The Future of Risk Commissions

Could your advice practice survive and prosper if you were forced to charge a fee for life insurance advice?

  • No (82%)
  • Yes (9%)
  • Not sure (8%)

Our latest poll asks you to reflect on ASIC’s open support for the complete removal of all life insurance commissions, and what this would mean to your business.

In a recent speech, ASIC’s new Chair, James Shipton, noted that the best way to deal with some conflicts was not to manage or disclose them, but to remove them altogether: “This is an option that ASIC favours in relation to conflicted payments in advice,” said Shipton (see: Removal of Commissions Would End Conflicts of Interest).

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

Shipton’s comments were made in a current-day environment that is experiencing the transition period to a controlled 60/20 commission structure under the Life Insurance Framework reforms and the fallout from the Banking Royal Commission. In this environment, Riskinfo has spoken with a growing number of advisers who believe ‘the writing is on the wall’ when it comes to the future of commissions, and who will therefore not be surprised by these comments made by the ASIC Chair.

We asked you this same question in November 2012. At that time, the big issue was around the intention of the Accounting Professional and Ethical Standards (APES) Board to apply a blanket ban on accountants from receiving any form of life insurance commissions.

Back in 2012, advisers painted a gloomy picture of the future of their business if they weren’t able to be remunerated in all or in part, by commissions …and we wonder whether much has changed since then.

Certainly, there has been more debate over the last five-and-a-half years about the potential to charge fees for life insurance advice, and there are a number of advice businesses doing just that. However, while these business charge fees for elements of their advice processes and services (eg provision of Statements of Advice and/or charging fees for claims services) most still supplement those fees with commissions, both upfront and ongoing.

It’s over to you to have your say on this critical issue, which may have far-reaching consequences for many, and we’ll report back next week…

  • Spencer

    who are they trying to benefit by removing commissions. The insurance companies ???? I don’t understand.

    • Rob

      Interesting observation. AMP are being hammered at the moment. Some will believe they deserve it. They are being pursued by 4 maybe 5 class actions( some legal firms listed on the stock exchange- share price shoots up = conflict of interest). And guess what they are fighting over. You guessed it COMMISSION. COMMISSION. COMMISSION. One of the beneficiaries of this feast are the class action participants. Guess what. They will pick the firm that gives them the biggest commission! Billions are at stake. They are like hyenas feasting on a carcass fighting for fresh meat, feeding their bellies, so their stock price can rise. Disgusting.

  • Jeremy Wright

    It is not important what ASIC or any entity says regarding paying a fee for service around Life Insurance advice.

    They have never had a clue about what they are talking about.

    The only group who should have a say in this ongoing debacle, are the Australians who are getting advice and taking out Life and Disability Insurance, as after all, they are the ones that pay for it.

    As usual, the very people who would be affected, are not listened to or asked for any input.

    With 100 percent certainty, what will happen, is the collapse of the retail life Industry if commissions are banned.

    • Paula

      Great response Jeremy – they actually need to consult with the people that it directly effects, ASIC clearly on the back foot post RC and have come in swinging. They need to stop playing politics and actually consider the consumer in this

      • Squeaky_1

        Paula, you can bet that if the Loonie Lefties did actually consult with the consumers they would do it in a mass-advertised way that would even then paint commissions as the hand-tool of the devil. They would trumpet NO COMMISSIONS and rally consumers to their cause and pay little attention to a ‘commission-replacing’ $3K or $5K fee impost ON TOP of the regular premium. Face it, Life companies want commissions AND advisers gone and they are enlisting the big end of town mates to make it happen. They will continue the corporate dribble-speak about how they are committed to advisers until the last adviser is gone and then blame the legislators. This IS currently unfolding before our eyes.

  • Staggered!

    Totally agree Mat. All ASIC need to do is reinforce best interest duty. One problem is the utter ignorance of this regulatory body and their new chair who has been in this country for only three months! A life insurance company BDM told me last week that new life insurance business is down 12.5% because of LIF. The above survey result only reinforces quite clearly the future of retail life insurance advice in this country.

  • Ron

    Alright, remove upfront commissions, we’ll a charge fee for service but give the clients free 12 month insurance. If you care so much about consumers than do it.

    • Ten Beers

      thats a great idea. Sadly after 29 years id say all these changs and a requirement to do further studies despite being a CFP will see me retire early. im not interested in all this BS. Ive done my best over 29 years and have a strong client base but none of that matters anymore. So if real values dont count then Im afraid its no longer a industry to be part of

  • Alleycat

    If this left wing view that commissions are bad for the consumer, then lets remove commissions from every industry that provides one. Let’s start with Real Estate agents, followed by car salesman, followed by shoe manufacturers who provide incentives to stores for carrying their product. Then start with other retailers like Coles and Woolworths who receive cash incentives for putting Coca Cola deals in front of consumers so that they spend more for those rinky dink rewards cards that lead to smoke and mirror discounts on petrol.
    Why don’t we shut down every method of payment other than charge the consumer through a direct fee arrangement and see how many will be willing or capable of paying more for their goods.
    Mr Shipton, you have learned nothing from the UK experience where demonising commissions didn’t work, and both the consumer and the participants, namely the life insurance companies and the advisers were adversely effected, which is why commissions were reinstated as the logical means of payment so long as they were visible to the consumer.
    We have that in Australia via serious over-regulation already.
    In NZ they also seem to be a lot smarter than the likes of Mr Shipton ASIC and the Australian government of the day and have taken a more pragmatic realistic approach to commissions, because they’ve realised for life insurance industry to survive and provide benefits to their citizens, commission are the real deal.

    • GregF

      Let’s not forget all the ‘professionals’ who take commissions or mark ups or whatever you want to call a payment from a product provider. Pharmacists are professionals, yes? I have never been charged a fee for their professional service, yet it is the only place I can purchase the products in question (unlike our industry). And it is definitely an ongoing fee as every month I hand over a piece of paper and receive the same product. Tell me there is no mark up! And what about the medical practice? I can simply pay them a fee to have a script renewal sitting at the counter. No need to see the doctor, no professional service provided but I pay a practice to pick up a piece of paper to hand to the pharmacist to sell me the same product. And when I do see the doctor he tells me about the cruise he was just taken on by one of the drug companies. I’m sure it wouldn’t sway his decision the next time he’s writing out a script however! Ever been to one of the publicly listed Vets? Tell me they aren’t receiving kickbacks for the upsell of products – using a combination of their so called professionalism and the emotion people have to their pets – to sell you all sorts of, many times, unnecessary products and pills. Anyone ever had a body part replaced like a knee, hip or shoulder. Do you think what you/your health fund is charged is what the doctor actually pays for that part? All income from product sales but no one seems to care. Plenty more examples if these people cared to look.

  • Tony

    If this recommendation by ASIC is legislated, it will have the reverse effect. People will end up having to deal with the insurer directly, as the poor old adviser will be forced out of business.

    Life insurance will always be a very personal product, due to the information gathered, and needs the long term one-on-one adviser/client relationship we have today.

    I’ve roughly costed, that a new individual insurance customer needs to return me $2,000 to break even, from a financial perspective. If I have to charge $2,000 up front, to put a case to an insurer, and if the case is declined, what government department would then be after me? Currently, if I can’t find an insurer to take on my client, I wear the above cost.

    The current method of life insurance distribution has evolved over hundreds of years, and the products are competitively priced because of that method. If the insurers could have found a better way to distribute their products, advisers would already be extinct.

    Anyways, these government bodies know what’s best for us all.

    • Gregmax

      You certainly hit the nail on the head Tony ” The current method of life insurance distribution……………………… “. Paying commission to life insurance advisers has a proven track record of providing the insurers with well documented applicants, resulting in good long term policy holders, who are able to legitimately claim a benefit in their time of need. What are great industry we have. Then why do so many expert outsiders seem hell-bent on destroying it ?

  • Leighroy

    Let’s just remove the term “commission” and use a term like “product fee”, “markup” or “advice fee” and build that into the insurance product cost, just as all other everyday products have. The “markup” can be paid to the adviser, the cost of insurance will not change, and the anti-commission polit bureau can rejoice that they successfully wiped out commissions. At the end of the day, somebody has to be paid adequately to give proper advice, if good outcomes are to be achieved. Whether that is an external independent adviser or a salaried employee, the cost is going to be roughly the same, so no benefit to the consumer. At least with commission disclosure as it is now, the consumer knows how much is being paid to the adviser. If they are not happy with the commission amount they are free to approach a different adviser. Never have I had a client do that, so there is no evidence that consumers are concerned about the commission system, so why is there all the angst? Oh yeah, pollies justifying their jobs. Commission – a rose by any other name …….

  • GuyM

    Regarding the banning of commissions due to conflict of
    Surely, if they are serious about the issue the place to start is the banning of any payment (be it called placement fee, commission, kickback or any other name) to a super fund by the provider of any member insurance which is required by law?
    The decision about which group insurer to choose should be 100% based on the member’s best interests and any associated costs borne as an expense to the fund.
    That a fund is allowed to be paid for arranging mandated cover on behalf of members, especially when they subsequently offer no support or advice, is remarkable.
    Can’t wait for the RC to look into the industry funds. The banks aren’t the only ones with rotten fruit in the bowl…

  • Squeaky_1

    ASIC duplicity runs rampant again. Can you imagine what would happen to the real estate industry overnight if commissions were banned? Imagine a flat fee imposed on them. There would be screaming and rebellion and the clients would be the losers.

  • Gregmax

    I just had a look through the PJC “Life Insurance Industry” report that was released in March 2018. In particular Chapter 5, which deals with Remuneration, commissions, payments and fees.
    In particular point 5.98. “…. In this regard, the committee notes that while commission caps and clawback requirements will apply to upfront and hybrid structures, the cap on ongoing ( trailing ) commissions has been increased from 10 per cent to 20 per cent and there is no anticipated cut-off period for ongoing commissions. …… ”
    Why is Mr Shipton making the remarks he has??? Has he read the PJC report??