The head of the Financial Services Council has struggled to clearly articulate the relationship between financial advisers and life insurers as well as the role of commissions in the purchase of life insurance products.
Appearing before the Banking Royal Commission on Friday last week, FSC Chief Executive, Sally Loane was questioned by Counsel Assisting the Commission, Rowena Orr QC about the purpose of $6 billion of life insurance commissions paid to advisers by 10 major insurers over the past five years.
Orr asked Loane, “What is the approximately $6 billion paid by the life insurance industry in commissions to financial advisers for?”, to which Loane replied, “I really couldn’t say with certainty. These are to do with commissions that are paid to advisers for essentially selling their products,”.
Orr continued, saying, “Well, the whole point of paying commissions to financial advisers is to influence the advice that they give, isn’t it?”, with Loane responding, “It would certainly mean that they are paying commissions for their products to be sold, yes”.
Loane was unable to provide an answer to the question of whether the cost of commissions was borne by consumers in the form of increased premiums but agreed with Orr that life insurers created a conflict of interest for advisers by providing benefits that influenced the advice they provided.
Loane was also questioned on whether the reduction in life insurance commissions initiated by the Life Insurance Framework should continue, and commissions phased out entirely.
“… life insurance is something that people have to be persuaded to buy. Therefore, people needed to be incentivised to sell it…”
“I think the reason that life insurance was carved out initially from FOFA went to that tenet that life insurance is something that people have to be persuaded to buy. Therefore, people needed to be incentivised to sell it. But certainly, we would like to see the effect of the legislation and the APRA review and make decisions then,” Loane said in response.
When asked about earlier testimony related to possible mis-selling of direct insurance over the phone, Loane said the tactics used were ‘incorrect’ and being addressed in the second iteration of the FSC’s Life Insurance Code of Practice.
She maintained, however, that direct life insurance was a ‘legitimate product’ and could be sold by outbound calls provided it was done without pressure tactics and cold-calls.
“I think our view is that it’s a legitimate product when done correctly. Life insurance, I think, as others have observed, is often a grudge sale and people have to be encouraged to take out life insurance,” Loane said.
“I think anything that helps people understand life insurance is a reasonable product and it’s sold directly to people, particularly online to consumers that may not sit down with an underwriter and go through that process, it can be beneficial,” she added.
“But clearly, where there are pressure selling tactics involved and inadequate cooling-off periods, then it’s not a good product. I think given some of the things that have been found and given the things that we’re now putting into our code, it – it still can be a reasonable and legitimate product,” Loane said.
The FSC agenda seems clear. ‘I really couldn’t say (why we pay commissions) with certainty’ & direct insurance is a ‘legitimate product’. Oh dear…
U can see where the FSC is heading. They plainly see us advisers as someone they can go without in the future. Having to pay all these comms and then have advisers assisting claimants when they don’t want to pay claims is burdensome and costly for the FSC companies. A much better method – for them is do away with advisers so they can reduce premiums and reduce hassles at time of claim because they can bully clients into withdrawing a claim and or delaying it indefinitely. “we’ll cripple u financially while we delay your claim” .
Also clients never fully disclose all health issues at time of application when they put covers in place by themselves .
Advisers stress to clients to disclose everything, by saying to clients that client and adviser don’t want hassles at time of claim so no omissions!. Non disclosure only wastes the clients money.
The FSC will then be able to have a fully integrated top down structure, product creator, product distributor, product retailer and claims department which will not doublet be regarded as a profit centre by CEOs.
So sad that our adviser organisations where not able to see all this coming over the last 12 years or so, which has lead to not representing us adviser well at all. . I see a mass exodus of older advisers commencing now. Price of books will decline!
Where is the voice defending advisers who have set up businesses at their own (significant) cost & risk to deliver useful & sometimes life changing advice for consumers? I think the conflict of interest is not our concern but one the FSC should consider
Ms Loane should hang her head in shame! To answer yes to the question “paying commissions to financial advisers is to influence the advice that they give, isn’t it?” is concerning to say the least. Why didn’t she state that advisers are bound by the best interest duty to act in the client’s best interests at all times? Not to mention that because of LIF commissions are now roughly the same anyway no matter the insurer! Then she throws her support behind direct insurers! Let’s not forget that the FSC through Trowbridge wanted the direct insurers to be excluded from the LIF! What on earth is going on? I almost feel like putting forward a no confidence motion in the FSC. Phil Kewin gets to the heart of the matter in his comments shared in another article in this edition of Risk Info. If he was able to present to the Commission, then there would be a glimmer of hope that the truth would be revealed.
So are we to understand that the CEO of the Financial Services Council does not
understand how a financial services company operates? That in an effort to
reduce costs and maintain premiums which are affordable that they seek to engage
with advisers to distribute their products and that the advisers need to do so while
upholding the best interests of the client. Hence the commission concept as
opposed to an internal sales force.
This constant maligning of our industry is nothing more than a disgrace and
demonstrative of incompetence of the highest order by folks such as this Chief
Executive Officer of the FSC.
“Orr asked Sloane, “What is the approximately $6 billion paid by the life insurance
industry in commissions to financial advisers for?”, to which Sloane replied, “I really couldn’t say with certainty.
These are to do with commissions that are paid to advisers for essentially
selling their products,”.
“Orr continued, saying, “Well, the whole point of paying commissions to financial
advisers is to influence the advice that they give, isn’t it?”, with Sloane
responding, “It would certainly mean that they are paying commissions for their
products to be sold, yes”
One would tend to conclude that Sally’s response gives credence to the thought that
consumers are paying unnecessary commissions to conflicted advisers. This is
not only an outrage and deceiving in construct but perhaps replied by this CEO
with a sense of deliberateness knowing that her words will perhaps convince
legislators to ban advisers from receiving any commission or at best receive a
flat rate of commission and charge fees to consumers.
The Financial Services Council has demonstrated via its membership that they really
don’t care about us as advisers and care even less for consumers despite their
marketing and their business development managers saying otherwise.
The incompetence shown in this response by the CEO of the FSC goes to the heart of
why we as advisers can no longer trust or have confidence in these institutions
that are members of such an organisation. It’s simply about profits, dubious
insurance contracts to be marketed to the unsuspecting and unwary consumer.
This would ensure the perfect outcome where premiums are paid, contracts are skewed against the consumer and advisers cut out of the equation from a commission
point of view permanently. Why even the definition of TPD, assists the FSC
members as they have also managed to buy and pay for in full those in both Labor
and Liberal party’s.
If consumers seek advice what hope would they have when they are confronted with a
bill of significance to simply undertake insurance for themselves. Will they be
able to afford it?
If you consider that Australia has the highest level of debt to household income
in the world and 13.3% of Aussies are living in poverty (ACOSS October 2016)
and with interest rates on the rise with falling house prices forecast, my
guess is probably not !
Perhaps this is the intention. The consumers will not be barred from obtaining advice,
rather the cost would be significant leaving them open to abuse and deceit from
the very members such as from those in the financial services Council.
Many institutions have been exposed by this Royal commission for blatant deception,
theft, despicable practices, from those running these organisations, which even
some legal commentators might be inclined to think is a criminal offence such
as obtaining financial advantage by deception rewarded with some time in jail.
Perhaps a jail sentence rather than a royal commission ought be the answer. Perhaps
such a jail sentence should rain down on the very executives and their minions
whose bonuses are based on deceit that are the real crooks in this saga. Funny the that they are running organisations that subscribe to the financial services Council.
As an advisor I am fed up with the incompetence in the leadership of professional
associations for not taking a hard-line stance against members of the FSC in what
can only be described as sheer egregious criminal behaviour by those that purport
to represent us as advisers and by those whose organisations are complicit in hurting
consumers and destroying the lives of not just consumers but us as advisers as
well.
It’s time to rethink our allegiance to these people and these organisations
Ms Loane. if they are your thoughts, it is time to go.
Which insurers are not with the FSC? I’m sick of supporting these businesses that clearly don’t support us!
Is the ridiculous reply really a stupid and uneducated reply or a stage to drive yet another nail into the advisers coffin
Dumb or extremely smart ?? either way it’s not doing our chances of retaining commissions in the future any good
AFA get in there and say something you will never get a better chance to sell our services and show the value of what we do everyday for our clients
This really is desperate! Yes, this has been going on now for 4 years ever since ASIC’s flawed audit, but now it really is beyond a joke. Phil Kewin, you are about the only one speaking out on behalf of advisers. Are you able to get into the Royal Commission and tell them the truth? Please! Before the entire retail life insurance industry implodes!
The FSC’s attitude to advisers is bad but in this context they are just adopting the same playbook all major corporates in front of the RC now take. Admit to everything and apologise for every misdeed above all NEVER DEFEND OR EXPLAIN even when the prosecutors implication “advisers are just salespeople for product” is patently wrong.
If Sally Loane had explained that the corporations act and ASIC oversight ensure advisers recomend product that meet the clients stated needs she would have been assailed by a question who’s real meaning would be “thats the wrong answer tell me advisers are bloodsucking salespeople or you and your organisation will be vivisected in public”. In another time it would be “are you, or have ever been a member of the comunist party” . The only diference in this scenario is there really are villans with black capes and curly moustaches threatening the honour of maidens but they are major institutions not non aligned advisors whom ASIC can and do put out of business. As the ex CEO of Dover ponted out in the rogues gallery of those before the RC he is the only one who has no customer complaints, no fees charged for no service, no charges of fraudulent or bad advice by his advisers, he just really pissed off ASIC and the major financial institutions as he refused to allow them to come and sell “educate” to his advisers and evem worse refused to take volume bonuses from vendors or a % of advisers commision as his job was to provide a service to ensure his advisers gave compliant advice.
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