Do you believe payment of commissions on risk products represents a conflict of interest to the consumer, real or perceived?
- No (86%)
- Sometimes (7%)
- Yes (6%)
- Not sure (0%)
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…
Add your comment now
56 Comments
It seems that after viewing “4 corners” on Monday night is is OK for the Res. Bank of Aust. to pay commissions, up to 10% to win business via it’s 50% ownership of another company. Maybe they are not in the financial services industry! as they do not believe they have done anything wrong, but the pollies tell us it’s a level playing field.
The more the discussions that occur on this topic the closer we get to some of the real deep seeded issues.
Are the Dealer Groups really relevant or like our 3 tiers of government, is one tier, One Tier Too Many?
They are there not to benefit the members, they are there to look after themselves always seeking bigger cuts of the pie from the Suppliers and then the Advisers are the tarnished ones.
Just food for thought.
If they want to remove conflict of interest with Risk Insurance, mandate that all companies must adopt a Hybrid or Level commission model and cap the amount of commission, this would remove advisors churning especially if it pays a Level commission, this will effect cash flow in the short term but increase business values in the long term. Maybe then the perceived lack of confidence from consumers may change ( I don’t think there is one when it comes to Insurance)
I really do not believe that commission on risk insurance is a bad thing. A client would be very adverse to pay for insurance advice, historically it has been deemed to be “free advice” to them. By paying a commission we are carrying out a dual process, firstly transferring payment for the advice across to the insurance company,therefore ensuring the adviser gets remunerated, secondly we are addressing the under-insurance problem we currently have in Australia.
I would like to see comments from actual advisers and not from salaried politicians (who lets face it act under completely different rules than we do, especially regarding superannuation) do-gooders who have NEVER ran a business and therefore do not understand that nothing is for free…
Commission has been disclosed to clients for many years and not once has any client raised the issue of possible conflivt of interest with me. Charging a fee to the client is not going to improve anything around this issue, In fact, there will be less advisers to work in the “mum and dad” market, which is where the advice is lacking most at the moment. If there is a perceived conflict, the easiest way is to legislate a cost built in to each product to allow for standard commission across the board, for both salaried and commission earning advisers. Then let price and quality dictate as it does in any marketplace.
Fiduciary requirements should address any possible conflicts. Will consumers be prepared to pay a fee in addition to premium? What if their application is declined? The current system is not causing any problems for consumers and they can cancel their policy at any time. Leave the system alone!
I always explain up front that we (the adviser company)are generally paid up front, the equivalent (and sometimes more)of one year’s premium, whichever life company we use.
They don’t have frontline salesmen, so this is the way they do business, through advisers.
At the same time this allows us to reduce our fees for the advice we give to clients.
I usually get nods of approval, or oh, ok then, that makes sense, etc.
I’ve never had a complaint, and I actually believe it makes sense!
Acceptance of another insurer’s terms for the purposes of replacing cover ( take-over terms) must be banned as this practice must have an adverse bearing on costs. Urgent attention must be given by all insurers to increase the retention of in-force business and this would be best served by ceasing up-front commissions.
If commissions are so evil why not ban them on loans, share sales, property, general insurance, hotels, flights etc etc. Commissions for some of these services don’t even need to be disclosed and there are always incentives to use one product over another. Whilst I believe our industry continues to need some cleaning up, banning life insurance commissions is going too far.
The following can be applied to any banned commissions: Product providers will find another way under the law to make payments to dealer Groups and/or advisers anyway. There may not be an agreement about volumes etc, but those that place the most will get the most.
Consider this - All the life industry has to do is encourage advisers to charge a fee equal to current commission rates and invoice the client. The products have a feature offering to pay advice costs. As part of the application, the client signs a form authorising the life company to pay the adviser on their behalf. Invoice is attached to application and payment made to dealer group on acceptance.
Honestly, those in government who make the laws often don’t understand the industry they’re making them for, which leaves the way open for those a bit more clever to find the loopholes.
AT THE TIME OF MY VOTE, 82% OF ADVISERS SAY THAT NO CONFLICT AT ALL EXISTS, 10% SOMETIMES & 8% YES. IS THIS 8% THE REASON WHY THIS ARGUEMENT EVEN EXISTS. ONCE AGAIN, IS IT THE SMALL PERCENTAGE OF PEOPLE WHO SEEM TO YELL THE LOUDEST, SAYING THAT THERE IS A CONFLICT OF INTEREST, THAT THE GOV’T LISTENS TO. I WONDER HOW MANY PRACTICES WILL STILL BE IN BUSINESS IN A FEW YEARS TIME. YOU WANT UNDERINSURANCE, ROLL OUT THIS MODEL OF PAYMENT & SEE WHAT HAPPENS. I FOR ONE WILL BE OUT OF THE INDUSTRY- MY CLIENTS JUST WILL NOT PAY OR CANNOT AFFORD AN UPFRONT FEE AND A PREMIUM COST.
If commission on all products across all companies was at a standard percentage then the agent would be providing all products on their merits and not have the drama of making financial rewards a point of justification. There should be no such term as soft dollar benefits as the Dealer group is paid to provide these items in their fee.
We have to provide the client with a Statement of Advice which tells the client who the insurer is, how much the commission is and who it is paid to so whats the problem? We aslo offer a fee arrangement based on a time sheet and charge out rate - guess what not one cleint in the last 8 years has chosen this method.
Michael, some times I find a client who has a totally inadequate policy with one insurer and more appropriate and cost effective cover is available eleswhere what would you have me do?
It is time the politician’s got of their bums and joined the real world, perhaps we should invite them to spend a few days with us, I acctually invited Mr Sherry to do just this but he declined!
There is nothing wrong with commission so long as the cleitn is fully informed.
Hmmm absoulte idiots who support banning of commissions. We will have mass underinsurance and laqck of financial advice for many mums and dads who will be put off high up front fees…
How about we ban commissions in the real estate industry?
I would like to understand what is meant by conflict of interest because it seems to me that the payment of commissions doesn’t cause a conflict of interest, it is the way they are paid that can cause a conflict of interest and in my humble opinion 3 things would eliminate this problem;
1. Legislate standard commissions which all insurers have to build into their policies. This will eliminate advisers recommending one insurer over another because of a higher commission rather than the benefits of their policies.
2. Only allow level commissions. This will eliminate an adviser moving a client from one insurer to another only to obtain 1st year commissions again instead of moving them only because it is in the clients best interests. If I am earning level commission I have no personal interest which insurer the client is with as I will earn the same.
3. Ban overrides/volume bonuses etc which will eliminate any other financial motivation to write more with one insurer over another.
I know some of these suggestions will seem unpalatable to some advisers particularly those (me included) who will struggle to move from upfront commissions to level, however isn’t it better to be proactive rather than rolling over and letting the government dictate our destiny for us?
Independent advisers on commission are working for the client not the insurance company they recommend. Advisors on a salary working for a bank or super company have the real conflict of interest. Government regulation fixed the conflict of interest issue on insurance from independent advisers 10 years ago.
It is not broken and if the minister wants a political scalp hold the banks to the same standards on basis of advice the independent advisers have met for 10 years.
If you want to eliminate all conflict of interest on risk commission, then have one menu of risks covered for all companies, and provide the same premium from every company and all paying the same commission.
Now the companies will be selected by the adviser on the real service the company provides, not the deals they are prepared to do to get the business.
That should wake a few of the companies up out of their complacency!
Look all of the independent advisers like myself know there is absolutely no conflict of interest with being remunerated by commission. Let’s stop this silly argument about how we are remunerated, whether it is a disclosed fee or disclosed commission is not the issue, it’s the quality and appropriateness of the advice! But I would like to ask this, if the insurance companies are banned from paying commission, how are we to be remunerated? The only practical way is by disclosed commission OR the clients chooses to accept a negotiated fee/commission combination. But I wouldn’t trust anything that this government is likely to do.
Why are advisers getting all the heat? The product manufacturers designed the commission system and laud the minority who churn business. Advisers who place clients’ interest first and retain business (using level premiums etc) are largely ignored. Does the government know these facts, or do they just ignore them because they prefer cheap jibes at the politically weak. Have you heard the leaders of our 2 main associations provide any public support for the bulk of advisers who they know do a great job? I haven’t.
If insurers are forced to ditch upfront comm. and pay only hybrid or level at common rates, maybe the product differences would be clearer. Banning risk commissions and increased regulation will only create problems & costs for good advisers and clients. It will never change selfish people’s preference to serve their interests ahead of the clients. Just look at what disasters occurred after FSRA was introduced.
Disclosure is great and has never caused an issue with any client. So far, all have preferred to pay a premium that includes comm. instead of having to write a cheque for my advice which has been based on an hourly rate for many years (for both risk & investment work). They prefer having “24/7″ access without needing to consider if I will invoice them for each query. Be aware, the banning of comm. on investments (and insurance will be no different) plays directly into the hands of banks and institutions who will keep most of what they previously paid to an adviser whether the bank or insto. does any work for it or not. Why is it bad when an adviser receives a % based fee, but it’s alright for the fundies to get management fees that are % based. Same with lawyers who charge % based success fees. Must be something to do with political power. Advisers clearly have too little.
I have more than 20 years as a Lifewriter. In all that time I have met just 4 “Churners”. Level commissions would have stopped them doing that except on policy merit. I sell to the clients’ needs and as a Broker I am legally accountable to the client. Conflict of interest applies to tied agents. Bowen needs to look at the cost to the Taxpayer , through Medicare. TAC. Centrelink, the Courts of under-insurance. That’s where the focus should be, not fiddling with the edges of marketting/selling structures.
Mr Bowen how is it possible that you can make such a bold statement that can effect so many lives with out considering the outcomes first. The current government can’t manage their own bank balance nor can the US, or for that matter any government in the world. The economic downturn is a fact of life and will continue to occur as time goes by. It is the nature of the beast to complain when clients lose money however i don’t know any clients with risk insurance products complaining. DON’T TRY AND FIX IT IF IT’S NOT BROKEN.
I really struggle with this issue of conflict of interest,when I am being lectured to by politicians, industry fund and union reps.Credibility in any arguement is essential.If you are not careful the industry will be left in tatters and may not recover.Let the dust settle,see what the effect of ffs is and if required review the system at a later date.
The issue with commissions will always be that some clients subsidise others. Low premium paying clients will almost always be subsidised by high premium paying clients for the work that is done by a planner in setting up risk insurance policies. Financial Plannners seem to accept this as logical and fair. Until we get to a fee for service model on insurance, however, it will never actually be fair on the client that pays the higher premiums.
It’s not a conflict of interest issue for advisers, it’a all to do with Dealer Groups and their Volume Bonuses and Banks aligned with one life office. Fee for service will only work for insurance when the adviser can access true wholesale products.
Must have been Bowen + the Industry funds that voted Yes! Listen to the majority for goodness sake. Do you believe payment of commissions on risk products represents a conflict of interest to the consumer, real or perceived?
No (86%) Sometimes (8%) Yes (6%) Not sure (0%)
Re-introduce the Twisting Agreement that existed before the Fair Trading Act came into being, to stop some advisers continually re-writing cases to generate new upfront commission. That incentive is the only conflict of interest that I see that exists on risk insurance. With so many products being auto-upgraded, there is not often a genuine case to re-write a client every few years.
I agree that APL restrictions should be lifted and volume bonuses to dealer groups stopped. Where is the real conflict of interest!
Conflict of interest.
We run our own AFSL and do not receive any inducements from a life office nor a fund manager to promote their products .It works well, as all the insurers pay virtually the same commission, so it depends on their price, quality of product,on going assistance regarding such matters as increasing the cover,etc, experience of their underwriting team and how good they are in handling claims.
Regards,
KW.
What a stupid argument this fatuous government is pursuing in the name of protecting the public. Of more regimentation for our already over regimented industry.
I don’t see long queues of an eager public lining up outside insurance companies waiting for the doors to open so that they can insure themselves.
Life insurance is seldom purchased, it is sold !
Why is there such a shortfall of cover in Australia today?
Possibly because people are ignorant of their vulnerability and prefer, in their wild charge for “we want it now” materialism, to ignore the burning question of what really happens if “anything happens to me”?”
With claims paid across the broad spectrum of insurance products, to families and business, not one client has been aware of the cost of not insuring until I presented the facts and persevered against their initial reticence to act responsibly.
If I were to charge a realistic (?) fee for service I have no doubt that this would have a completely negative effect on the decision making process which is currently based on the premium to be paid.
My time is extremely valuable as are the result of many years in a business which is valued on a multiple of trail commission.
Why would you trust this government with anything? Leave risk insurance commissions alone as the system works and the public accept it.
The more I consider the issues associated, the more the realization that this is about the politics of power rather than some “percieved” consumer betterment.
Think the relationship between our current ,one term government and the unions/industry funds, the labor market controls and the big employer banks, and the willful lack of understanding of freedom of choice and enterprise represented by Mr Bowen.
Any thoughts we have of being called in for “Consultation” is pure dreamtime.
It does not make happy thoughts!!
By all means lets have a common level of procurement fee availiable from all supplliers, extend the responsibility period with some relief for consumer confirmed early cancellations, move away from up-front to hibred/level procurements and have signed and agreed Adviser/supplier service standards in order to qualify for service fee entitlements.
In Risk insurance there is no such thing as conflict of interest. You sell what is best for the client because if you don’t someone else will. If you ban commissions this will lead to a conflict of interest as it will cause less competition between the providers as there will be less advisers to sell these policies and in the long run you will be left with the Banks who will only be selling their products. Talk about conflict of interest then.
I also viewed the Four Corners episode the other night regarding the RBA & their conduct,paying Commissions to win business who do they think they are kidding. Westpoint, Aust Capital Reserve, Storm Financial,Opus Prime. None of these failures had anything to do with Risk Insurance. So does this mean that the Government will wipe out commissions in every other Industry that operates in this country ie: Real Estate agents, Sales Reps. I doubt it. There is a huge problem of Under Insurance in this country & the Government will only add to the problem if they continue on this path.
If the Financial Services Authority in the UK could not find a way to introduce another nanny state type law then I have my doubts that these guys can do it. If they do and they destroy financial services sector employment then they will have fulfilled their destiny of less jobs and higher taxes to pay for the expanding centrelink queues.
I do not think that there is a conflict of interest with commission when paid for the placement of the appropiate life protection when it is put in place, I think the problem is the subsequent churning that some advisors resort to boost their annual income by replacing exsisting protection under the guise that I have found a better deal for you which is offensive and gives those who receive the payment of such a commission a bad name. If we are able to overcome that then who really cares, as the client is fully covered in the period that the commission is paid and the insurer will pay out the agreed benefit no matter how much commission is paid on the product.
I agree with comments made by all of my colleagues who are in an uproar over this rediclous notion that commission on insurance is an issue. Practically nobody thinks its a problem except for a handful of people who write articles for newspapers and are looking for a headline or a very small number of advisors who only deal with high net worth individuals. It is really disappointing that the great stories about what we as risk advisors do to help our clients is not being told or considered, recently I heard the industry pays out $10m per working day, that is the story which needs told along with testimonials from our clients. I have at least 5 I could call in the next hour who would agree to provide such as they know as well as I do that without my company’s help they would have been financially ruined.
It all comes down to the “working Australian family” being able to receive Quality Advice. Removal of commissions on Risk products will go a long way to ensuring longer Centrelink lines & additional strain on an already “unhealthy” health system. My concern is that many clients I have helped over the years with managing their claims, would never have had the opportunity to be in front of me or any quality adviser due to the perceived “upfront fee” they would have to pay. What are they actually paying for? Advice? Until an Adviser sits down in front of working families, they generally don’t understand what Advice actually is, so why would they pay for something they know very very little about. No commissions = no advice = underinsured = social & economic turmoil. Tragedy strikes everyday, insurance is the only thing which financially assists these families and give them a chance at a future!!!
I deal with minimum 20 referrals per week - general public making enquiries for this personal insurance - Clients don’t mind seeing us being paid commissions - as they feel comfortable they are recieving advice and service and we need to now more than ever with the banks recommending their own products and nil advice products flooding the media. This dopesn’t address the underinsurance problem - people are just underinsuring themselves!
Clients now churn themselves on the internet!! they realise insurance companies change and enhance features naturally to compete in the market place.
‘There is absoluteley no way these clients will pay a large upfront fee to receive a recommended quote (which is basically all it is).
It’s simple - give the client the option - you can’t get fairer than that! I know cause I’m asking the question.
While ever we’re not paid directly by the client, I don’t see how we can escape the criticism that a conflict of interest exists. Most people understand that you work for whoever pays you. While we do provide valuable advice, the bottom line is that in the area of risk advice, the industry is structured to reward a product sale, not to reward the advice provided.
Unless we charge a fee for our advice, no sale means no payment. So if the best advice given the clients individual circumstances is for the client not to be placed with the range of products on an advisers approved product list, the adviser’s need to generate an income for the time spent advising the client conflicts with the clients interest in not being sold a product that may not be appropriate.
In my opinion this is an obvious conflict that can only be defended emotionally, not rationally. I’m sure we all want to do the right thing by clients and give them the very best advice and protection that we can. But I don’t see how we can gain public respect by denying that commissions produce a structural conflict of interest in the provision of risk advice, when they clearly do.
It doesn’t mean that advisers are swayed by that conflict, but it does mean that a conflict of interests exists, and that this conflict needs to be navigated by every trusted adviser, every time.
The removal of commissions on risk insurance would be the death of the Life Insurance industry. Life insurance is sold and clients will not pay fees for being sold something, therefore the underinsurance problem in Australia would get infinitely worse.
Commissions are not evil. The people who receive commissions are not evil.
But thanks to Industry Super Funds, the public has been given the perception that advisor commissions automatically mean poorer retirement outcomes.
How many ads from the dark side of the industry (that being the part of the industry that pays commissions to advisors) have you seen on TV refuting this point? - NONE
So through a very loud and persistent campaign the voting public believes commissions are evil. Product manufacturers have done nothing to change this.
Does it really matter now what we in the industry think?
The public believe commissions paid to advisors are evil and the labor politicians will now use that to win votes. Treasury and ASIC have already made their intentions known. If the risk insurance manufacturers don’t amend their remuneration structures it will be legislated - (unless of course the Federal government looses at the next election).
Volume based bias must stop. Nearly all of the insurers offer some form of override based on volume.
The industry must agree on a standard commission model, the commissions paid must not be any different, regardless of the volume written or with whom the business is placed.
Research must be independently owned. Research that in any way places a bias on the rating based on price or commission must banned. Quotation software will tell you the price, the research should tell you about the product’s technical specification. The c omission paid should not come into the picture, your bookkeeper should be the only one who is worried about the commissions.
On the flip side if override stops then dealer fees will rise. In turn our costs will rise and our income will fall.
I’m not happy about this but I’m not going to stick my head in the sand either.
Remember also that the public servants and politicians who are driving these changes are all in defined benefit super schemes. They don’t know nor do they need to care what difference an advisor makes because for them at least, nothing any of us could do would improve the benefit structure they currently enjoy.
I truly believe it crucial for risk commissions to continue for the benefit of the client. There are many clients for whom the only way of possibly affording advice on insurance is to have that advice fee paid by the life company. Whilst I can see a small minority of advisers choosing one company over another for a bit more commissiion, this could easily be rectified by standardizing the commissions paid by all insurance companies. Conflict problem solved - consumers win as commissions still paid so the adviser is there for the client when they need advice, especially at claim time.
What is so wrong with “commissions” being paid for great advice-we are problem solvers,we provide peace of mind and should be damn proud of it why should we have to charge a fee to satisfy the undemocratic processes being forced upon us!The populace need insurance badly,charge them a fee and they will defer this time and time again!Who is protecting who-not the Government thats for sure it is us the Risk adviser/Financial Planners who meet face to face with our clients commissions are fully disclosed they are aware-it is not an additional impost why do so now?
So if an adviser could charge say a flat fee lets say as an example they charge $2000 for the provision of risk advice and implementation whilst at the same time the client gets max discount on ins premium and no commission is paid. OR the adviser doesn’t discount the ins premium (and doesnt advise the client that they could even get a discount if a flat fee was charged) and as a result the adviser collects say $10,000 in commission or perhaps places the business with another insurer who pays even higher commission, how on earth could there be no conflict of interest.
I am a lifewriter and also work for a trustee company so already have a fiduciary duty to my clients. I also take commission on cover effected for clients. As part of my FSG delivery, I explain how insurance companies & commission works and the initial and trail amounts applicable. I also inform clients that they can elect to pay a fee instead. I reiterate this in my SOA. In the last five years, I have written $4 million in retail premiums and guess what? Not one client elected to pay a fee instead of commission!! I believe clients should be offered the choice of how they want to remunerate me (not the Government, representative bodies or insurers who lobby the Government) and with this approach, I believe that I have no conflict of interest.
I cannot understand why people think there is a conflict of interest with insurance products. Whether you are attached to an independent licensee or one owned owned by a product supplier, they all allow the adviser to choose from a range of insurance products. It is then up to the adviser to research which product will do the best job for the client’s occupation and then present it to the client via an SOA.
Regarding being paid a commission for this, once again I cannot understand why there is such condemnation on the adviser receiving a commission. It is factored into the premium and is a way of being paid for doing the research, providing an SOA and ensuring the client is covered against any losses caused by death, trauma, TPD or loss of income. The next time someone rings your office enquiring about personal insurance protection, tell them you are going to charge a minimum $1,000 to do the research and recommend a product that best suits them so they can make an informed decision as to whether to go ahead or not. See how you go and good luck!
If the government can guarantee that getting rid of commissions will decrease the cost to the end user proportionately, then there would be some sense in them banning commissions. the truth, however, is that the cost to the consumer will increase AND the chronic underinsurance problem in Australia will escalate to new levels. I’m sure no client will want to pay fee for advice for buying insurance - it is hard enough getting them to see value in getting advice on complex financial issues that they have no understanding of. It is amazing to me that clients will pay $1,000 to a plumber for a one off visit but shudder at the thought of paying $2,500 to sort out a retirement plan which will last their whole life. The government is just adding fuel to the fire by its irresponsible and tunnel visioned approach.
Maybe the Life companies need to start supporting the advisers being paid commissions in this debate or they will need to employ alot more admin. staff!. Because if we end up having to charge a fee to provide life insurance services and not be renumerated by renewal commissions, it will be the Life Offices who will end up having to do all the admin. work we currently undertake on behalf of them !
why dont we stop paying commisions to ALL levels of government and have them send an invoice for services rendered
Re level comm. Instos love the idea because it allows old but highly profitable, non competitive products to stay on the books.
Imagine the adviser with a $4000 pa life premium (earning $1000 renewal). They find the same product with another insurer for $3200 (renewal $800).
Are they going to devote the 10 or so hours required to educate the client, prep SoAs and other req docs, complete the app and get it through underwriting if their net position is a $200 pa loss? No way!
Another thing. Stop parroting the propaganda that says we get paid “servicing” commission. It has nothing to do with the levels of service you give or are going to give in the future.
The adviser is being paid a portion of each premium for one reason. To see that the client maintains the policy.
Have doubts? Years ago I spent a lot of time with a client going through tough times, trying to figure out how to maintain his cover. Lots of service. He lapsed the cover.
If we were being paid “servicing” commission the company would have paid me lots for all the hours I put in. Instead the payments stopped.
On the other hand, we all have clients who, for whatever reason, receive little or no attention (until they have a claim). We get paid if they pay their premium. It is renewal commission.
The question is - why is it wrong for a business to pay people (in whatever form) to help them retain clients?
Remember that once the client pays the agreed premium, the money becomes income to the institution and they should have the right to do with that income as they see fit, be it on paying staff or dividends to shareholders, advertising, promotions or sponsoring the Melbourne Storm.
Every business devotes time and energy into getting and retaining profitable business. If it wasn’t efficient and profitable the system would have been dismantled long ago.
Last thought.
Are we advisers who are paid to theorise about how a client should best structure their insurance portfolios or are we practitioners whose job is to get an outcome?
For the last year or so I’ve been asking my new business clients 3 questions about what they believe I am actually doing for them and why they have used my services. Invariably, when all the fluff is removed, the response is that I get them insured effectively.
When I then ask what use they would have for my wonderful advice and 30 year’s experience if the insurer ultimately declined their cover, the answer is invariably along the lines of “none”.
My final question is whether they’d pay me enough to support me and my 5 staff under a fee for service model if we’d done all this work and they were ultimately declined cover.
Without exception the answer was, “no, why should I? You didn’t get me insured”.
Insurance fee for service will never work. It will simply kill off a great industry that has a history of doing wonderful things to help people when they need it most.
If the client is not prepared to pay an hourly rate to get a diffcult case through underwriting then how is the adviser paid.
There are plenty of other professional careers that exist on commissions,often with less transparency,
Tell me one thing this labour government has achieved, apart from upsetting the overall community, since coming to office. It is very clear its days are numbered following the creation of one failure after another. It does not understand the financial services industry and shows little inclination to learn, other than listen to industry and institutional no hopers. What we are now seeing is the total destruction of all the work done in the lead up to FSR. The majority of us who conform to time consuming mandates of current legislation and have had nothing to do with Storm, Westpoint and all the rest are being placed in an invidious and disadvantaged position. Costs to operate will sustantially increase in order to survive with the likely end of forced liquidation of businesses which have served the population for many decades longer than these polititians have been around. Another Rudd Government failure is on the way folks.
I have been in the Life Insurance Industry for over 31 years, advising for just over 9 of them. I simply can’t understand what the Government would achieve by banning risk insurance commissions. Here are a few facts:
1) Commission is a cost of distributing a product. Insurance companies have for years resented the amount of commission advisers receive, however it simply the most cost efficient method of distributing the product.
2) In today’s times the majority of advisers have their clients interest at heart when recommending products, both in relation to recommending the most appropriate level of cover and a value for money product.
3) The general public simply won’t pay a fee for advice on insurance. They expect all costs to be absorbed into the premium.
4) If customers won’t pay a fee they will use one of the direct marketing insurance companies that we see advertised on daytime TV to organise their insurances. They will get no advice in relation to the level of cover and could well get the product that the person at the end of the phone sells, not the most cost effective product. I have done some comparisons with those policies and have noticed that while the benefits on them are comparable to the products we recommend the premium can be up to twice the rate of comparable policies that I would recommend.
So by banning commissions, the Government will efectively:
- Kill the advice business for Life Insurance.
- Contribute to the chronic under insurance of the Australian public.
- For people who then go the effort of arranging their own insurance will probably receive a inappropriate product in relationt o value for money and amounts of type and levels of cover.
I know that Life Insurance is caught up in the financial services industry and we need to restore faith in the industry due to our recent disasters, but no good at all will come from banning commission on risk products.
Our staff / management are on wages and commission levels are not a consideration when placing business. We concentrate on providing the client with the product that suits their needs. Writing new business is only a small part of the client relationship-what about the claims service we provide plus all the admin matters we attenmd to such as change of address / banks / reviews/ change of beneficiaries. If fee for service applied we could charge for every minute we spend looking after a client’s interest. We would be better off but the client would be disadvantaged.
As an industry what has been achieved over the last 16 or so years? The industry is much more professional but no amount of legislation will stop the crooks from fleecing the public.
Like most industries today, Advisers have to have suitable qualifications to operate but what qualifications do you need to be a politician? Judging by the performance of most politicians, Government should focus on their own skills before harassing industries such as ours. If they were just a bit smarter they would make a point of understanding how the industry works and would then realize the harassment is unwarranted.
Although not directly linked to insurance commission (not yet anyway), please ask Mr Bowen & Co. if they would be happy to apply the same opt in / opt out option to members of their beloved trade unions. I know that his answer will be ‘that’s different because membership of unions is completely voluntary and no individual is pressured to join - regardless of the industry’. Even if him and the tooth fairy believed that, couldn’t the same freedom be afforded to members of super funds, investment products and insurance etc? No one should be forced to be in a particular fund - this was supposed to be law. Nobody, at the start of one particular year, knows what may happen to them in the year ahead. They may change jobs, lose their job, die, get sick or simply move house or change bank accounts. If they had ‘opted out’ to save a few bucks, do we tell them to go jump when they need help? So, back to the union example, are the unions happy to just accept someones dues when they need help or would that model cause the dimise of such bodies? Same could apply to the likes of the FPA.
change commission to management fee. Simple
Not sure if this as already been discussed? But why don’t all Life Companies pay the same commission rate? i.e 100% Upfront, 70% Hybrid and 35% Level? This takes commision out of the equation when recommending a product? And maybe limit the commision type when replacing business?? I.e replacement business must be writen Hybrid or Level rates?
Just a thought??