Removal of Commissions Would End Conflicts of Interest – ASIC

ASIC has thrown its weight behind the total removal of conflicted remuneration, including commissions, stating there can be no ambiguity in this area.

ASIC Chair, James Shipton

In a recent speech to the Australian Council of Superannuation Investors Annual Conference, the new Chair of ASIC, James Shipton said the regulator would follow the path of the Australian parliament which banned ‘commissions and other conflicted payments’ in financial advice.

“This was a recognition that the best way to deal with some conflicts was not to manage or disclose them, but to remove them altogether,” Shipton said.

“This is an option that ASIC favours in relation to conflicted payments in advice. There can be no ambiguity in this area,” he added.

“I would strongly suggest that all financial firms keep this in mind when considering how to deal with conflicts of interest arising from remuneration structures,” Shipton said.

“…the best way to deal with some conflicts was not to manage or disclose them, but to remove them altogether”

His remarks were made as part of wider comments on the issue of conflict of interests in which he claimed “…it is clear to me that a number of institutions have not taken the management of conflicts of interest to heart.”

“This is verging on a systemic issue. Indeed, it is the source of much of the misconduct ASIC has been responding to and which is being highlighted by the Royal Commission hearings,” he added.

Shipton, who started in the role three months ago after working in regulatory and supervisory roles overseas, said he was surprised that many firms in the financial services sector had ignored the risks that conflicts of interests posed to customer outcomes and did not have a management system, culture or code to identify and resolve conflicts.

He said there was also a reluctance to address conflicts, particularly those linked to remuneration, or to make good on any harm caused by conflicts of interest.

“A business culture that is blind to conflicts of interest is a business culture that does not have the best interests of its customer in mind. Moreover, it is one that is not observing the spirit as well as the letter of the law,” Shipton said.

  • Rob

    Can someone please tell me where commissions in their current and future form, pose a conflict of interest. If all life insurance policies pay at the same rate, where is the conflict?

    • Jez

      i guess the rationale is upfront comms = churning = bad for clients and the industry?? Something like that…

      • Rob

        But ASIC have concluded that churning is not the problem they thought it was. One can only conclude a conflicted agenda, from the banks, unions etc.

        • Brian

          Where is the conflict of interest when we charge a level commission?
          All risk products are paying advisers the same commission so that when we compare to fees what is in the best interest of clients if it will cost them more .
          So why is no commission in the best interest of clients?
          ASIC have too much information an no wisdom

  • BKY

    Shipton has sailed…Oh dear what a short sighted view from someone who sounds like he has no idea how life and disability insurance works on Australia. This will signal the end of the risk only adviser…the compliance world is already taking it’s toll and that is even with commissions still a remuneration source.

  • Old Fella

    I’m assuming, hoping even, that he is referring to presently grandfathered trail commissions on investment products. Removing commissions on insurance products would mean a generation of people hold little or no insurance, because they wont receive the advice they need, putting the onus on Governments to provide more welfare.

  • Staggered!

    I was told by an insurance company BDM just in the last week that the level of new business submitted this year for life insurance across the board is down by 12.5% due to the LIF. Yet here we have the new chair for ASIC – a man who has been in this country for only a few months – adding fuel to the fire because of his total ignorance on how the Australian Retail Life insurance industry in particular, works. I agree with the comments below – this will signal the end of the risk adviser. Furthermore, the repercussions will be disastrous!

  • Stenson

    Everything you BUY has a commission in it.
    Does that mean the person selling me are pair of shoes has to sell it to me wholesale and charge me a fee to purchase. You cant say it’s just the financial products here. EVERYTHING is financial. Unless you’re buying the pair of shoes with a sack of potatoes or cleaning his floors, everything you do is financial. why just pick on insurance????

  • Jeremy Wright

    James Shipton, just like his predecessor and it appears everyone who works at ASIC, once again are showing how little they understand the Life Insurance advice area.

    They are following the same failed mantra they have pushed from the beginning, which is to try and promote a orange as an apple and vice versa, with Insurance being the orange and Investments being the apple.

    It does not matter how many times ASIC or anyone else keeps selling the false premise that they are one and the same, every one else knows they are different.

    Best Interest Duty and the copious other regulations, including what constitutes the illegal restriction of trade imposed by regulating how much small Business can earn, I would have thought was enough to make ASIC and the Government happy.

    Instead of doing their jobs by making the Big end of town comply with the regulations over the years, which has since led to the need for a Royal Commission, ASIC has taken their preferred option which is to lay the blame on everyone else, with no recognition of their own failures.

    Shipton and every person who works in ASIC should be held to account for their ineptitude when it comes to the direction they want to take Australia regarding the Life Insurance Industry.

    In the real world, people who cause mayhem, should be removed from causing more mayhem.

    That includes Big Players, rogue advisers and public servants who do not do their jobs properly.

    Shipton, by making such a broad sweeping statement, falls into the inept category and he must be removed before he causes more mayhem.

    This is not a game. This stupid comment by a ill-informed bureaucrat, will lead to the destruction of thousands of honest hard working Businesses, with tens of thousands of people thrown on the scrap heap and Billions of dollars added to Government debt.

    Shipton, shape up, or ship out.

    If you are going to make statements, at least have the decency to know what you are talking about and try learning what the differences are between Investment advice and Life Insurance advice and how Australians view these two totally different Industries.

    If this sort of negative, illogical propaganda continues and leads to Life Insurance commissions being banned, then a multi billion dollar class action will be forthcoming.

    • Squeaky_1

      Get to Canberra tomorrow Jeremy. A clear advocate voice like yours for our industry is the only thing to save it.

  • Robert Coyte

    This guys shows how little he knows. Conflicts of interest are everywhere you cannot remove them….pure fee for service advisers have conflicts god help me no wonder we are in this mess given this bloke is chief regulator

  • Scott

    Has anyone surveyed clients about commission versus fees? None of the clients I have ever spoken to really cares how we are paid, as long as they know what the total cost to them actually is and it’s disclosed. As mentioned by others, this issue, along with the ridiculous increase in the education standards, will result in an overall reduction in the number of consumers receiving financial and insurance advice in the years ahead.

    • Andrew

      Yep I have Scott and note it on every ATP which option the clients proceeds with. So far 100% have elected comms. I even assumed once a large case that fee would leave them better off. Noop they chose comms

  • Ken

    How can someone who has been in this country for three months be allowed to even comment on something that has been an ongoing issue for 10 years
    How could he even start to comprehend what has taken place in the FOFA and LIF proposed and implemented reforms
    We that are going through it struggle every day with beurocrat’s that have no idea what they are proposing
    The way I see it he should fit right in with this lot as the stooge I’m sure he is being set up as And will simply resign when the class action starts from 25,000 advisers when ASIC moves to eliminate commissions
    What a mess they continue to make like headless chickens with no idea of direction even when the UK and New Zealand did the homework and showed them the way And it most certainly was not scrap commissions

  • C.

    Yet again we see the repetitive and convenient use of the term “conflicted remuneration”.
    Remuneration is only conflicted if the person providing the service places their own interests as a priority before their client’s interest.
    It is unacceptable that ASIC continually push their agenda and continually refer to any commission based remuneration as conflicted.
    This is demonizing and labeling every adviser who receives LEGISLATED remuneration in the form of commissions as conflicted in their relationship with their client.
    This is negligent and irresponsible and only serves to highlight ASIC’s very clear agenda when ASIC should be very concerned over their role in the current fiasco developing from the Royal Commission.
    ASIC are the regulator and not the legislator and they are stepping way over the line in attempting to continually direct legislation to suit their own objectives.

  • GuyM

    I’m sorry to disagree with my fellow advisers on this but Mr Shipton is correct. The removal of commission WILL remove any possible conflicts of interest. Not because insurance will be arranged on a fee for service basis but because no-one will be arranging insurance on any basis. The unions & direct insurers will be spilling their Grange toasting this stupidity.

  • Where’s The Integrity?

    Yet another uninformed ‘expert’ who has no clue – only what the last clown running the show has no doubt told him. ASIC is a disgrace in my opinion – and they talk about advisers being conflicted!!!!

    This is an organisation that’s very existence depends on finding (or ‘fabricating’ if you consider recent examples) fault. Instead of focusing on the bug that hit your windscreen ASIC, how about you focus on the BIGGER PICTURE.

    Australia has a massive underinsurance problem – that seems to be getting bigger now as a result of the LIF Reforms from what I have also heard lately with the amount of new insurance business being written. If you think in anyway shape or form that removing commissions is EVER going to increase that, you have rocks in your head.

    GET THIS THROUGH YOUR HEAD ASIC!!! WHILE THERE MAY BE ‘SOME’ EXCEPTIONS, THE VAST MAJORITY OF PEOPLE WON’T PAY EXTRA FEES FOR LIFE INSURANCE.

    Remove commissions from the existing life insurance remuneration process and you will cripple the industry, increase Australia’s underinsurance problem and massively impact future Federal Government welfare & disability budgets.

  • Mark

    Here’s what a fee for risk advice world looks like:

    1. Adviser charges a fee for the advice and lodgement of application to the customer.

    2. Life companies better get really good at following up underwriting requirements directly with the client or be prepared for the adviser to bill them for time in the same way that doctors and pathology labs do for their services.

    What our new ASIC chair and idiot RC QC’s don’t see is that either risk advisers (degree holders or not) will exit or the quality of advice will lower. ASIC only have to refer to their current issues with direct life providers.

    Why not do something similar to Qld Govt and real estate agents. In 2014 RE commissions were actually deregulated (meaning the cap on commissions was removed). They now have to provide a written statement about how they charge and an estimate of the commission a client may pay. This provides choice to the client on who they may pick to sell their home. I’m sure however that low cost RE’s are more interested in high volume and may not get you the best price for your home.

    The same will happen with risk advice. The advisor will get their fee for advice and move on to the next client with no vested interest in the outcome. How can you if it costs you more time that a customer won’t pay for. Only answer if for life companies to pay advisers for their time and involvement in the application process or take the full responsibility of it themselves. How many apps do you think would fall over?

  • Gen X Planner

    Hi AFA/FPA, remember me, adviser, the guy that pays you membership compulsory each year. I may need you at the moment.. You know, the guy you are a voice for…hello? hello? Anybody there?

  • “Tell a lie often enough”.

    Here’s a mind exercise on conflicts of interest in financial services:

    Step One – all commissions are gone.

    Step Two – explain the following:

    1) “Compare the pair” that does not allow a member to compare between industry funds
    2) CPA Australia Advice running a business in competition with its members, using its member’s money. In which way can this be considered ethical or a lack of conflict of interest?
    3) Why was CPA Australia’s launch applauded by ASIC?
    4) Approved Product Lists – Gatekeeper limitations to ensure products follow the AFSL best interest. Why is this obvious bias allowed to hide behind “best practise” and product knowledge foolishness?
    5) How do you defend a single platform product offering? In what way is that not conflicted advice?
    6) How can any product provider operate an advice distribution business without a conflict of interest?

    And you have not yet touched on the full scale of potential conflicts of interest.

    For or against commissions? Whatever your preference, commission is just one aspect of conflict of interest.

    To question my ethics, on the basis that I have been in business long enough to accumulate legacy commission-paying products, is poor logic. Lazy logic, and I take offense at the suggestion.

  • emkay

    Does Shipton understand that union super funds don’t pay commissions and yet make a fortune from sub-standard TPD and IP products which they can then pass onto their Labor party lackeys? If he grasped the fundamental flaw of these funds he may realise that they are more conflicted than commission payments will ever be. But I guess as yet another public serpent he will never actually grasp the real world.

  • GregF

    And have any of them noticed the amount of ads by legal firms spruiking how they can help people settle claims through their super funds. An action that should be completely unnecessary if the fund was doing its job. They don’t talk about ‘disputes’, they simply say let us make a claim for you. But that’s right, they don’t pay filthy advisers, do they. They don’t seem to have a concern, however, about a member paying a third of his entitlement to a legal firm when they should be getting the lot. I’ll go further and suggest that many of the industry funds and union affiliated legal firms are in bed together. Offer no assistance to potential claimants, or even deny the claim initially, send them to us, we’ll then get the claim through and pocket a third. Happy days.

    • Jake

      Its even worse than that. I was referred a client (who had an industry fund policy) who had signed a contract with his lawyer which stated that if any offer was made then the client was legally obligated to accept it. This law firm then spoke to the insurer and negotiated a reduced payment (as it was less work for them) so they could claim their fee. When i had a look over the claim i noted that this lawyer had provided some templates for the client to fill in and then emailed the claim forms from the client to the insurer. This lawyer might have made 2 or 3 calls to each party and charged over $30k. The insurer loved it because instead of paying over $200k in the claim they paid around $90k.

      The end result of this had i not become involved was the client would receive about $60k. Luckily i got involved and took over the claim for the client and got the full payout. It was a surprisingly simple claim and i cannot believe that these law firms are allowed to operate. I changed $2,000 and still believe that was a bit too much.

      The lawyers still tried to charge the client the $30k however they realised that they would get caught out for his dodgy practice if they took their claim any further so dropped it when i told them to take us to court.

  • Phil

    I’m glad I’m over 60. I don’t do a lot of new business now. But I have a large client base where I earn renewal commission. As my clients have aged so the number of claims have increased. There has been instances where I have spent on and off up to 50 hours pursuing the best outcome for my long standing clients at claim time. If I didn’t receive renewal commission what option would be left for me but to charge my client or their family/business. At the worst possible time in their lives I present them with a $5,000 RCTI? And as for our direct marketing friends [who underwrite at claim time] – call their 1800 number, press 3 different option buttons to receive indifferent service and support and then cross your fingers as you’re merely a number to them! Yes Mr Shipton, let’s get rid of this ‘evil’ commission and leave the average consumer blowing in the wind at claim time. Let’s exponentially multiply Australia’s under insurance problem. Let’s leave it to the good old battered and beaten tax payer to try and fund all the burgeoning shortfalls created by short-thinking governments who won’t be around in 3 years time or to idealistic bureaucrats who simply don’t live in and don’t understand how the real world works.

    • BKY

      Hi Phil
      You must be with a rather reasonable and sensible AFSL? The AFSL I’m with expects risk advisers to update the FF every 3 years and if there has been a “material change” (material change is not defined) in their circumstances, then we must create, provide and present a new SOA that meets the new (now not so new) BID and 7 steps to safe harbour, followed by copious amounts of file notes. This is required even if the client has confirmed that their needs and objectives haven’t changed and are not interested in moving their policies; or even if they have stated they are happy with their polices and cover; or are unable to move their policies without detriment like resetting a Level Premium Policy or their health status has changed to the extent they can not be UW elsewhere without copping a loading or exclusion…talk about compliance loosing their minds. We are being crippled by compliance so maybe the removal of commission from insurance will save us from the awful situation of death-by-a-thousand-cuts.

  • Doug

    Dear Mr Shipton,
    So your answer to avoid any possible conflict of interest is to ban all commissions for any form of Life Insurance and in the process totally destroy the financial viability of the majority of Risk Advice Businesses in the process.
    So Mr Shipton when you are alerted to the future situation faced by a young Mrs Jones whose husband has been tragically killed in a road accident leaving her with 3 young children and a massive home mortgage and no life insurance cover your answer will be?
    Sorry to hear that Mrs jones . Very bad luck for you. At least you can take comfort in the fact that no Financial Adviser has received any commission for a Life cover that may have made an enormous difference to you surviving financially and maintaining a roof over the heads of your family.
    I hope you will be able to sleep at night.

  • Peter

    Dear James,
    Your option is a little narrow minded and in no way covers the whole picture, if we stop commissions, we also stop 90% of the Australian public from receiving financial advise. The very high fees that Financial Planners change can only be afforded by a very few people.
    I have heard that their is talk of terminating all commissions, including the grandfathered ones if this was to happen it would be a catastrophic for our industry, not only have these commission been agreed to by life company’s over years, but suddenly stopping these commissions would cause I would anticipate 75-80% of all financial advisers would cease the industry, that would be horrendous.
    If everybody is hell bent on not paying commission it would need to be brought in slowly in other words pay no more upfront commission but grandfathering the current commission. These commission would slowly reduce on a weekly basis as policies are inevitably cancelled, if we go this way financial advisers can stay in business and gradually conform to a change to fee for service structure.

  • Disgruntled CFP

    You gotta love this stuff. Talk about ASIC being away with the fairies & the garden gnomes somewhere down the back garden. It’s clear that they believe life insurance advisers are a bunch of parasites and a blot on the community. We never get to hear about all the good work we do, helping families in their time of need…just the bad news generated by a few. ASIC are so hopeless that they can’t even weed out those few. Even when you serve it up to them on a silver platter with an apple shoved in its mouth…believe me I’ve done it on a number of occasions, without success. If any should be banned, it’s the pretenders running ASIC. So ASIC, please tell us how life insurance should be distributed in Australia? They way you are going, people will be forced into the inferior products offered by their super funds (by the way, can anyone tell me where the trustees of these funds are when a member tries to unsuccessfully claim on these dodgy insurance products they have arranged for the their members?). Alternatively, people will buy on line, no painful medical tests to do upfront…just a few clicks…and your covered! Until claim time when the policy is medically & financially underwritten..good luck with that!
    Look at the mess created by the last lot of reforms…helped cause vertical integration and hello Royal Commission…boy! How did that happen? We have tried to advise the idiot pollies about this at the time, but no one listened then and no-one is listening now. The mess will need cleaning up in 5-10 years time…lots of forehead slapping will happen then, wondering how it was created in the first place!

  • Jason Spits

    Thanks everyone for your comments on this story.
    The speech caught the interest of a Senate Committee who asked ASIC to clarify what it meant in terms of life insurance.
    For further details on that response, please follow this link: https://rine.ws/2xPk3vs.
    Jason Spits – Senior Journalist, RiskInfo