Quality of Risk Advice Unchanged Since Report 413 – ASIC

ASIC has claimed the level of non-compliant life insurance has not changed since the release of Report 413 in late 2014, but expects this will change after the introduction of commission caps and clawback arrangements.

The regulator made the statement as part of a recent written response to Questions on Notice from the Parliamentary Joint Committee (PJC) inquiry into life insurance.

In a response to a question on trends in life insurance, ASIC referred to Report 413 which stated that 37% of the advice reviewed failed to comply with laws relating to appropriate advice and prioritising the needs of the client. The Report also noted there was a positive correlation between high upfront commissions and poor quality of advice.

“ASIC’s recent general surveillance and enforcement work reflects similar rates of non-compliant life insurance advice to that set out in Report 413, that is, we have not seen changes in this trend,” ASIC stated in the response to the Question on Notice.

“ASIC’s recent general surveillance and enforcement work reflects similar rates of non-compliant life insurance advice…”

ASIC also stated the Future of Financial Advice (FoFA) reforms had made little difference in changing life insurance advice due to the exclusion of commissions from the FoFA reforms, but expected improvements after the start of the Life Insurance Framework in 2018.

“ASIC’s Report 413 looked at both pre-FoFA and post-FoFA life insurance advice. Although the post-FoFA advice failed in slightly fewer instances than the pre-FoFA advice, the failure rate was still significant,” ASIC stated.

“We found that the way an adviser was paid had a statistically significant bearing on the likelihood of their client receiving advice that did not comply with the law. This was the case for both personal advice given pre- and post-FoFA advice.”

“We expect the quality of advice relating to life risk insurance will improve from 1 January 2018 following the commencement of the commission caps and clawback arrangements.”

At a separate recent hearing of the PJC, as part of its oversight of the regulator, ASIC Deputy Chair Peter Kell said that ongoing data collection has indicated that churn related behaviour was likely to be very low and possibly occurring among around 50 advisers only (see: Lapse Data Suggests Churn Numbers May be Low).

  • Jimmy

    What a load of crap. in other reports, it appears that ASIC have identified a group of about 10 advisers where they THINK that there MAY be evidence of churning. 10 advisers!!!! And we have a massive change to the entire structure of the industry. You just cant make this stuff up.

  • Scott

    You can’t blame poor advice on the commission structure. If I get paid more under the current upfront model, then I can afford to spend more time ensuring that the advice is compliant and in the client’s best interest. Pushing us into a hybrid or level commission model means that we’ll need to charge the client an additional fee upfront to cover our time and the premiums will be no cheaper. Who’s better off, not the client! If commissions end up being banned altogether, then many client’s simply won’t get insurance advice as they won’t be prepared to pay a high enough fee to cover our upfront time and cost. As a result more clients will end up dealing with insurers directly on a no advice basis and in a lot of cases have inadequate levels of insurance and products that may not be in their best interest. Regardless of the remuneration structure, unfortunately there will still be some advisers who provide poor quality advice.

  • Rob

    So, the quality of the advice has not improved, and there is a significant failure rate in the SOA’ and that the quality of the advice will improve, when we receive less commission for our efforts. I think the opposite. The only thing that will change is the number of advisers in Australia providing this important service to the public. Many will leave.
    How utterly disrespectful to our profession to suggest that we are driven only by commission, that the quality of our work is driven by commission. I find that an affront! And yet they admit only 50 advisers in Australia were churning. So they acknowledge they got that wrong, but hit back by denigrating our profession, claiming we are only concerned about our needs and not our clients. Maybe you can improve your game ASIC by being paid less. I am sure our country could do better if we were all paid less.

  • Old Risky

    So ASIC are the experts in what is appropriate RISK advice and how to prioritize clients needs
    Anyone who read the SAMPLE SOA put out by ASIC recently knows that ASIC does not have a clue about RISK advice, as distinct from investment advice.
    The “advice” in that SOA was absolute rubbish. For example, they showed their bias to industry super funds, by recommending the client rely on the default life cover in the fund, completely ignoring the fact that all industry funds publish an “Insurance Guide “with a table showing RAPID decreases in death/TPD cover between ages 30 and 60, with the decreasing sum insured failing to cover the decreasing debt in a standard 25 year P&I mortgage.
    How is that in our clients best interest when a need for more cover arises at age 50 and the client is now both uninsurable and faced with reduced and reducing cover
    ASIC are always cute on advice guidelines. Their game plan is to blow the whistle to start the game and change the rules as the game progresses, and they do not have a “bunker “

  • Tim Ross

    It would be helpful if rather than simply banging the same old chestnut ASIC actually spelled out what was actually ‘wrong’ with the advice they had seen. There appears to be a tedious and rather boring focus on remuneration.

    • SydneyCider

      Absolutely Tim. This broad statement from Kell without a factual case is tedious to say the least. Its just slander. In fact he goes further and suggests that there are multiple law-breakers out there… Really?

  • Andrew

    It was too hard to predict back in 2014 how this would play out. Remove upfronts.. report no changes so remove hybrid… report no changes introduce level umm aghh let’s report no changes and kaboom we get our outcome no commissions.

  • Damian Eales

    Similar rates of non-compliance. Code for “We checked four Advisers, they are all crooks”

  • Damian Eales

    ASIC Deputy Chair Peter Kell said that ongoing data
    collection has indicated that churn related behaviour was likely to be
    very low and possibly occurring among around 50 advisers only. And we get screwed over based on this, how many Advisers are there in Australia. I’m not going to the AFA Conference but I hope you guys put a torch under Kelly O’Dwyer

  • C.

    If ASIC are stating that the quality of advice WILL improve due to lower commissions and clawback arrangements from 1 Jan, 2018, then they are directly relating the incidence of
    policy churn as an integral factor of the quality of advice.
    However, ASIC have also stated that ongoing data collection shows the incidence of policy churn was likely to be VERY LOW !!
    So, if churn statistics are low, the impact of clawback arrangements should have very little effect relating to advisers replacing policies of insurance in order to generate more commission… shouldn’t it ??
    It appears that for every possible reason ASIC can identify in their opinion as “poor advice”, is always and directly related back to only these 2 issues, namely, commission and policy churn…..because, from the very moment the designed and manipulated Report 413 came to light, the intended outcome and the long term goal of ASIC is to enforce total control over commission and to eventually eliminate it entirely.
    The payment of commission to the majority of those who work for ASIC does not sit well amongst their ideological and philosophical view of the world and it is blatantly obvious based on their so called sample SOA what their intentions are.

  • Ken

    It’s like “ground hog “day it just keeps repeating itself We must help the banks !! we must help the banks !!!
    I have no idea when I said it maybe two years ago in the middle of all this when it became apparent( at least to me) that this whole “deal” was based on bank and FSC instruction to reduce commissions and increase responsibility periods to force advisers out My words were this was just the start and Commissions would be excluded all together when ASIC did their review in a few years It has been a planned objective from the start to eliminate all commissions and have the public forced to the online market as that’s the only advice they can afford
    If this was happening in Ireland the Unions ( or the equivalent of our pathetic AFA) would have demonstrations going on in the street for the whole world to see
    That’s not the answer !! but AFA needs to act on this ludicrous report now and maybe let’s do our own and see what’s really going on.
    But with their past record ” I think not”we can just bend over and “cop” in again so we can play our part in this fiction “we must help the banks! “We must help the banks

  • Adam p

    ASIC – Where is the new data to back up your statements ?
    “ASIC’s recent general surveillance and enforcement work reflects similar rates of non-compliant life insurance advice to that set out in Report 413, that is, we have not seen changes in this trend,” ASIC stated in the response to the Question on Notice.
    ASIC you are simply being run by the Banks and Life Insurance Institutions and keep stating the same rubbish on highly selective data from Report 413 that the whole advice industry knows is a complete con job.
    Where is the data this time AISC – show us the proof
    And I’d bet anyhting you like that it’s another complete con job of data.

  • Jeremy Wright

    What is ASIC’s report based on?

    If it is the same as the previous limited investigation that was biased to the extreme, in that it also targeted high risk advisers, then how can the new assumptions, have any relevance.

    ASIC admitted that they only found 50 advisers Australia wide who were churning and considering that the LIF regulations were passed, based on widespread issues around churn, which proved to be 100% wrong, then what credibility does this new surveillance have?

    As to ASIC’s assumption that the way an adviser is paid, is a determining factor around the advice complying with the law and will improve when commissions reduce and 2 year responsibility periods are thrown at adviser practices, with NIL responsibility on Life Companies, also shows a contempt for advisers and a backing down by ASIC to the BIG end of town, who obviously run the Government.

    Many politicians have either a Legal or Banking background.

    Our own Prime Minister was at Goldman Sachs and what a great job the American arm did on the world wide public with their schemes that destroyed millions of people’s lives and all they had worked for.

    ASIC needs to publicly print out HOW they are running their investigations and WHY
    they are running them that way and WHAT are they trying to achieve.

    It always gets down to WHAT, WHY, HOW to cut through lies and false information.

    In other words;

    WHAT is the problem?

    WHY is this a problem?

    WHAT criteria did you use to determine that this is a problem?

    HOW do you intend to fix it?

    WHY are you fixing the problem that way?

    HOW are you tracking and monitoring your own surveillance/investigations?

    HOW do you know your investigations / information and recommendations will truly reflect your anticipated end result?

    It seems ironic that the blow torch can be held against advisers, yet no responsibility is put back on ASIC or Government public servants who do more to destroy Industries through their ignorance, a don’t care attitude and actions that defy all logic.

  • Squeaky_1

    Dear oh bloody dear . . . does anyone here genuinely have any further questions about why more advisers now, than any other time in history, are planning to leave the industry en-masse? Dedicated advisers, mostly risk advisers (like me), advisers that LIVE for their clients, advisers who have for decades lived by the axiom of ‘client best interest’ above all (before it was legislated) – these are the advisers being driven out of our once great industry. These same advisers, who protected their clients admirably for decades, are now being told they don’t know enough, aren’t good enough for today’s world and must ‘upskill’ to be able to protect their clients now. Absolute rot from life companies, clueless govt pigs and special interest groups that ONLY have their OWN ‘best interests’ at heart.
    .
    WHERE IS THE SEPARATE LICENCE FOR RISK ADVISERS?
    .
    WE HAVE TO KEEP THESE INCREDIBLY VALUABLE VALUABLE OLDER EXPERIENCED ADVISERS FOR THE BENEFIT OF CLIENTS!!
    .
    LIFE COMPANIES AND INDUSTRY BODIES – I’M TALKING TO YOU!! STOP IGNORING YOUR MANDATES!!

  • Squeaky_1

    Jeremy Wright – Thank you for yet another accurate, clearly articulated but unfortunately far too late commentary. Not that you’re too late – you have been a shining light in this battle against corrupt pollies, self absorbed life companies and clueless government fools for years. However I feel that we are all just talking amongst ourselves these days and the aforementioned entities are locked and loaded on what they want our once great industry to look like and we advisers did NOT get a seat at the voting table (contrary to what many might like to believe).
    .
    When I read your comments from time to time Jeremy I have momentary uplifts of hope that someone is saying what I am thinking but can’t verbalise as well. Then the wind leaves my sails when I realise that it is indeed too late.
    .
    The entities WILL get their way as a lot of them hail from the big end of town (life coys, banks) and money talks – always has always will unfortunately. Pollies will do as instructed. They want to see the arse end of advisers; they’re sick of paying commissions and they will cut their noses off to spite their faces. Robocop won’t save them, blind Freddy can see that but sadly that’s what they are banking on.They truly know not what they do and won’t until too late for them.

  • Alleycat

    Yep, the “churn” figures will improve under FOFA. Yep the quality of Advice will improve as a result of the LIF legislation.
    Why you might ask ?
    The reason is simple, ……..no one will work for peanuts (20.0%) commission with a 2 year “clawback”
    Kells and the other rocket scientists won’t need to worry until the customer starts complaining about the lack of advice and how they are being ripped off by a bank/insurance company that directly marketed their inferior products to an unsuspecting public.
    “Caveat Emptor” will now have more relevance than ever !

    Life companies will complain that outflows will exceed inflows and should express their gratitude to the self serving promotion by the FSC, … you got what you wished for.

    There are approximately 10 life companies standing at the moment. Would anyone care to take bets on how many will still be standing by 2020 ?

    • Squeaky_1

      Alleycat, great words above, well done. I think by 2020 there will still be the majority ‘standing’ however after the great exodus of experienced riskies (like me) in aprox 2023/4 they will increasingly fail once it becomes clear that Robocop works against consumers and the compliance people tie themselves in knots due to consumer outcries when the claims process stalls due to definitions and pre-conditions that make it many times harder to successfully be paid a claim.
      .
      This is an absolute nightmare in clear view that seems to frighten nobody except those who can see it coming – the advisers. I firmly believe it is too late to head this off. the life companies are giddy with anticipation of not having to pay commissions anymore and, being the big end of town, they will get what they are wishing for – disaster by another name.
      .
      A separate licence for risk advisers, I can see only now, is a lost dream as it made FAR too much sense for the life companies to champion the cause. It was a no brainer for a while – took entities with no foresight to kill it – well done life company execs – you could have garnered SO much respect by championing that cause. Self absorbed traitors all! You know, they STILL get up at PD days and profess their “passion” and “commitment” to the adviser distribution model. I often wonder if they think people still believe them – I’d really love to know if they think that. Boggles the mind, their duplicitous nature.

  • C.

    Poor quality advice can be delivered to a client based on a $500.00 insurance premium with commission payment of $500.00 or to a client that is paying $50,000 in premium and $50,000 in commission paid to the adviser. Poor advice can also be just as consistent if an adviser is remunerated on an Upfront, Hybrid or Level commission model… or, if the adviser were to charge fee for service or in fact nothing at all.
    The amount, type or level of commission received is not and should not be considered as the primary factor in the assessment of substandard advice.
    ASIC have an ulterior motive in using the level of commission received as a reason to persistently justify the reason a client may have received inferior advice and because of this persistence, they are entirely transparent and negligent.
    ASIC Report 413 was based on proving that Upfront commission and Stepped premium policies had a higher lapse rate than other modes of remuneration and they consequently assessed advisers who had received Upfront commissions and who had a higher than average lapse rate!!
    ASIC Report 413 concluded that where an adviser was paid under another commission structure (other than Upfront), the advice success rate was 93%.
    In this case, “another commission structure” referred to is either the Hybrid or Level commission models.
    Throughout Report 413, there was absolutely no evidence that reducing the commission level to any less than the then Hybrid 80/20 model, resulted in any improvement in the quality of advice received and no evidence it increased the outstanding advice success rate of 93%.
    However, even though there is no evidence to prove the quality of advice increases if commission rates decrease below the 80/20 level, we now have a situation where ASIC are reporting they expect the quality of advice to improve once the commission levels begin to decrease beyond 80/20 down to 60/20.
    With ASIC now admitting that policy churn rates among advisers are low and the fact that no evidence exists that correlates a declining commission rate beyond 80/20 with improved quality of advice, it is now time the LIF is amended to reflect the evidence available rather than ASIC’s desired outcome which is becoming so obviously transparent.
    If every adviser in Australia were remunerated on a fee for service basis and commissions were banned, would there still be evidence of poor advice…the answer is of course…yes….however, there would be very few advisers left to audit and the consumer would be significantly worse off.
    Being remunerated via commission is not related to morals, ethics or the standard or quality of advice provided……..the continued and relentless focus by ASIC is a lesson in how to dismantle the current distribution structure of advised risk insurance and the destruction of an industry with the approval of Government.

  • Robert Coyte

    Gotta love magic bullets….good luck

  • C.

    The theory that the lower the commission and the longer the responsibility period, the greater the potential for the consumer to receive a higher quality of advice is simply ridiculous. If this were the case and the adviser was paid nothing and the responsibility period was 5 years, then the consumer would be receiving high quality advice on nearly every occasion.
    High quality, compliant and valuable advice or conversely poor advice, can be delivered if full upfront commission is paid or the adviser charges fee for service or nothing at all.
    Maintaining a stance that the lower the commission payment, the higher the quality of advice simply clarifies the transparent nature of what is really trying to be manipulated.
    We have a Liberal Government in a free market economy controlling the level of remuneration a privately owned industry can charge for services provided and that goes directly against the theory of capitalism.