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Leave SoA Commission Details Alone – AFA

The AFA has recommended that life insurance commissions should not be displayed at the start of Statements of Advice (SoA) stating that to do so would present them out of context to the advice being provided.

AFA General Manager, Policy and Professionalism, Phil Anderson

AFA General Manager, Policy and Professionalism, Phil Anderson

The Association made the recommendation in a submission to ASIC following the latter’s release of a new sample SoA for life insurance in late May (see: ASIC Releases New Sample SoA for Life Insurance).

The submission, authored by AFA General Manager Policy and Professionalism, Phil Anderson, stated that presenting a statement of commissions before presenting the product advice was not beneficial to the client’s understanding of that advice, and the purpose of the SoA was to set out the need for insurance and make recommendations.

“In terms of being upfront and prominent, we do not believe that this means that the commissions should be disclosed on page 1. Commissions will be clearly explained when the financial adviser presents the advice and are also clearly set out in the Statement of Advice,” Anderson wrote in the submission.

“Typically commissions are disclosed in the SoA just prior to the point where the client needs to confirm their agreement to proceed with the advice. Advisers will also brief the client on the remuneration as part of the verbal delivery of the advice,” he added.

Anderson said the AFA supported clear disclosure of remuneration and informed consent but believed there was no benefit in disclosing commissions prior to the inclusion of the recommendations, and noted that a requirement to do so would be unique among life insurance SoAs.

“…there has been no call to include advice fees for superannuation and investment advice at the front of the SoA…”

“We also make the point that there has been no call to include advice fees for superannuation and investment advice at the front of the SoA and that there should not be one style of SoA for insurance advice and another for superannuation or investment advice,” Anderson said.

The AFA also expressed concern over the level of repetition used in the sample SoA produced by ASIC claiming it increased the length of the document and appeared to overlook the verbal advice that would be provided by an adviser to a client.

The submission stated that ASIC had appeared to conclude on the basis of behavioural research that repetition in a SoA would produce a better outcome for clients. To this, the AFA added that a SoA was not the advice but a record of the advice that had typically been delivered verbally by an financial adviser in a face to face setting.

“We suspect that the decision to include repetition may have been on the basis of consumer testing where the advice was not presented first in a verbal manner by a financial adviser,” Anderson wrote in the submission.

“The research may have suggested a different outcome if the client had first received the advice directly from a financial adviser. In that case duplication would not be necessary and each section would not need to make sense by itself,” he added.

  • Bryan

    It seems to me that the regulators on the one hand consider the consumer intelligent -in that they will read and understand a SOA and PDS,, but when it suits the regulator insults the consumers intelligence and treats them as morons by dictating where the issue of commissions is placed in these documents, as if they are incapable of reading the advice. Seems hypocritical and illogical to me, and then – we keep hearing this is about documenting the advice and reasons for it so shouldn’t that be far more important and therefore prominent than how or how much an adviser is paid. Seems the real agenda is not about client protection but bureaucrats having an issue with commission.

    • Professional Adviser

      How about the regulators disclose their salary before they make a comment

      • Really concerned adviser

        This shows exactly what ASIC the banks industry funds and unions have had on the agenda since this ridiculous agenda started over 3 years ago ” “how much we get paid”
        Not what’s best for the client in all this To me it is an amazing game of patience by them all to slowly but surly strangle the life out of the individual adviser and what better way The to cut out the life blood of their business ( cash flow)
        If this was happening in an industry supported by a union they would be marching down George st and we would be inundated with televised adds calling it all sorts of things ?( Bit like their banks are not super add) don’t like it when someone shows them they are not the only answer to a persons retirement
        Bring on the Royal Commission if it’s going to investigate the process that got us to this ridiculous situation in the first place
        Something’s got to change or there will be no commission structure in 3 years with a contrived reason that the insurance companies are still bleeding and cannot afford to pay anymore

        • Charles

          To all those comments above ASIC is on a witch hunt and they will not stop until they wipe us out. You can’t legislate against dishonesty and stupidity but they are trying. In the end it will mean advisers like me who because of this extremely onerous (you need a law degree just about to be an adviser now) and unnecessary legislation I have after 40 plus years as an adviser tossed in the towel.

          • Squeaky_1

            I’m not too far behind you Charles, purely because of this disruption to our industry caused by these self-interested regulators. They have no concern for ‘Client Best Interest’ and they finish up at the trough of taxpayer-funded pay packets each week. They are so focused on appearing to be relevant and feathering their own nest (the involved poliies too) that the VERY last thing on their collective mind is Client Best Interest. Appearances are everything, perception is VERY MUCH more important than reality. You and the other posters are correct, too hard to stay in the game now and doubly so for simple life advisers who now need ridiculous qualification to place an income protection policy or term cover for a client. It is nothing but madness and the regulators should be ashamed of themselves treating advisers – and clients- like this. AND we pay their wages . . . lunacy!

  • wayne

    The regulator is the enemy of the advice business. Statements made by ASIC’s key principals indicate they favour either accountants or industry funds.
    The entire focus has become the fees charged by advisors not the outcomes for clients.
    ASIC have demonstrated little regard in relation to product quality and massive overkill towards advisor remuneration.
    Having remuneration details as the front page of an advice document is bizarre and directs the focus away from the primary purpose of the advice.
    No wonder so few Australians get advice when the regulator actively campaigns against those providing the advice. ASIC are attempting to signal to clients that the key consideration should be price rather than the advice.

  • Paul F

    Good work Phil, good to have you back in the AFA saddle

  • emkay

    ASIC has no interest in client outcomes. All it sees as the entire problem is how we get paid. They are being led by the nose by FSC and union owned (Labor) Super funds. The competence of ASIC simply beggars belief.

    • Squeaky_1

      I think you mean the INcompetence of ASIC simply beggars belief. If so, I agree completely.

  • Frank Granozio

    Within all this regulation, it would appear that the most important factor, ADVICE, must play second fiddle to disclosure of commission. Nearing completion of 30 years in this industry, I am somewhat dismayed at the constant regulatory interjection, which attempts to target the 1% rogue advisers. The regulators need to re-focus on the importance of quality advice. That is the sole reason our clients engage with us.

  • Warren B

    Despite the AFA’s recommendation, this again shows quite clearly how removed ASIC are from the real world. Or, as it has been suggested in other comments, they are simply out to
    destroy the advice business. To focus the attention of clients on how advisers
    are paid rather than the advice we are providing just doesn’t make sense! Here we have a government body supposed to be regulating our industry but that very body has no real understanding of how the industry works! Staggering! One problem with all of our comments folks is that no matter how many are posted, ASIC will not listen and just don’t get it. By the time they do – if they ever do – it will be too late. Let’s hope that they take note of the AFA’s recommendation.

    • Professional Adviser

      ASIC want consumers to receive quality advice but don’t like the commission remuneration model. The elephant in the room is that they have not come up with an alternative remuneration model that is viable. What other industry expects their sales and distribution to charge separately for their work ? It would amount to free sales and distribution to the product provider. That would be nice for them but it simply won’t happen. Until the regulators and insurance product providers acknowledge the need for their sales,distribution and advice channels to run viable business models they are leading themselves and consumers in a path to nowhere.
      In the interim,they pocket their salaries and continue their self righteous rants.

      • Jake

        ASIC obviously do not want consumers to have access to advice. They want the exact opposite.

        Or could it be that ASIC is just another government run agency taking its orders from the Banks

        If only Government agencies and Politicians were forced to work in the best interests of the constituents who pay their wages

  • CMY

    The process of disclosing the cost of the advice before the adviser and client has the opportunity to fully read through the SOA, process complex information and strategy, ask questions and discuss the advice in line with the clients intended objectives is a clear indication of where ASIC’s position regarding commission is currently and has always been since the conflicted and misconstrued ASIC Report 413.
    How does the client accurately assess the value of the advice and strategy when throughout the discussion and presentation of that advice they are already focused on the cost of the advice and it’s the first detail they see.That’s how the human brain works.
    Isn’t the process about the VALUE of the advice first and foremost?.
    If the client fully understands the recommendations and advice presented in their best interests and THEN decides the cost of implementing the correct strategy is not affordable, adjustments or alternatives to that advice can be made in the client’s knowledge and understanding they are compromising the best interest strategy for an affordable alternative.
    (or would ASIC say the adviser could not present an alternative because the alternative advice was not in the client’s best interest !!!
    The obsession by ASIC with the commission cost of risk advice is unacceptable.
    It is a clear indication their objective to eliminate commissions as a form of remuneration for Risk Insurance advice is present and ASIC are attempting to manipulate the client’s thought processes to focus primarily on the cost as the first priority, rather than the advice quality, need and strategy the client requires.
    It would be interesting if ASIC would propose the same requirement on SOA disclosure of costs prior to recommendations if the remuneration was for fee for service, rather than commission basis, even if the dollar amounts were exactly the same.
    Yet again, ASIC are playing both the legislator and regulator and are determined to influence Govt decision making to suit their agenda.

  • Jeremy Wright

    I have just read all the comments and I am pleased that there has been a well reasoned response to this ridiculous idea that commission should be displayed first and foremost.

    ASIC is digging itself into a hole and starting to contradict itself, where they have focused on the quality of advice, following the Best Interest Duty that advisers must comply with, then turned that around to make commission the most important issue, which is patently wrong and will lead the Industry and all Australians down the wrong path.

    It is a worrying sign that ASIC has got this so wrong after all the submissions having been submitted from intelligent and well considered people that have a full understanding of the Life Insurance Industry and who truly are, totally focused on what is best for all Australians, are effectively being ignored.

  • GM

    Those dirty commissions.
    When my very pro-union client rang the CBus admin team to ask about the life / TPD cover within his fund he was assured of 2 things. Firstly, the cover was very good and did everything that “all the expensive insurance policies do” and 2) he was never going to pay those dreadful adviser commissions.
    He found the first remark difficult to reconcile when I showed him his cover decreased regularly until expiry at age 70 & he couldn’t believe his CBus cover “that no-one is getting paid for” cost him $1,850 last year while retail cover, paid from the CBus balance, would have cost him around $580 (including my commission) for the same levels of cover during the same period.
    Isn’t it wonderful that fund employees can misrepresent the value of their products without any legal obligation to consider the client’s best interests?
    Having said that, the industry funds do provide a valuable service under certain circumstances. For example I will continue to comply with my legal obligation to look after the best interests of uninsurable and terminally ill clients by recommending they consider joining industry funds with auto acceptance cover.
    And they don’t have to pay me commission for the advice!

    • BKY

      That’s awesome GM…I love your comments…

  • CMY

    Page 1 of ASIC’s new sample SOA for Life Insurance commences with a very large and bold heading of “Payments To Me” (Adviser) and immediately details both first year and following years commission payments.
    It also clearly states on the front page……
    ” I do not charge you a fee for my advice in this Statement of Advice”.
    I would suggest that in the world of enforced reduced commission payments, that many advisers WILL be charging a fee for the advice PLUS the commission payment.
    There will be the commission paid by the product and an additional Adviser Advice Fee added to compensate for the loss of revenue.
    On Page 3, it launches into a “Summary of my insurance recommendations”
    and lists insurance types, levels of cover, insurer and premium cost way before any detail about the client’s situation, objectives, current levels and types of cover and strategy is presented in the document!!!
    Then on page 26 it again details all first year and following year commission payments and again states:
    ” There is no fee for my advice”.
    So ASIC have taken a document based around an analysis of client’s details, needs and objectives, followed by recommended strategy,associated product and then remuneration for the advice to disclosing the remuneration on the very front page and including a summary of the recommended products and pricing BEFORE the analysis of the clients financial position and needs can be read through and discussed in detail.
    Isn’t the process of providing advice around taking the client first and foremost through the basis of advice on which they can formulate the value?
    ASIC’s new sample SOA for Life Insurance is like having sex first and then foreplay!
    The’ve got it the wrong way round.

    • BKY

      CMY…I get your frustration…in addition to your observations the thing that I also shake my head at constantly is that the disclosure of the trail (renewal revenue for service and claims) is actually inaccurate anyway as it is based on the current premium…well that’s the way my licensee’s software is set up…so to be entirely accurate you would need to be sure that the insurer is guaranteeing the rate for the next 24 months and if this is the case, then look at the client’s premiums at anniversary in 12 months time and enter this number in the SOA…I’m sure they haven’t thought of that…

      Also I haven’t read ASIC’s proposed soa like you have but I wonder if they have included in BOLD letters on page 1 the new CLAW BACK provisions of 2 years…highly doubtful…

      I want to know when is all this absurdity going to stop or when are Adviser’s collectively going to submit a class action against the government for misleading the Australian Population and ruining people’s lives?

  • Alleycat

    Here’s an idea….Lets all join a bank, be salaried and charge no fee or receive any commission, that way the client will know that like ASIC, we all work for nothing but get paid anyway,….. no matter how long that may be, beyond 5 minutes !