The Industry Super Network contends client opt-in measures will reduce advice fees for consumers. Do you agree?
Our latest poll question asks:
Advisers have questioned whether the implementation of Future of Financial Advice (FoFA) reforms will increase the number of Australians who will access advice from financial planners.
Our latest poll question asks:
The most contentious outcome from last week’s Future of Financial Advice reform announcement was the Government’s decision to ban risk commissions inside superannuation.
There are so many issues and questions associated with this move, such as whether most consumers will in future be able to afford superannuation risk advice. We will monitor and report on all these questions.
But today we are asking what impact, if any, will the banning of risk commissions in super have on how advisers will deal with insurance claims against those policies. Our question is:
Will you be forced to charge a fee to service your clients’ insurance claims for superannuation risk policies written after 1 July 2013?
Responding to the banning of risk commissions in super from 2013, one adviser has commented to riskinfo:
“I have paid claims to a number of average Australians over the past few years and not one of them complained about commissions rather the great assistance my office gave them and their families.”
But will this ‘great assistance’ only be possible in future if the super insurance client pays a fee in return for the support from the adviser and his/her staff?
In previous poll comments, advisers have said they will stand by their clients in their time of need regardless of whether they will have received commissions on their policies. Is this now still the case?
Will advisers write their clients’ insurance outside super because they will simply be unable to afford to serve their clients’ needs at claim time unless they are forced to charge a direct fee? Does this represent a new conflict of interest?
Will some advisers contemplate agreeing with the client to charge a small percentage of the claim amount as one way of overcoming the client needing to pay a fee out of their own pocket for the adviser’s time and effort? But what if the claim is rejected?
So many questions!
Tell us what you think. Tell us about the answers you can envisage for your own business. We ask that your comments focus on solutions!…
Recent industry speculation suggests the practice of churning life insurance policies is set to become a thing of the past. But what is the opinion of advisers on this issue?
Our latest riskinfo poll asks:
Will the introduction of ’Client Best Interest’ legislation have a significant impact on reducing churning?
‘Client Best Interest’ legislation will be part of the soon-to-be announced FoFA reforms, which will enshrine into law the requirement that the financial adviser act in the best interests of their client. (This part of FoFA was previously described as the ‘Fiduciary Duty’ reform proposal.)
The argument is that if the adviser will be required by statute to act in the best interests of their client, they will be breaking the law, post FoFA, if they ever churn a life contract (churning being the practice of moving life policies between insurers for the purpose of obtaining higher levels of remuneration without a sufficient reason to cancel the existing policy).
While the logic of this argument is sound, there already exists a contention that current Financial Services Reform provisions make churning extremely difficult to achieve due to the requirement that all product recommendations and reasons be included within Statements of Advice.
Yet it is widely acknowledged that churning still takes place in significant numbers, meaning current regulations have not had the desired effect on stamping out this practice.
If this is the case, will the introduction of ‘Client Best Interest’ rules under FoFA make that much of an impact on the minority of advisers who are tempted to practice churning?
We acknowledge that it is difficult to determine the exact level of churning that currently takes place, as there are differing views as to what actually constitutes churnig, combined with the fact that there are usually very sound reasons why advisers update their clients’ life policies, such as product enhancements and innovations or changed client circumstances that make different policies more appropriate.
What is your view? In a post FoFA advice environment, will the practice of churning continue? Who is responsible - the adviser, the dealer, the insurer or the regulator? Let us know what you think…
One of the issues stemming from last week’s announcement of the Female Excellence in Advice Award forms the basis for our latest riskinfo poll question, which asks:
Would the introduction of more female risk advisers have a meaningful positive impact on Australia’s underinsurance crisis?
This question relates to underinsurance and gender inequality in the financial services sector. While the Female Excellence in Advice Award is one that spans the full range of advice solutions, our poll is considering the impact of more female advisers on the life insurance sector.
In originally launching the Award, its Patron and former NSW Opposition Leader, Kerry Chikarovski, reflected on the lack of numbers of female advisers in the financial services industry, but observed that it was a fact of life that women prefer to speak with other women about their investment and insurance needs.
Speaking to riskinfo at the MLC Risk Specialist Network Risk Retreat, Adelaide-based adviser Sim Sinesi said she supports the notion that women do like dealing with other women, but suggested one reason the life insurance and broader financial services industry has historically not been attractive to women as a career relates to its remuneration structures. Ms Sinesi added, however, that as the industry evolves towards a more ‘professional’ model, the greater certainty or guarantee of income may have a positive impact on more women adopting a career in financial advice.
But irrespective of whether women prefer to speak with other women about their investment and insurance needs, the fact remains that female consumers are often not given a choice to deal with a female adviser, given the overall lack of numbers of female advisers in the industry today.
If this is the case, then surely an injection of more female financial advisers who include risk advice as part of their services would have a meaningful impact on underinsurance.
Is this a solid contention, or is it simply a good theory that won’t work in practice? Would new female advisers be confronted by the same issues facing existing male and female advisers when it comes to the fact that insurance is a solution that is sold and not bought?
Even so, would not the introduction of more financial advisers and more female financial advisers in particular, be a good thing for the life insurance industry in addressing the underinsurance dilemma, particularly amongst female consumers?
And why does there remain such a gender imbalance in the financial advice sector? Why, in 2011, does such a gap still exist between male and female adviser numbers?
Let us know what you think…
The recent announcement that Europe and the UK must switch to unisex insurance rates for all consumers is the catalyst for our latest riskinfo poll, where we ask:
While advisers have clearly indicated their concerns over a client opt-in structure under Future of Financial Advice reform proposals, they have voiced little to no objection over the proposed introduction of a statutory fiduciary duty requirement that advisers act in the best interests of their client.
Our latest poll questions asks:
The Future of Financial Advice reform proposals look set to dominate the issues agenda for the financial services industry in 2011. Debate will end and recommendations will become legislation.
We want to know about the issue that concerns you most. Of all the FoFA reform proposals and other industry issues, which is the one issue for you that will have the greatest impact on your advice practice? What are you losing sleep over?
We are asking:
Which single issue will have the greatest impact on your advice practice in 2011?
We have offered you a range of issues from which to select, but accept there may be others:
Banning investment and super commissions
While there remains philosophical opposition to banning commissions on investment and super advice, there appears to be an acceptance within the adviser community of its inevitability and of the need to adapt to new remuneration models for investment and super advice.
Transition to fee for service
While the notion of banning investment and super commissions comes with difficulty for a proportion of the adviser community, is it the banning of commissions or what it will take to transition to charging fees that keeps you awake at night?
Statutory fiduciary duty to client
For some advisers, the prospect of enshrining fiduciary duty to the client into law has little to no effect on them or their practice because this is the fundamental premise on which their advice practice is based. But for others, the notion of statutory fiduciary duty represents a potential minefield for future litigation where, despite the best and most genuine intent from the adviser’s point of view, a client may interpret advice and events differently.
Client opt-in for future advice
What will be the impact on your business if each client must consent to annual or regular renewal of your advice services in order for you to continue to receive remuneration from them?
Intra-fund advice
What will be the impact on advice practices if superannuation trustees are given the Government’s blessing to expand the scope of low-cost, simple, intra-fund limited advice they can provide their fund members? Would this be to the detriment of external financial advisers, or could this be an opportunity to increase business?
Prospect of banning risk commissions
Will the Government take the next step and ban ALL commissions, including risk? To what extent does this concern you? Would you be able to adapt? What proportion of advisers would leave the industry? Is this the single most important issue to you this year?
The economy
Commentators tell us the GFC is over. But is it? Look at Europe in the last 12 months: Portugal, Ireland, Greece, Spain and others. The US economy is showing few signs of sustained recovery and the Australian economy itself seems sluggish, but is still in better shape than most. Are your clients confident? Are they concerned? Will this have a greater impact on your practice than the proposed FoFA reforms?
As we said, we want you to tell us which is the one single issue that is causing you to lose sleep as you picture the year ahead. Tell us what you think…
Following the announcement that the United Kingdom is to introduce standard TPD definitions next year, we ask whether this could be the fore-runner of change in the Australian life insurance market.
In the ongoing debate over whether risk commissions should be banned, many advisers have suggested that if all commissions are made standard, this will eliminate or substantially remove any conflict of interest, real or perceived.
Do you agree with this view?
Our latest poll question asks:
Do you support standardising commissions for risk products?
While the question is simple, the issue, as usual, is complicated. For example, in considering whether commissions should be standardised:
In the comments we have received over the course of this year, advisers have consistently maintained that the playing field would be levelled for consumers if all policies paid exactly the same commission, thereby making the selection of product entirely on its merits and its relevance for the client.
On the other hand, there is a point of view held by many that supports the argument that in reality, a few points difference in commissions does not influence the adviser in any way when it comes to selecting the best, most appropriate product for their client.
But while this argument holds true across the industry, the broader issue also involves perception as well as reality.
Perhaps standardising commissions is the answer, or part of the answer, but this may not generate a lot of support from the product manufacturers, who strive to position their proposition to consumers and advisers in a way that differentiates their offering from their competitors.
An alternative solution previously proposed by advisers is that instead of standardising commissions, the industry should apply a maximum cap, which will apply to upfront, hybrid and ongoing commission options. This gives an opportunity for advisers to dial down in order to compete and/or to reflect the value of the advice being provided.
Some advisers have called on the Government to standardise commissions via regulation, while others have called on the industry to self regulate before it may be forced into action by FoFA reform legislation some time in 2011.
This poll is considering one solution, or one part of the solution, in relation to the future of risk commissions. What is your view? Register your vote and leave your comments, all of which will be forwarded to the Treasury as part of its industry consultation process on Future of Financial Advice reforms…
