All commissions on any form of life insurance should be removed completely as their continued existence does not remove conflicts of interest or protect the best interests of consumer, two industry super fund bodies have claimed.
In a joint-submission to the Future of Financial Advice – Post Implementation Review being conducted by Treasury, Industry Super Australia (ISA) and the Australian Institute of Superannuation Trustees (AIST) called for the ban on up-front and trailing commissions for individual and group risk insurance within superannuation to be extended to cover all individual and group life insurance.
The two groups stated the FoFA reforms were designed to align the interests of advisers with clients but “…it is difficult to see how this objective could be met under the current regulation, as the ban on up-front and trailing commissions and like payments for both individual and group risk insurance do not apply to all life insurance inside and outside superannuation”.
“The best interest obligation, in concept, accomplishes this goal, however its limited application to a portion of the financial services industry is unsound,” the two groups stated in their recently released submission claiming the carve-out, and ongoing advice failures, undermined the credibility of the financial services system.
“By failing to extend the ban of up-front commissions and trail commissions to all life insurance…the industry has accepted that it will tolerate the provision of poor advice”
“By failing to extend the ban of up-front commissions and trail commissions to all life insurance…the industry has accepted that it will tolerate the provision of poor advice. This is akin to turning a blind eye to bad advice being provided,” ISA and AIST stated.
The two groups repeatedly quoted from ASIC Report 413 – Review of retail life insurance advice, released in October 2014, claiming it “dispelled the myth that there were no problems in insurance advice and providing a damning report card on Australia’s retail life insurance advice industry”.
“Commission structures result in excessive churn of life insurance policies, with clients often recommended to change cover to attract the more generous level of commissions in the first year of cover,” the submission stated.
“There is no incentive to provide advice that does not result in a product sale or to provide advice to a client that they retain an existing policy unless the advice is to purchase additional covers or increase the sum insured.”
As part of the Review, Treasury is seeking submissions on a Consultation Paper which examines five measures that were enacted as part of FoFA reforms.
These include the ban on up-front and trailing commissions on life insurance within superannuation as well as the requirement for advisers to have clients opt-in to ongoing advice fees every two years, the ban on soft dollar incentives, the limited carve-out for basic products from the ban on certain conflicted remuneration structures and best interests duty, and the clarification provided in relation to access to scaled financial advice.
I guess ISA still think it’s fine for them to gouge massive wholesale insurances commissions from all their Industry Fund members.
And even better give insurance automatically to people who dont even want it.
And yes still get paid commissions for forcing insurance on people until they opt out.
ISA you are so conflicted in your adviser bashing it’s a complete Joke.
you forgot the appalling TPD definitions, sponsorships of NRL,AFL etc just so the unionists get free corporate boxes at the expense of their members!
Talk about self interest groups They live in their own little world and obviously have no idea what it takes to properly look after a client Mind you one that will soon leave if a fee is charged in Liu of commission
How about looking at a commission structure for what it really is !! A payment of a portion of the annual premium to service and look after the insured with proper advice and care
Why has the word COMMISSION suddenly become a fithey and demonic word
Adam p I think it’s only fair to remind you and others who blame the industry funds for their insurance offerings: this is a legislated requirement. The funds did not used to have to offer insurance (although some did); they do now, by law. Not instigated by them. And who do you think underwrites that insurance? All the insurers we also deal with! There is not an ‘us and them’ – we as an insurance industry are inextricably tied together. And so, too, do advisers need to get over the prejudice – you will all be assisting some clients over time with their industry fund claims. You can’t dismiss this sector.
One couldn’t argue, though, that the industry funds have not benefited, but so have the insurers been buoyed by this sector as well as many, many Australians who otherwise would have no cover and would never get to see an adviser to obtain insurance that way. I have seen thousands of industry fund claims and not one claimant said I don’t want this payment, yet at a guess at least half of them had no idea they had the cover. They are given plenty of information about their insurance BUT as we all know only too well, in this industry and in the first world in general, people don’t read stuff. If they don’t read stuff they can’t scream later.
What other industry in the world expects their sales and distribution to be provided for free ? The industry super funds pay to advertise to attract customers direct to them. In the same way advisers are paid to bring business in and service customers. To be consistent, if commissions are to be banned so too should advertising by industry super funds which imposes a cost on existing members. At least commissions are based on a user pays model. How is it in the interest of members that industry funds pay to advertise to attract new members and take the cost out of my super account ?
Hey can anyone tell me how these ISN super funds like REST, CBus etc can advertise on television. I say this as I read what the SOLE purpose test is about….and advertising your super fund is not part of the SOLE PURPOSE TEST. Is there anyone out there that can explain this to me.?
I to agree that the ISN and their kind including the Greens and Labor are essentially seeking to smash us as advisers because of what….placing the clients best interest before ourselves, disclosing ALL forms of earning we receive and expecting to be paid for our advice?.
Can they not accept this?
Commissions if they are so very bad and cause conflict then.why not ban real estate agents, car salespeople, phone sales people, heck even Amway sales people. Let all of these folks charge fees to the consumer as well.
Commissions are merely a method of doing business and moving product or service accordingly. Customers or clients ought have their choice respected based on what they can afford. Not have this taken away from them by morons like the ISN and politicians who feel they know whats best for each and every one of us.
To remove commissions, just for our industry is stupid. But hey as Forrest Gump would say, Stupid is as Stupid ( ISN and co ) does.
Anyone got an answer on the Sole Purpose Test and Advertising of a Super Fund….?
The days of the risk ADVISER (for everyone other than advisers dealing with HNW clients or established practices) are numbered unless ASIC acts we are all just going to become risk SALESPEOPLE.
Prior to the GFC insurances were sold 3 main ways. Advised policies, Direct Policies and Group policies.
Over the last few years however, a forth and super super dodgy model of Risk Sales has emerged. This is Advised policies being sold under GENERAL ADVICE. These ‘advisers’ do a 30 minute training course and have no other training and are allowed to go and sell the same policies (including super owned and paid by rollover) as actual qualified advisers. They do no fact Find, no SOA, no need to comply with the best interests duty and still get the same pay as advisers who have all these consumer safeguards to comply with.
This wasnt so bad when it was big regulated companies such as iselect etc. at least these companies recorded their calls and had some protection for consumers. The unscrupulous dealer groups (their number is increasing) are actively recruiting both regular sales reps as well as mortgage brokers and accountants to sell insurance alongside their other services. Any risk adviser who has been ADVISING clients for any amount of time know that this is a recipe for disaster and will greatly undermine trust in our industry when claims start to get declined.
ASIC, you have a choice. You can have qualified and properly trained Risk Specialists who care about their clients and work in their Best Interests to get their clients claims paid. Or you can have the current situation where ANYONE can sell insurances after a 30 minute course and there is no protection for the client and when claims are declined the client has no choice but to go to court and fight the insurer on their own.
STOP insurances being sold under General Advice. The regular sales staff don’t care about this industry, they will sell and sell insurances on a churn and burn basis and when ASIC gets wind of their dodgy practices they will just change to selling something else. The Accountants and Mortgage brokers selling under General Advice mightn’t be so lucky as they have an assumed duty of care to their client and will most likely be sued eventually and lose their houses and businesses when they find out their $25 per week PI cover doesn’t cover them for the breach of the duty of care.
But i dont see ASIC doing anything in this space as they have no idea about the real Risk Advice world. So good bye RISK ADVISER and hello RISK SALESMAN. Its going to be hard to start to see each customer as $$$$ instead of as a person whom we want to help.
The thing that the banks and insurers didnt realise when they told the politicians to implement LIF was the if there are no Risk ADVISERS and everything is sold under General Advice then churn will increase. If a Risk Sales person with no BID requirement comes across a client he/she will swap the existing policy for their own “generally advised” policy without any care for the client or their existing situation. It will be an entirely price based decision as there is no adviser to compare the 2 policies against each other and assess the merits of the new vs the old. Then in 2 years time when that policy is out of the 2 year responsibility period the Risk Salesperson can contact the client and say this new policy is cheaper than your current one (even if its much worse) and will change the client to the new policy for the upfront comms of 60%.
At least Riskies be able to re write their entire book every 2 years and have no compliance and no duty of care to the client. Just make sure you dont get too qualified or the courts may see you as a professional in a position of trust.
Poor old mister and missus customer. Sue ASIC and for the death of the RISK PROFESSIONAL.
Sorry for the essay.
As with all things Union this is flat out bullying and in their best interest. Pure politics and is to be detested and opposed. Like all good Marxists they don’t care how many people they hurt as long as they are OK.
In the interests of transparency and the best interest of members why not have a ban on operating risk reserves that all industry funds take from members returns without disclosing this as a fee (on average this would add about 0.25% to their disclosed fees). Its about time the AFA and FPA start making their own submissions attacking issues like this that industry funds continually get away with. Its about time the attention moved to the industry funds – there would be many interesting findings one they scratch the surface
Senate inquiry would be a good start.
Nothing good could ever come from any sort of enquiry held by politicians. More than half are controlled by the union movement.
The ISA and AIST are classic examples of why many members of associations and
Industry groups do not trust their own officials to do their jobs properly,
which is first and foremost, to understand what they are doing and saying, and
secondly, to properly represent their members.
ISA and AIST are suffering from “Empty vessels, make the most noise” syndrome.
Their comments are absurd and are based on illogical and inaccurate data that
continually contradicts itself.
These supposed gurus who talk much, listen little and don’t bother to learn before
they speak, highlights the problems we all face when faceless people can put pen to paper without having to be held accountable for their words.
Advisers appear to be the only demographic that are held responsible for everything we say and do.
It is about time that everyone, including public servants, associations, big Business, unions etc, are held to account for their actions and words.
Then and only then, will ridiculous comments from the likes of the ISA and AIST with
their latest submission, be kept where they belong and that is, within their insidious little brains, with no opportunity to pollute the air with their erroneous comments.
Of course IFA and AIST would say that. Good risk advisers are too busy pointing out the flaws in the policy terms of their super funds’ group insurance! No conflict of interest there!
By the way IFA / AIST – do any of your members participate in “profit-share”? If yes, do you disclose it to your members? Do you pass it back as a fee reduction? If not, why not?
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