riskinfo

Financial advisers have been highly critical of the move to consider banning risk insurance commissions, but the issue of conflict of interest remains.

Our latest poll question asks:

Do you believe payment of commissions on risk products represents a conflict of interest to the consumer, real or perceived?

Our poll is based around statements made by the Financial Services Minister, Chris Bowen, on the question of banning risk insurance commissions.

Mr Bowen’ statements were made as part of the announcement last week of the Government’s industry consultation process for its Future of Financial Advice reforms, which Mr Bowen has said will include discussion about whether to extend the ban on conflicted remuneration structures to risk insurance.

Our article last week on the Government’s industry consultation agenda sparked a passionate response from advisers who were highly critical of the prospect of banning commissions on risk products, many challenging Mr Bowen to spend more time with advisers, in order for him to better understand the nature of life insurance and how, in reality, it must be sold, not bought.

Mr Bowen told an industry audience last week he accepts that banning risk commissions may indeed have an adverse impact on underinsurance, but at the same time, his Government must address the issue of conflict of interest, real or perceived, from the point of view of the consumer.

So, while advisers have presented a good case about the potential damage that could be caused by banning commissions on risk products, has enough consideration been given to addressing the other side of the coin, namely the issue of conflict of interest?

The issue of conflict of interest in relation to adviser remuneration has been brought into focus mainly by well-documented collapses of financial services firms, which have wiped out the long-term savings of thousands of Australians, but where risk insurance commissions were not a factor.

The Government is now considering whether the banning of all commissions, including risk insurance commissions, will lead to the development of greater public confidence in the financial advice sector.  In relation to commission on risk products, Mr Bowen appears to be considering the trade-off between a blanket banning of all commissions and the greater public confidence that may be generated, against the potential worsening of the underinsurance dilemma.

One adviser last week did put forward his suggestions as to how to remove conflict of interest on risk commissions:

1. Remove APL restrictions and force all dealer groups to allow advisers access to all players in the market.

2. Ban commission overide payments to dealer groups based on volume. Maybe that will force some groups out or adviser splits up, who knows.

3. Place a longer responsibility period on the cover, only for re-writes to another company and not client cancellations.

What is your view about conflict of interest in relation to risk insurance commissions?  There is a solid argument about how banning risk commissions may worsen the underinsurance crisis, but what are your views on the other side of the coin?  As the Government consults with the industry on this question, this is a key moment to have your voice heard…

Will your advice practice be moving to fee for service?

Our latest poll is taking the pulse of advisers on whether they are considering a move to fee for service.

Our question is:

Will your advice practice commence transition to a fee for service remuneration model in the next twelve months?

The debate over commissions versus fee for service will not go away, and has seen new layers added over recent weeks:

• The FPA has backed the retention of commissions as a remuneration option for risk products
• Godfrey Pembroke and Hewison & Associates has each declared it will move to an exclusively fee for service advice model, including life insurance
• New business tools are emerging to assist advisers looking to move to fee for service models (see Fee for Service Business Tool)

While the AFA and many financial advisers continue to maintain their stance on the need for the industry to allow advisers and their clients the choice of remuneration models (accompanied by appropriate disclosure), there is growing impetus for a future financial advice industry that totally separates advice fees from products, especially across superannuation and investments.

We want to know whether your practice is looking at fee for service, at least for super and investment advice, and will be commencing this transition in the coming year.

While we await any developments that may emerge as the industry consults with regulators over adviser remuneration (as recommended by the Ripoll Inquiry), we want to know your intentions now.

Are you waiting for more developments or resolutions or legislation or are you commencing a move to fee-based advice before you may be forced to do so in future?  Or are you fed up with the debate and believe a commission-based practice, with full disclosure, will continue to ethically and efficiently serve your clients?

Tell us what you think.  Cast your vote and make your considered comments below.

Should advisers be required to charge a fee for their investment and superannuation advice, but still be able to access commissions on risk products?

Our latest riskinfo poll asks:

In future, do you support commissions being paid to advisers for life insurance products only?

Adviser and other industry opinion on the issue of commissions appears to fall into three main categories:

1. Retain commission as a remuneration option across all financial products
2. Retain commission for risk products only
3. Abolish all remuneration by commission

Based on adviser comments from previous polls and other industry feedback, there is a proportion of advisers who argue that remuneration on the sale of life insurance products should be considered as separate from the broader debate over payment for investment and other financial advice.

This point of view is supported by a number of life companies, by the Financial Planning Association (FPA), and by the Ripoll Inquiry itself, where Mr Ripoll has previously confirmed to riskinfo that life insurance products should be considered separately in this debate.

Many in favour of completely abolishing commissions argue that the financial advice sector has been tainted by issues, both real and perceived, as a result of commission payments, and that removing commissions entirely will allow the industry to move to a more ‘professional’ standing.

Meanwhile, the argument in support of retaining consumer choice is best expressed by the Association of Financial Advisers (AFA), which holds that the question of how advisers should be paid is for the adviser and his/her client to determine, as long as there is full disclosure.  The AFA has long argued this debate should be about the value and quality of advice and its price, rather than simply about how the price should be paid.

The outcome of this debate is yet to be determined, with the Ripoll Inquiry recommending that the financial services industry and its regulators collaborate on the issue of adviser remuneration.  This is why your opinion is more important than ever.

What is your view?  Should commission be retained for risk products only?  Should commission be abolished all together?  Or should commissions continue to be allowed as a remuneration option for all financial advice?

Have your say.  Add your comments.  Make your voice heard.

The Ripoll Inquiry recommendations  have been enthusiastically welcomed by industry representative bodies this week, but what are individual advisers saying about the future of their industry?

Our simple poll question is:

Do you support the eleven recommendations made by the Ripoll Inquiry?

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The collapse of Storm Financial and other financial advisory firms has raised the level of public debate about the quality of personal financial advice in Australia, and what consumers should expect from those who call themselves ’financial advisers’.

This debate relates to:

1. Educational qualifying standards for those aspiring to provide personal financial advice
2. Monitoring of the quality of advice being provided to consumers by those already qualified

The focus for our latest riskinfo poll is on point 1 above (we will come back to point 2 in future polls).

Our question is:

Do you believe that educational qualifying standards should be raised for those wishing to provide personal financial advice?

Some advisers may consider that education standards are sufficiently high at present and that the issues lie more with the monitoring of subsequent adviser behaviour, while other advisers may have a view that entry standards should be raised.

For those advisers who believe that higher qualifying standards should apply, how should that be achieved?

• Should there be an industry-wide ‘minimum hours’ requirement for course work prior to undertaking examinations?
• Should the ‘pass’ mark for the examinations be set at higher levels?
• Should a single examination set be developed by regulators?
• Should training companies such as RG146 Training Australia, Kaplan and Pinnacle join forces to implement an industry self-regulated code of practice?

…there will be a proportion of new entrants into the financial services sector who may choose the ‘path of least resistance’

There are a growing number of training providers emerging in the financial services sector who offer a spectrum of courses and qualifications, whose differing fee levels may reflect the quality of their output.  With human nature being what it is, especially in the present economic climate, there will be a proportion of new entrants into the financial services sector who may choose the ‘path of least resistance’, which may or may not be beneficial to the industry over the longer term.

RG146 Training Australia MD, Dr Mark Sinclair, holds a view that the key driver for graduates providing sound advice is the quality and integrity of the assessment methodology itself.

According to Dr Sinclair, the minimum assessment standards that should apply across the industry include:

• Strict examination conditions (no discussion/collusion)
• ‘Closed book’ examinations (current standard across the industry is ‘open book’)
• Independence of the examiner (eg not a related party such as a supervisor or lecturer)
• Quality of the ‘knowledge bank’ of multiple choice and short answer questions

But who should determine these and other standards?  The providers themselves, or the regulators?

Take a minute to place your vote and have your say…