riskinfo

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…

Renowned US business coach, Dan Sullivan, says all financial advisers must get used to a future without commissions.

Mr Sullivan advocates the need for all advisers, irrespective of the nature of their services, to charge a fee for the wisdom and advice they deliver to clients and that they should move away from commission-based remuneration.

Mr Sullivan says there is an inevitability that all commissions will eventually be banned, in what is a world-wide trend, and suggests advisers accept that an ‘old game’ is ending and a ‘new game’ is beginning.

Our latest poll question asks:

If all commissions were banned, would your practice be able to survive and prosper under a fee for advice structure?

In a brief, 7-minute message to Australian advisers, courtesy of Leading Minds Academy (click here), Mr Sullivan articulates the logic of his position and tells advisers that now is the time for them to consider their ‘Plan B’.

While Mr Sullivan encourages advisers to maximise the remaining opportunities associated with a commission-based remuneration structure, he says their Plan B should involve setting up their advice proposition in which clients remunerate the adviser for the wisdom, thoughts and advice they deliver, rather than for the commoditised product that is usually associated with that advice.

Within the life insurance sector, Mr Sullivan’s implied message is that insurance advice will be sufficiently valued by clients, who will be prepared to pay for that advice and adopt insurance products appropriate to their needs.

Do you agree?  Do you accept that banning all commissions, including risk commissions, is inevitable?  Could your advice practice operate and be profitable if all commissions are banned?  Let us know what you think…

What lessons should Australia’s life insurance industry learn from the devastating floods across Queensland, northern New South Wales and Victoria earlier this year?

Our latest poll question asks:

Has consumer perception of Australia’s life insurance industry been adversely impacted by fallout from the Queensland floods?

Another way we could have asked this question is whether you believe consumers separate the general insurance and life insurance industries when they think about ‘insurance’?

Immediately following the floods, the media and the Government highlighted the desperate plight of thousands of affected residents who mistakenly believed their insurance policies covered flood damage.  They also singled out those who did have flood insurance but whose policy definitions did not cover them, in some cases, for the type of flooding that had occurred.  The Government is currently addressing both these issues by creating simpler policy summaries and agitating for mandatory standard flood definitions.

Editorials and political cartoons in mainstream media depicted insurance companies - not general insurance companies, as lacking compassion and refusing to take care of their clients.  We want to know whether your own clients have changed their opinion or approach towards their life insurance policies and needs as a result of the negative insurance industry publicity generated by fallout from the floods.

We also want to know what lessons you believe the life insurance industry should be learning.  For example, should the life insurance industry commence a more serious debate about the prospect of standardising key life insurance definitions, especially within TPD and trauma insurance contracts?

But for this particular poll, our focus is mainly on perceptions.  Do consumers see life insurance as different from general insurance?  Has the life insurance industry ‘taken a hit’ because of wider general insurance issues arising from the January floods?  Let us know what you think…