In future, do you support commissions being paid to advisers for life insurance products only?
- Yes: Life products only (47%)
- No: Allow for all products (45%)
- No: Abolish all commissions (6%)
- Not sure (1%)
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:
- Retain commission as a remuneration option across all financial products
- Retain commission for risk products only
- 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.
Add your comment now
15 Comments
By allowing Life Offices to pay commission how long do we really think it will take them to re-bundal their offerings up. This will then be argued to be risk but underlining it will be investment.
The only answer to this question is let the client decide by having full clear disclosure.
Choice should avaialble to accomodate different types of clients.
On Risk Products, why not make the commission exactly the same regardless of the manufacturer, this will take the commission bias away from the adviser and lead product providers to compete on product quality and not against adviser renumeration. If fees were to be charged to client on risk products in addition to the insurance premium less people would be insured. I could not see a Mum and Dad client paying a fee of Around $1000 (in order to complete all Meetings SOA’s and applications) in addition the monthly premium.
This whole debate is getting out of hand! The question over commissions has been a long running one and once again it has been raised on the back of a market downturn which led to the collapse of a few companies and advice groups. There will always be those (large or small) who mishandle clients funds. I charge both fees and commissions on an either/or basis. I quote the fees/comms at the first meeting and stick to it. Most clients opt for a commission option, particularly for superannuation as the usually don’t have the cash to pay fee for service or don’t want to. Even though I go through the fee section of the SOA, most clients eyes still glaze over and they nod their head and say they understand. But you know that their understanding of and agreement to the strategy will be conveniently forgotten as soon as their funds go down with the market.
It’s a sad but true fact that despite the best efforts of government, product providers, dealer groups and advisers to ensure there is clear disclosure over fees and commissions, most clients do not pay attention until they either perceive (or really have) lost money.
There are clear cases for those who should be punished for misleading clients. But the majority of advisers undertake work for clients on good faith and help them try to grow their assets. We cannot see the market downturns any more than the “experts”, so why should we have an increasingly complicated system of payment for the services we provide in good faith?
The arguement should remain focussed on the professionalism and quality of the advice. Accountants, Solicitors, Doctors and other professional occupations are not required to disclose how their fees are constructed. However, their advice impacts on the finances and health of thier clients. Just as much as our advice does. I agree with Simon’s comments - make the commissions the same across the board. That would remove the arguement that an Adviser is biased by one insurer over another.
For many people, life insurance products are almost a grudge purchase, products for which they cannot see a return on their money spent…..until they need to make a claim. As a Risk only adviser, I have surveyed some of my clients, most of whom state that they prefer for me to receive commissions rather than pay a fee directly to me, and premiums to the life company. I agree with Simon, less people will insure if they have to pay a fee. Do fees make sense when underinsurance is already a major problem? Less insurance = greater reliance on Government benefits = ultimately greater cost on all Australians. To any advisers who sell based on highest commissions, wake up and serve your clients professionally
The whole fee vs commission debate is not been driven by the consumer at all(They couldn’t care less). It is been driven by the big banks, and the FPA who are there puppet. This is a strategic move by the big four in particular to reduce competition in the market place and lower there own costs, and increase profits. That is the real agenda here. Because as we all know most clients don’t know or understand what they are paying and how they are being charged. Have a think about it. Who owns the main providers(i.e. Colonial/MLC/ING/ BT) that pay these commisions. This is a Woolworths style takeover of the small players by the Big 4. We all know the end result of that don’t we. We all pay more, and in the case of Financial Services the consumer loses especially the average client. Trying to charge fees for personal insurance is ridiculous. The reason commisions are paid here is that it’s bloody hard to sell. As it stands now less than 10% of the population are adequately insured, and that’s with the current incentive base.
If this all goes ahead say goodbye to a quality robust Financial Services industry, and hello to bigger bank profits and more bank rip-offs.
Brad has hit the nail on the head. The system of regulation and disclosure we have has produced a body of insurance advisers who select product from an approved list of vendors who have to compete for their recommendation on price and quality. I came into the industry 3 years ago and the quality of contracts has improved significantly in that time. This was not due to consumer demand, they never read the small print unless prompted by an advisor. Vendors improve contract terms to win the recommendation of advisers. The vendors who have not improved contract terms have large direct retail channels through banks. If independent financial advisers on insurance are forced to charge fees there numbers will be decimated, vendors with their own channels will prosper, and contract terms will slide back to pre 2001 levels rapidly.
I agree with Brad about the banks but feel they are just bumming a ride on the bandwagon that began rolling along with the industry / union super funds who previously were just handed countless millions in super without any quality offerings, options or insurances. ‘Choice’ then came along (not an accurate title) and suddenly they had opposition. The best way to win it back is to discredit the opposition with the backing of the Government. They know there is a high level of apathy within the community when it comes to super and insurance and if people have to pay fees to seek advice to set things up properly, they simply won’t. Underinsurance will be only one future problem if this occurs. Has anyone questioned the ‘many’ who oppose commissions ‘due to the potential bias’ how they would feel if commissions were a set rate - immediately solving that problem? I’m sure they would then find another problem with it. They would then pay their monthly mobile phone bill completely oblivious to the level of ongoing commission they are paying the dealer they bought the phone from!
I’m new to financial planning, having only just finished my diploma. But I read all comments with keen interest but mainly a bit of “what the?”. I don’t get it. How can I, as a financial planner, say “ok” to commissions knowing that the figure has nothing to do with providing quality advice to my clients? And what about trailiing commissions? No thanks. I have just set up a financial planning business where I explain to our clients how I charge a flat fee to each and every one and what they receive for their fee. Furthermore, when I place them in an insurance product - nobody has said no to buying insurance after I explain why they need it- I ensure that the commissions (and trailing) are rebated back to the client for as long as they are a client of mine. Sometimes they end up making money from the service as a result. But this is the only way I know how to service a client. Flat upfront fee. I wouldn’t describe their response as ‘glazing over’. They actually appreciate the full frankness of why we don’t accept commissions. And they’re passing on the message to their friends who have expressed a keen interest in my service too.
Abolishing commisions can’t remove bias because the larger banks own 90% of all business, and they create ‘product bias’ as they own the products
Let the client decide how they wish to pay their advisor, I feel as long as the client is aware how they are paying and how much they are paying then there should be no problem. There should be NO standardizing on how much commission is paid otherwise you are restricting choiceas no 2 products are the same and special features usually cost more, however deliver better benefits at time of claim to the client.
The commission vs. fee argument is a complete red herring. The quality of advice is the issue and meeting clients needs. How we are remunerated is irrelevent so long as it is disclosed and the client understands. If they don’t like it, they can seek another adviser. As for Susana’s flat fee and commission rebate, what a laugh, giving with one hand and taking with the other! A flat fee for everyone is silly business practice anyway as everyone has different needs or are you selling everyone the same thing and spending the same time with each?? Get on with the job of individual professional advice and charge accordingly! Also commission remuneration should be retained for risk products.
1. Standardise commission % paid from all insurers. THIS REMOVES THE BIAS TOTALLY.
2. Quality of Advice & Ongoing Service should be the focus, rather than this debate.
There are so many smokers and unhealthy people in Australia that have premium loadings on their policies. Some find it hard enough to pay these amounts let alone having to also pay a fee for our services.
1. Retain commission as a renumeration option across all financial products but with full disclosure to the client.