There has been a strong reaction from many established advisers in response to our story last week about a planning group stamping out risk commissions.
Following our story about the move by Hewison & Associates to a fee for service model for all client advice (see Planning Group to Stamp Out Risk Commissions), riskinfo received numerous responses seeking to offer a balance to the position taken by Hewisons (who mainly serve high net wealth clients).
Amongst other comments, advisers have questioned Hewison & Associates CEO, John Hewison’s contention that commissions drive up the cost of insurance:
“I have seen far more examples of premiums being reduced due to better underwriting and claims management by insurance companies and improvements in medical science all under the “evil” practice of insurance companies paying commission to advisors.”
“Pretty ill-informed, considering premium rates have reduced consistently over the past 15 years….”
… we continue to let product manufacturers drive the agenda and timing of change
Other advisers and advice practices have supported the position taken by Hewisons. One adviser told riskinfo their practice has operated under a ‘full’ fee for service model for the last six years. But what concerned him most “… is that we continue to let product manufacturers drive the agenda and timing of change, rather that the advice industry showing leadership, vision and innovation to charge for the value of our services.”
riskinfo appreciates Mr Hewison’s further comments regarding his initiative:
“I have been a strong opponent of commission based payments in the financial planning industry for over twenty years. Coming from a corporate management background, I contend that this is a matter of principle and good business practice as far as I and my colleagues are concerned.”
We take the view that pricing is matter of reasonable cost to the consumer at a reasonable profit to the adviser
Mr Hewison added, “We take the view that pricing is matter of reasonable cost to the consumer at a reasonable profit to the adviser. Risk advice is an adjunct to the broader financial advice that we provide our clients, not the mainstream of our business, so our pricing proposition is going to be different to those businesses that only specialise in risk; nevertheless the principle is the same.”
While there is sometimes strong emotion that accompanies the issue of whether or not risk advice should be paid via commissions or fees, there is also a balanced debate that can be achieved.
For example, one of the country’s premier risk insurance advisers has told riskinfo he is finalising a fee model for his own high net worth clients, and is therefore not against the principle of a fee for service model for risk.
Perhaps the debate should focus on when fee for service for risk advice may be appropriate, eg while it could be one option for high net worth clients, is it a realistic solution for ‘mums and dads’?
We have opened our comments box on this story if you would like to add your own thoughts to this debate…
Unfortunately Commission Greenies see the world through different lenses. What works for John Hewison would be a disaster for a majority of advisers who specialise in risk – no business and therefore under-insurance for Australia. I suspect that for businesses like John’s and mine, for that matter, Risk Insurance is an add on and we can afford to charge fee for service as part of an overall package. This is not so for the many risk advisers who convince people to insure their most important asset, their health and life. The debate about commissions on risk insurance from within the industry is not helpful and only provides aid and comfort to those detractors who have their own self interested agenda to push.
Why can’t we give clients 2 options in regards to risk :
1. Commission (built into the premium) and
2. Fee for Service and pay the discounted premium.
The focus should be directed towards 1. Quality of Advice and 2. Regular Reviews.
People’s health is uncertain, until they have the blood, urine and medical test. There are also alot of smokers. It would be difficult to charge the person a fee if they were declined by underwriting, did not accept the premium loading or did not accept and proceed with the policy exclusions.
In summary :
1. Elimiinate Upfront and Hybrid commissions on risk.
2. Only Level commission each year is paid, like general insurance.
3. Focus on advice and ongoing service.
So while you think you are the “principled” adviser and that us “unprincipaled” commissioned risk specialists should follow your lead I feel is sheer arrogance in the extreme. Whilst you work with HNW clients we choose to work with “ordinary” people who need appropriate cover. We do not make additional money from investment advice use risk as an “adjunct”. I hope for your sake your ivory tower doesn’t burn down and you have to make a living the hard way again, albeit, it may be a good lesson in humility for you.
It just amazes me how you think “Fee for Service” can be the way to go over a commission based structure. Clearly in the GFC, clients have had to reduce their cover because they can’t afford the premiums already (and this isn’t because we get paid a commission). Our clients don’t pay an upfront fee, which allows them to actually get some cover in place, and to get close to the optimum level because there are no other fees involved. How do you expect “Mums and Dads” to pay a fee to get specialist advice at the level we should be paid?
Is our industry trying to put more advisers out of business based on the fact we should completely change our models to “Fee for Service” when after 15 years as Risk Specialists, we have NEVER charged an upfront fee. Please explain how you think it would be feasable to now go to our client base and ask for a fee if they wish to continue their relationship with their adviser, because this is the only way we will get paid….don’t you think they will go next door???
After administering over $10 million dollars in claims to our client base, I think our value is more than justified to the commissions we get paid.
Our country is so underinsured, and this is just going to make it worse.
JUST DAMN OVER IT!!!!!
I wonder what the fees charged by Hewison’s firm are, it has been my experience that these firms stand on high moral ground surrounding commissions, however, when you look at their fee model it often is higher than the commission and it done by stealth over each month.
The real issue is risk insurance, and the cost to the consumer if they have to pay a fee as wll as the cost to the cover. Most insurnce companies factor in commission, however, on the occassion when we have reduced our commission to NIL for risk and charged a fee the drop in the premium is not significant to warrant such a practice.
The Mum and Dad market can ill afford to pay fees and have the adequate cover which is needed in the somewhat underinsured Austalian market.
Is this debate about fees vs commission or is about fair value for the consumer.
I have used a fee for service option with several risk clients. I have advised them the commission they would pay if they chose that option ($408.09)
or on a time basis $1,227 Guess which one they chose!
Via the SOA a client is fully informed on costs, commission etc why can’t those people with no experience in Risk Insurance stick to their knitting. If comissions are outlawed more Australian’s are going to have no cover or obtain a no advice “cheapie” on line!
If this happens guess who will be picking up the bill, the government of the day and ultimately the tax payor.
Also would we charge for reveiws, assistance at claims time etc
It is pretty simple from where we sit. The choice of how one is remunerated should rest with the practice as it does currently. Hewison has made a choice which is his right. Trying to compare what they do for their clients in NSW to what we do for our clients in SA is like trying to compare a Timbercorp grown avocado with a Riverland grown orange! If banning brokerage is the future thus removing the incentives for us to sell risk (as it not bought in the main) then we will cease and become part of the increasing underinsurance problem rather than being part of the solution as we are currently.
Rather than throw brick bats at each other advisers should take a step back and look at the big picture. It is the Risk product manufacturers who drive up front commissions.None of them will take the first step to “mandated level commissions” because they know they will lose market share. Currently many Advisers (me included) subsidise their business revenue with a range of risk commission packages designed to soften the impact of fees charged to our clients. Receiving risk commissions definately benefits my clients because we reduce our financial planning fees as a consequence.Our business is positioning itself to adjust to the inevitable “level commission” playing field. ACCEPT CHANGE….ALLOW CHOICE………DON’T FIGHT IT!!
Abolishing commissions on risk products is a mistake as only about 10% of the population is currently adequately insured. If clients had to pay the cost of insurance out of there pockets, risk sales would absolutely plummet. It’s a product that needs to be sold. The main reason that the big banks are trying to eliminate commissions is simple. It is to eliminate their competitors. They know that if many no longer see risk sales as a viable business then guess waht they dominate another section of the market. The result of this like anything else the banks take over is that the cost goes up. Also if less people are taking on risk insurance because there are less sellers or no incentive to sell, then guess what the price goes up. Fundamentally people need to understand that the number of people taking out cover and the amount of competition is the only way to reduce costs in this industry, commisions have nothing to do with it.
The focus should be the advice we give to our clients not whether you charge a fee or receive commission. Im tired of advisers thinking that their better than everyone else because they charge a fee. I get paid commissions and have handled over 50 claims in 3 years amounting to a large sum of dollars. Guess what…… not one of them cared about the commission rather that I placed good levels of cover for them and helped them out when they needed it most !
At the end of the day the choice to charge a fee for service for risk has always been there. If it was a viable business model we would already be doing it.
I say to the government go ahead and give it a try, then they will realise that they will be paying more for the out of work, and injured via Centrelink(i.e. Taxpayers).
I currently offer my services to the client on a commission basis ie I get paid only if the client gets their insurance cover. This process is a ‘risk’ free process for the client ie I wear the ‘costs and risks’ on behalf of the client. If we move to a ‘Fee for Service’ model we transfer the risk currently bourne by the adviser across the table to the client, therfore the clients pays their way through the insurance process and takes on the ‘underwriting risk’of not getting the cover. This change of underwriting risk from adviser to client is a massive change that no one is talking about.
If I offer the client the two options being
1. No upfront charge and a ‘no risk to you’ process
verse
2. Charge up front regardless of outcome and a transfer of the risk process to you the client.
Which do you think they will take?
Commission means – the adviser funds the client through the process and accepts the risk of the clients underwriting outcomes. Why is this perceived as bad for the client???
The decision maker should be the client not advisers, product manafacturers or dealer groups. The adviser should provide the client with a schedule of fees and services that allows the client to choose what is appropriate for them. We all debate what is “best” for the client. If we are serious about what’s best for the client then present the options to the client and allow them to decide how they wish to proceed.
Godfrey Pembroke is owned by NAB/MLC, will MLC cut all risk commissions for Garvan,or any other Dealer Groups they own? No! Again a Bank trying to take the high moral ground, what a joke! All they want is market dominance so they can give a bigger return to their shareholders.
A few of you seem to think that an upfront commission is in some way negative to the client compared to a level or hybrid commission structure? With all the companies we use the premium doesn’t alter regardless of what option you choose so how is that relevant at all. I would actually say the opposite is true. That is that a level commission can make the adviser complacent and reluctant to review a clients cover every few years to see if there is a better option available. And before the zealots arc up, this does not constitute churning. As for the tripe I am constantly reading saying that the public is yelling out for fee for service, name me anyone who happily pays their accounts and solicitors time based (?) fees. Is it possible that an accounting or legal practice might have a junior on $20/hour doing the work but the client is billed at $200 /hour as if the partner did the work. That would never happen in the ‘pure and holy’ world of fee for service, would it?
Its hard enough to get people to commit to paying premiums every year for more then 1 policy, if that is what is required ie. Life and Income Protection, without also saying here is an invoice for the meeting, here is an invoice for research, here is an invoice for the Statement of Advice document, here is an invoice for the implementation … which can take months if there is alot of medical and financial underwriting, here is an invoice to make any modification to your policies, here is an invoice to have annual reviews, and here is my fee to manage any claims.
People will not be able to have the adequate levels of cover that they would prefer to have or the number of product types that they require due to the ADDITIONAL FEES being charged.
Leave it the way it is, commission is an option and dial down the premium and charge a fee for the service and the client can then choose.
CAN WE GUARANTEE THAT EVERY CLIENT WHO SUBMITS AN APPLICATION TO AN INSURER AND GOES THROUGH UNDERWRITING, WILL GET ACCEPTED AT STANDARD RATES WITH NO PREMIUM LOADING AND WITH NO POLICY EXCLUSIONS. OF COURSE NOT !
HOW DO YOU CHARGE THEM FOR THE TIME AND WORK PERFORMED IF THEY DO NOT GET ANY COVER AT ALL OR CANNOT AFFORD THE PREMIUM LOADINGS ??
This debate happened in the uk twenty years ago when my father was chairman of the financial services authority. They voted to let clients decide how advisors were paid and guess what??
You’ve got it, 99% chose commission. Others may try to reinvent the wheel but not me!!
I think the whole debate is a load of hooha! Show me the public who are screaming about risk commissions. In reality, no matter how much we would like them to, very few clients read the whole SoA, let alone comment on the commissions stated therein. This debate, if viable, should be driven only by the purchasers of risk cover, not by the legislators who think they know what’s best, or the big banks who pay their advisers salaries, plus bonuses based on how much they sell!!.
Interested in any + or – feedback from advisers who have charged clients a fee for service for risk advice then found the client was either uninsurable or the insurers amended terms were not acceptable to them?
I have just finalised a risk policy for a client based overseas, with multiple health issues, and a change in circumstances and health through the process. It took 12 months and an extimated 50 hours of work from our end. That would be a fee of $10000 to $15000 based on an hourly rate. The premium was only $3000. Hmmm…maybe I should bill the client after all. But then he would walk away and not be covered at all. Surely it is horses for courses and there is plenty of flexibility in the system already for everyone to do what is most suitable for the range of requirements for both clients and advisers working as a team. Got over it and get on with it!
Commission is a fee for service, lets face it it, It is those advisers that charge 5% upfront and 5% ongoing to investments that have started this debate, or is it?
The former unbundled products sold 20 years ago could be the reason, some paid 300% commission based on the period of time the client was locked in it could have at times been more.
Lfe insurance is a critical part of financial planning and indeed would not be affordable to the mums and dads if it was charged on a fee for service.The adviser could not also survive.
The CAR and the SOA disclose all fees and commissions so what is the problem?
Our we being some advisers have not taken commission for 20 years? how did they get paid when first joined the industry? without FUM would they be saying the same.
Just like me I sell risk insurance for super and investments, I take no ongoing and no upfront at all.
For some reason we seem to be bound for destruction rather than sensible conclusions.
Does Ford Motor Company disclose how much it pays the dealers for selling its cars? what about newsagents do they get paid a commission for selling papers and bus tickets.
Or the paper boy or girl who collects payments from customers they get paid a commission should that stop?
Does this mean AMWAY,AVON, ACN, OPTUS, TELSTRA, VIRGIN ETC ETC should disclose commission? how about travel agents how does its industry get paid or pay its agents?
If you are goin to do this then it should be across the board not just one industry.
Sales people on the floor of The Good Guys, City Ford, and Harvey Norman all get paid a commission why? it is motivation, it keeps a lot of people in work, you take it away and watch small business reduce its work force.
Disclosure as it is discloses full fees for service and commissions I have never ever had a complaint.
My clients sign the page next to commmissions received what is the problem.
So who is pushing for the changes? not the public I work with.
I am a young adviser starting a planning business and many of my clients are mums and dads. I would not be able to pay any bills if I charged fee for service because no one other than high net worth clients understand that you need to pay for good advice. I think they should leave the commissions as they are because unless you have 1000s of clients already paying you trail or $$$FUM with trail it will be very easy to go broke. Note I also agree with everything David has said above.
Consensus appears to be not only from this forum but also the wider FP community that the current brokerage system works well and is decided between the adviser and their client. Perhaps the government should try focusing on areas that can really add value to clients like increasing the soon to be reduced max. concessional super cap from $50k to $25k for those over 50 as well as aboloshing the 15% contribution tax. Now that is a debate worth having not wasting energy defending a risk brokerage system that works well and offers choices.
The banks win again. Now we will see the Woolies & Coles model at work in the Financial Services Industry. Congratulations Govt. You have cost the worker once again, and lost even more jobs.
The industry needs to be cleaned-up! Investors have lost a lot of money at the hands of very bad financial advisor who favoured high commission rather than what was the best investment for the individual client.
Commission needs to go! Greedy bad financial advisors also need to go.
Comments are closed.