riskinfo

As the Future of Financial Advice (FoFA) debate heats up with the PJC hearings in Sydney this week , we want to know where you stand today. Our latest poll question asks:

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As the industry looks forward to some well-earned down time at the end of an eventful and sometimes stressful financial services year, we are posing a question that we are sure you have been contemplating for quite some time:

What should become the collective name for a group of financial advisers?

We have assembled a number of choices, from which we are asking you to select your top five preferences. Most of these terms represent positive attributes associated with financial advice, while others are just plain silly, but we liked the idea and included them anyway. Your choices are:

1. A commission of advisers
2. A conference of advisers
3. A fact find of advisers
4. An intelligence of advisers
5. A lobby of advisers
6. An opinion of advisers
7. A platform of advisers
8. A portfolio of advisers
9. A promise of advisers
10. A Ripoll of advisers
11. A solution of advisers
12. A statement of advisers (SoA)
13. A trust of advisers
14. A wealth of advisers

So, as you reach for your fourth helping of that tasty finger food at your end of year function, while scrolling through the latest updates coming through on your hand held device, we suggest you take a brief moment to reflect on this very important question and cast your vote.

Maybe you have your own ideas and we will welcome your suggestions, if you would care to share them.

We will report back to you in our last news email for the year next week and let you know the most popular choices…

The delay of the Parliamentary vote on the Future of Financial Advice (FoFA) reform Bill until at least February 2012 is prompting a growing number of industry stakeholders to question whether there will be enough time for advisers to be ready for the intended commencement of the new reforms.

Our latest poll question asks:

Do you believe your advice practice will be ‘FoFA ready’ by 1 July 2012?

Numerous advisers have told riskinfo that, unlike many of their colleagues, they are not greatly concerned about the changes they will need to make to their business to adjust to some of the key FoFA reforms from 1 July 2012.

But for as many advisers who say they have no real concerns over both the proposed FoFA reforms and the timing of their implementation, there are an equal or greater nunber who tell us they cannot see how they will be able to efficiently operate under FoFA or how their business will cope with the changes from 1 July. At the moment, they are not ready.

Elsewhere, there is concern that has been expressed by life companies and dealer group licensees that there is still insufficient detail accompanying the release of the draft legislation to enable them to confidently commence the adjustments to their administration processes that will be required to accommodate the proposed FoFA reform measures, particularly opt-in.

This concern about lack of detail has already prompted calls to delay the introduction of the reforms, assuming the legislation is actually passed in February or March 2012.

But irrespective of whether you support or oppose the more contentious elements of FoFA, particularly opt-in and the future banning of all investment and super product commissions, do you think your practice will be ready to launch out of the FoFA gates by 1 July 2012?

We understand there would be few advisers, if any, who will claim to possess all the information they will need in order to forge ahead with the process and structural changes that may be required of their business. But given what you know at this point, do you think your practice will be FoFA ready by 1 July 2012?…

The debate on churning continues to evolve, but opinions are divided about the solution.

We are asking advisers to tell us what they think:

In addressing the issue of churning, which of the following initiatives would you support?

Based on previous comments to riskinfo from advisers, licensees and life company management, some of the solutions put forward include:

• Ban all commissions
• Ban all upfront/hybrid commissions but allow level commissions
• Ban upfront commissions on replacement policies only
• Offer ‘quality’ incentives to advisers for maintaining low lapse ratios
• Offer more attractive remuneration to advisers for upgrading existing policies
• Create an industry-wide black list for ’serial’ churners

In addition to this list, the Financial Services Council has announced its intention to:

• Remove takeover terms for all re-issued policies
• Institute a consistent adviser responsibility across all insurers

These suggested solutions all have their pros and cons. For example, banning all commissions or allowing only level commissions would mean an end to churning, but at what price? What impact would this ultimately have on consumers and the already imbalanced underinsurance equation? While each initiative would address the issue in one way, shape or form, we want to know about those initiatives you would actually support.

The vast majority of policies that are cancelled and re-issued are indeed in the best interests of the client. We are only asking this question in relation to those re-issued policies that are not in the client’s best interests, and will report the results to you next week…

The recent call for the Government to reconsider its position on banning risk commissions on group and default insurance policies is re-shaping the broader debate on banning risk commissions.

The argument is that the Government should not be making a distinction between individual and group risk, but should instead be distinguishing between advised and unadvised insurance.

So, our latest poll question asks:

Should the Government reconsider banning risk commissions along the lines of advised and unadvised insurance, rather than individual and group insurance?

The argument in favour of this question comes from CSSA President, Douglas Latto, who recently commented: “There is an assumption that all group insurance is unadvised. “In fact, a lot of group insurance is advised. The distinction that should be made is not between group insurance and personal insurance but between advised insurance and non-advised insurance; that is the more important distinction.”

If this position was adopted by the Government it would still mean that no commissions would be payable on group insurances placed for default and other group insurance schemes where no advice has been provided to the superannuation fund, but it would allow commissions to be paid to specialist advisers who have provided their advice services to the fund administrators and decision makers.

The view against this proposition is that risk commissions on group superannuation schemes reduce the accumulation value of member investments, leading to lower retirement incomes and that they are also considered to be an example of a conflicted remuneration structure the Government is seeking to abolish.

We are interested in your views on this question.  Let us know what you think…