Advisers Called to Appear at PJC Hearings

1. The FPA and AFA speaking will be the same as the FSC speaking so this is not good news for independent risk advisers. Lets hope the others speaking can get them to listen before the independent risk industry is destroyed.

2. What will these meetings achieve ?
   The LIF legislation is in place. The FSC got what it wanted which was to pillage the average consumer at the expense of the adviser, to make more money.

   The LIF will ultimately be the death knell of the Life Insurance industry as we know it,
   thanks to the ignorance of politicians and other self serving interests.

   The FPA and the AFA have shown that there is no backbone in those who are suppose to represent their rank & file members.
   Otherwise,…. the LIF legislation would never have got off the ground.

   Vale the insurance industry

3. Both Alleycat and Reality Check are correct. Both have referred to the death and/or destruction of the Retail Life Industry and both reflect the views of so many risk only specialists. At the risk of sounding too morbid, I wonder if it is too late? Hopefully the LICG and ClearView can present their case and clearly show the adverse effect LIF in its current format will have on life insurance in this country.

   I suggested this last week and I will suggest it again – RiskInfo, run a poll asking if advisers believe whether the FSC has truly acted and continues to act in the best interests of the consumer. Although the results may make no difference now, at least it may indicate how advisers really feel about this body.

4. Could I respectfully ask the independent risk writers if they would have specialised in Risk Only Advice if the remuneration structure were different in days/ years past? That is, what impact did the 110%/115% upfront commission play in your decision-making process to concentrate on Risk Only Advice?
   Would you have structured your service offering differently if the remuneration scale was set-up differently?
   For example, if historically you received a flat minimum commission (1) from the Insurer for every policy written, with additional incremental commission paid based on the end policy premium, (this recognises that generally speaking a higher premium involves a higher level of advice), would you still have specialised in Risk Only?
   I’m really just trying to grasp how much influence the old commission structure had on Advisers specialising in only one area of Financial Advice.
   (1) The assumption is the example commission scale is more reflective of a fee for service remuneration structure where time/complexity is the foundation of the commission structure, not the end premium amount.

   • Hi Greg Years ago when i started in 1990 we were paid 50% upfront with a Volume Bonus of between 50% & 75% depending upon our Master Agency. The Levels only changed in 2001 with New Guide Lines. The Increase in Comm Rates occurred only to compensate us (Advisers) because of additional costs that we incurred to Join an AFSL. Anything from 25% to 5% of our yearly ongoing commission. This depended on our total Business Revenue. Hope this helps.

     • Cheers Chris for the feedback. Helps me understand the background to the Risk Only Adviser.

   • Hi Greg. The decision for our Business to specialise in Risk only advice, came about in part due to the increasing complexity, costs, ongoing and increasing compliance and Business risk that the new world of Financial Planning was heading.

     The conclusion we came to, was our experience alone was insufficient to be able to justify the massive capital injection required to fund additional staffing,
     technology, larger premises etc, still have our sanity intact and live a life that
     did not involve 95% work and a 5% home life, leading to divorce.

     The truth is, it is a bold statement for anyone to say they are experts in all
     aspects of Financial Planning advice and the GFC certainly put a damper on the Investment side, so we decided, after taking all of the above into consideration, to focus on what we did best, which is risk advice.

     The level of commission that risk advisers are paid, I believe has an element that takes into account, the time and cost to acquire new clients, the best interest duty and extensive extra work that is required to attain, advise, underwrite and fill in the blanks where the Life Companies processes and systems cannot cope efficiently.

     Lastly, in over 30 years, we have had a 100% success rate with claims and never charged the clients, which is also a cost to our Business, though we believe is a vitally important service.

     The mistake I believe people and Government are making, is the supposition that risk advice can be commoditised and treated like all other articles of trade,
     which is the complete opposite to the real world we live in.

     We are trying to persuade people to pay thousands of dollars each year for a
     promissory note on something they neither understand, or are that interested
     in.

     People will pay hourly rate fees for services or goods that they willing want or are interested in.

     Life Insurance, unfortunately in many cases falls outside that box, so it is a
     harder process to bring clients to the Life Companies and it has progressively
     got harder with the plethora of cheap offerings competing for a limited dollar, which means a level commission with a slight increase for complexity would not work, as what is required from us, is so much more than that.

     Hope that helps.

     • Thanks so much Jeremy. It’s great to get an insight into your journey and how you moulded your business over the years to adapt to the changing environment.

5. Come on Risk Info – lets run the poll Warren B suggested and dam the bleats from your advertisers, which I now note includes the FSC

6. @ Greg McCurdy,
   The standard commission many years ago for most term life products was around 50% -80.0%, depending, upfront, but only 5.0% on renewal.
   The Lapse /cancellation responsibility went on a sliding scale over 5 years.
   On old Whole of Life policies,…. advisers were paid $20 per thousand of the sum insured with a lapse responsibility on the adviser of 12 months but if the client cancelled within 2 years they lost 100.0% of the savings component. Many of the earlier policies on average, took 20 years for cash paid in by the client to break even with cash out (surrender).
   This later on got a little better and generally took 10 years for the client to break even with cash in to cash out.
   The issue at hand is the changes to products, commissions, clawback responsibilities were not invented by advisers but by the life companies themselves, in particular when we used to have 57 Life offices, 329 products in 13 different product categories, even as late as 1990.
   Now we have 9 life companies wanting to shaft the adviser community and the public, because there’s little competition in the industry and together with a weak government
   that thinks the LIF legislation is in the client/public interest.

   When the commission gets to 20.0% level, you will not write a case under $10,000 premium because it will cost you money to do so.
   If you’re lucky you might get one or two of those per year, because this is not your average Mum & Dad market.
   Those naive individuals who think the fee for service will solve that issue expect a client in the first instance, assuming a $200 per hour charge out rate (which is what they say is their “value proposition”)…. believe a client will pay the $1400 premium on a Nil commission basis plus another $1800 (fee for service) = $3200 in the first year for something that would have cost $2,000 with a similar payment via commission …. are dreaming.
   God knows how much they will charge to settle a claim, which can take around 20 hours of an advisers time, assuming it gets settled.
   Obviously there is more than one Disneyland, but these misguided individuals have imagined there’s another one.

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