the Life Offices.
Bruce churn no doubt happens.
My issue with this argument (and similar ones) is the current law which was brought in as part of FOFA ie) Best Interests makes such practices illegal. This being the case isn’t it simply a matter to enforce the current law? I would also note these LIF changes were proposed before any review of the then newly implemented FOFA legislation was even undertaken…madness!
I am extremely disappointed! First, Claire, you absolutely have no idea what you are commenting on and you should really stick to some other subjects that you may know something about. But I am even more concerned about RiskInfo’s use of her comments (really is she an expert in our field? Obviously not as evidenced by her comments) and their choice of the headline made by their editorial dept as if it is some sort of statement of fact? I am extremely disappointed and thought more of RiskInfo as a source of quality news and information. Please lift the quality or you may become as irrelevant as an industry body that doesn’t listen to its members (ie AFA)
Sounds like Clair wants to join all the Lawyers, Ops I mean Politicans in Canberra. Must need some free press for her business.
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