ClearView has released new research which reveals that any additional changes to adviser remuneration will neither lift advice quality nor result in improved client outcomes.
Rather, according to the wealth firm’s white paper called Advice Culture and Remuneration: The Shameless Truth About Life Insurance Commissions, ClearView says its findings indicate additional changes to adviser remuneration will only:
- Drive up costs
- Cripple the advice industry
- Compound the Government’s social security liabilities
According to ClearView, the paper presents the case for life insurance commissions as an efficient, widely-accepted remuneration model, tracing its origins as a legitimate business risk management tool.
It cites the science of psychology to demonstrate that human beings are motivated ‘reasoners’ but their motivation is rarely simply financial. It says the three key determinants of human behaviour are:
- Tribal membership and alignment
- Identity
- A sense of belonging
Greg Martin, Chief Actuary and Risk Officer at ClearView, said it was unfortunate that much of the public discourse around the behaviour of financial advisers is disproportionately focused on remuneration and not the role of industry culture and norms:
…if a culture is sound, the remuneration structure shouldn’t matter much
“If a culture is unsound then a remuneration structure won’t fix it but if a culture is sound, the remuneration structure shouldn’t matter much,” said Martin, who added “It is critical that any reform agenda addresses the real problems and enacts real change to avoid unnecessarily increasing business costs, which means higher costs to consumers.”
ClearView says its paper seeks to disprove that commissions lead to poor client outcomes. It also seeks to identify the real cause of poor advice and to emphasise the benefits of variable remuneration structures.
According to ClearView proprietary research, the vast majority of advice practices depend on upfront commissions and only two percent of firms charge a flat fee for life insurance advice.
It found over 80 percent of advisers do not believe consumers will pay a fee for insurance advice, which it says indicates further reductions in commission caps will force them to focus only on affluent clients who are willing and able to pay a fee.
“Sensible public policy should encourage and facilitate the purchase of appropriate life insurance coverage by more Australian households,” said Martin, who concluded:
“…The current upfront commission structure is widely-accepted, economically rational and reflects what consumers actually want.”
Click here to access a full copy of ClearView’s white paper on Advice, Culture and Remuneration.
Thank you ClearView for conducting this exercise and preparing your paper. Just a few points;
1. ClearView’s paper “seeks to disprove that commissions lead to poor client outcomes”. The issue of course, is that this flatly contradicts the finding of ASIC’s “falswed” audit of 2014, which started this mess. Good luck in trying to convince ASIC they were wrong.
2. It is not that 80% of advisers do not belive that 80% of consumers will pay a fee for insurance advice – it is that we “know” they will not pay a fee AND an insurance premium. I really hope that Chris Unwin and Vicki Writer are reading this!
3. Lastly Greg, you say that “the current upfront commission model is widely accepted…” Are you referring to the upfront model that existed before LIF?
Summary – In a way, ClearView are on track. The problem is that their research should have been conducted some time ago, before this mess had been allowed to continue. It is evident that the insurers are finally recognising what advisers have been saying from day 1, and they can see a massive reduction in their incomes. The only way out of this mess – and yes, I have said it before – is that all of the insurers, the AFA, the dealer groups/ licensees, all need to go the governemtn collectively (as one) and put the case forward. Commissions need to be reinststed, this evil 2 clawback needs to be abolished and this (FASEA) need for a degree for existing advisers, needs to be abolished as well.
@ Concerned.
You are right on the money.
The trouble is this was always motivated by greed, self interest, and ignorance.
Greed by all those members of the FSC who wanted a bigger slice of the premium pie at the adviser expense. Ignorance by the members of FSC who thought they would thrive via the direct marketing channel and didn’t count on how that was being abused and highlighted by the RC.
Ignorance by those in government who refused to listen to those who actually work in the industry,being advisers, the bulk of which (99.9%), actually believe in putting the client first to protect their families and their assets.
Self interest groups, namely members of the FSC and ISA who believe that getting rid of advisers would remove any form of competition and leave consumers at their mercy, with a take or leave it option.
This is why we have the parlous state of an industry where if some of this stuff isn’t reversed will bring the industry to it’s knees, and as Clearview research has demonstrated will not be a benefit to anyone.
Agree we need everyone to unite as one BUT unfortunately alot of people / groups have just gone with the good old It’s going to happen approach) plus everyone is waiting for everyone else to make the first step and or lead the collective group
Mortgage Brokers were successful in getting the government AND opposition to disregard the Royal Commission’s recommendation to ban upfront and trail commissions because the public would have been worse off and winners would have been the big banks.
Mortgage Brokers succeeded because their two main associations worked TOGETHER and got the support of small banks and non-bank lenders both in terms of funding and resources.
Can the AFA and FPA PLEASE work together with the insurers to meet with the Treasurer Josh Frydenberg and the Financial services ministerial team to help/ get them to understand that the logic is identical when it comes to the Royal Commission’s recommendation to ban Personal Insurances commissions because in this instance the big winners will be the superannuation funds whose insurance cover is typically more expensive and provides less cover and the losers will be the consumer who is not willing or unable to pay a fee for service for good financial and risk advice.
Various insurers individually putting up with whitepapers to state why banning commissions is bad for the public, has limited effectiveness.
The FPA rolling over and saying “we support the Royal Commission’s recommendations” is counterproductive to the cause.
What is needed is a united effort led by the two main associations with the financial and resource support of insurers, to help the government understand the harm that banning insurance commissions will cause and why the Royal Commission’s recommendation recommendation to ban upfront and trail commissions is NOT in the public’s best interest!
The research paper has validated part of what advisers have been saying for years, though does not go far enough.
Life risk advisers will still be exiting the Industry in droves unless the FASEA requirements are altered so the ongoing education is specific to risk and experience is included.
I am refusing to have anything to do with the current FASEA fiasco as it is an incompetent organisation, with NIL knowledge, or care for the future of the industry, or of the well being of Australians, so I am refusing to be a party to their disgraceful actions.
There is NIL LOGIC where such an important part of the economy and well being for all Australians, is effectively going to be destroyed for NIL BENEFIT to Australia.
The white paper defends commission, though forgets that the current structure will not work and therefore, as stated above, droves of risk advisers will still exit the Industry unless the 2 year responsibility period, pushes some responsibility back onto the Life Insurers.
What we are DEMANDING, not asking, is that if a policy lapses through no fault of the adviser, then the responsibility period is 1 year.
This is a reasonable ask and allows adviser practices to have enough certainty to continue in Business, as clearly, the current position is not economically viable and creates too much risk for practice owners.
Change these 2 things and then the retail Life Insurance Industry can survive.
Continue to ignore us and watch the retail Life Industry die. It is as simple as that.
Not a bystander
I believe that Advisers and Financial Planners professional bodies that exist and FUNDED by their members should take a stand and make a lot of noise to protect the industry from its demise, but what is more important their members. Remember we are talking about huge number of people who run their business, have employees, have their Liabilities either business or personal ones. Finally they have families that will be under enormous financial and as the result psychological stress should all this to happen. Mortgage brokers collectively stood up to protect themselves when the same came to their shores turning seemingly then inevitable destruction of their industry away.
Mortgage Brokers were successful in getting the government AND opposition to disregard the Royal Commission’s recommendation to ban upfront and trail commissions because the public would have been worse off and winners would have been the big banks.
They succeeded because their two main associations worked TOGETHER and got the support of small banks and non-bank lenders both in terms of funding and resources.
Can the AFA and FPA PLEASE work together with the insurers to meet with the Treasurer Josh Frydenberg and the Financial services ministerial team to help them understand that the logic is identical when it comes to the Royal Commission’s recommendation to ban Personal Insurances commissions because in this instance the big winners will be the superannuation funds whose insurance cover is typically more expensive and provides less cover and the losers will be the consumer who is not willing or unable to pay a fee for service for good financial and risk advice.
Various insurers individually putting up with whitepapers to state why banning commissions is bad for the public, has limited effectiveness.
The FPA rolling over and saying “we support the Royal Commission’s recommendations” is counterproductive to the cause.
What is needed is a united effort led by the two main associations with the financial and resource support of insurers, to help the government understand the harm that banning insurance commissions will cause and why the Royal Commission’s recommendation recommendation to ban upfront and trail commissions is NOT in the public’s best interest!
ClearView is a grain of sand within the industry and the FSU membership. It’s the big players that run the game and ClearView ain’t one of them!
Personally, I’ve never found the 2 year write-back an issue, Jeremy – but that’s not to say it’s right!
IF we are duty bound to act in the best interest of our clients at all times – in theory, we are then forced to hand back [say] 60% of our earnings from 18 months ago – because we acted in our client’s best interest 18 months later – after ‘Life Office A’ suddenly jacked up their premium rates from 18 months earlier!
It’s very hard to justify rate rises over and above auto CPI and age increases OR 10% increases on a LEVEL premium policy you wrote 19 months ago in November 2017!
Yes, I know that we have the moratorium on lifting rates for policies issued after 31/12/2017 – but is anyone seriously going to tell me that if I write a new policy in July 2020 – the life office will not already have in place plans to put their rates up from 01/01/2021 or thereafter?
I trust life offices as far as I can throw my laptop after getting yet another rate rise email announcement!
Mortgage Brokers were successful in getting the government AND opposition to disregard the Royal Commission’s recommendation to ban upfront and trail commissions because the public would have been worse off and winners would have been the big banks.
Mortgage Brokers succeeded because their two main associations worked TOGETHER and got the support of small banks and non-bank lenders both in terms of funding and resources.
Can the AFA and FPA PLEASE work together with the insurers to meet with the Treasurer Josh Frydenberg and the Financial services ministerial team to help them/ get them to understand that the logic is identical when it comes to the Royal Commission’s recommendation to ban Personal Insurances commissions because in this instance the big winners will be the superannuation funds whose insurance cover is typically more expensive and provides less cover and the losers will be the consumer who is not willing or unable to pay a fee for service for good financial and risk advice.
Various insurers individually putting up with whitepapers to state why banning commissions is bad for the public, has limited effectiveness.
The FPA rolling over and saying “we support the Royal Commission’s recommendations” is counterproductive to the cause.
What is needed is a united effort led by the two main associations with the financial and resource support of insurers, to help the government understand the harm that banning insurance commissions will cause and why the Royal Commission’s recommendation recommendation to ban upfront and trail commissions is NOT in the public’s best interest!
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