We have extended our latest poll for one final week due to strong interest by financial advisers wanting to have their say on this issue.
To re-cap, our poll question is:
Do you believe payment of commissions on risk products represents a conflict of interest to the consumer, real or perceived?
So far, almost 500 advisers and other industry contributors have cast their vote on this question, where 85% believe no conflict of interest exists in the eyes of consumers if advisers are paid commissions for providing risk insurance advice.
8% of those who have voted believe a conflict of interest may sometimes exist, while 7% are not sure.
A consistent challenge made by advisers via our Comments section to Financial Services Minister, Chris Bowen, is to visit the coal-face of the industry and join them as they offer their advice and services to clients.
Mr Bowen has previously acknowledged his appreciation of the value that financial services practitioners provide their clients. From Mr Bowen’s perspective however, based on his public comments, the main game has more to do with re-building public confidence in the financial advice sector, post Storm, Opes Prime etc…, and the GFC.
While risk commissions played no part in the collapse of financial services firms or the GFC, the word ‘Commission’ itself is the issue concerning the Government. As we have said previously, Mr Bowen appears to be considering the merits of a blanket ban on all commissions, including risk commissions, in order to ‘restore confidence’. This is balanced against the acknowledged damage a ban on risk commissions would have on the underinsurance dilemma in this country.
We thank the large number of advisers who have already taken the time to add their sometimes passionate and (mostly) measured comments regarding this issue, where all responses (for and against), will shortly be forwarded to Mr Bowen in Canberra.
We encourage you to cast your vote if you have yet to do so, and to join other advisers who have added their comments at such a key time in the Government’s consultation process with the financial services industry…
See our two previous stories:
Story 1: Adviser Backlash on Banning Risk Commissions
Story 2: No Conflict in Risk Commissions
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.
Why don’t we ban the word commission and replace it with “Fee for Service” “The Fee to place this insurance Mr.Client is shown on page 28 of this SOA, it is expressed as a percentage of the premium and also a $ value, the insurance company pay that fee to me for placing the insurance with them.” That was easy wasn’t it!
Martin Hunter, not sure what you are trying to suggest…an adviser can receive remuneration as disclosed commission or charge a fee and rebate commission, there is no conflict of interest. More to the point, Damian Eales you have hit the nail on the head, let’s just ban the word “commission” and call it an adviser fee as disclosed on the SOA, after all it is just semantics. At the end of the advice, we just need to get remunerated and whichever way it is done, the client is fully aware about it. Easy to do and will hopefully shut the f… up the idiots in the industry funds who seem to have a problem with the word ‘commission’.
The insurance/risk industry is very different to the financial planning area. Insurance is an option for people to either choose or not to protect their income, assets and family in the event of illness, injury or death. It is evident that there is a big under-insurance problem here in Australia, as people are reluctant to pay the premiums every year. This is becoming increasingly harder to persuade people to commit to taking policies with the high levels of debt, current interest rates, available personal/family disposable income. People definitely know what they are paying for insurance as it is usually a direct cost to the family budget. Very different to the investment or superannuation portfolio’s which can have a fee built-in to pay the adviser fee. We should be focusing on the quality of the advice, providing good service and speaking to more people to proceed with insurance. There would be no conflict of interest by recommending insurer x to insurer y if all insurers paid the SAME % to the adviser rather than them all being slightly different %’s. I have been told that the average premium that people pay from the insurers is around $1,500 to $2,000pa. This shows just how difficult it is to influence people to pay the premiums every year. As noted above changing the description from the “commission” word to “fee” or “payment” paid from the insurer who receives the business from us is a good suggestion.
I have always questioned why all the insurance companies have a different % for the commission model. It would be great to tell people that ANY INSURER that we recommend pays the same % to the adviser’s business for placing the business with them. It would certainly eliminate the thought that conflict of interest exists by putting people with the company that pays the highest %.
I have also questioned why there are the 3 commission options, I have rounded the % amounts as all companies are around these figures :
1. Upfront (100% yr 1,10% ongoing)
2. Hybrid (70% yr 1, 20% ongoing)
3. Level (30% each year)
In order to reduce the thought of conflict of interest, I would like to see only the Level or Hybrid model remain AND with all insurers having the same %.
In response to what you noted Martin Hunter, not sure whether you are a financial adviser, risk adviser or another occupation, but in your comment, if you are charging a fee of $2,000 to the client, PLUS they are still having to pay the premium to the insurer (every year) the majority of people/families could not afford this.
On the upfront model, most insurers pay approx. 100% of the annual premium in yr 1 to cover our time for meetings, implementation, quotes, research etc. The BDM’s from some of the insurers have advised me the average premium of in-force policies is around $2,000, equating to a commission payment of $2,000. Not sure where you are getting the $10,000 figure from, unless you only look after the top 1% of the Australian population.
It is time advisers become politically active because no one will do it for us.Start telling your client base what is going on! FFS/commission,who cares.I am sick of the rules changing needlessly leaving us to pay for all the fallout.We are a soft target and it is time we hit back.FPA/AFA etc. are a waste of time and money.I intend to actively promote an alternative to the current gov’t via my client base and I suggest we all do the same.Perhaps gov’ts attitude towards our industry might change if we became a little more agressive in defence of our reputations.
If they do away with commission based remuneration and go with FFS all that will happen is it will push most of the risk advisers out of the industry and then insurance companies will then employ people to sell their own products which brings us back to tied agencies selling the one product as was abolished years ago. If people want to compare other products they will have to do it themselves. One thing Mr Bowen has not taken into consideration is if Income Protection, Trauma etc is not actively sold to clients, less and less people will have this cover and then it will fall back onto the Government to prop them up.
I’m not even going to comment on Martin Hunter’s view, other than he has NFI. I strongly agree with Brad & Nathan’s comments. I challenge Chris Bowen to take out life cover with his Indutry Funds buddies, and get them to disclose the commission to him, please Chris pass that information on to us. Lets see how the pricing stacks up, please allow me to requote it, but only after I have done a full needs analysis and SOA. (Oh yeah Martin you will like this, I will invoice you Chris $2,000 payable in 14 days!?!). MoonShine your spot on, we need to defend ourselves as the mining industy has. Bring on the election.
when providing risk insurance advice(and we have been doing so for 38 years) we give our clients figures from all of the risk companies we use.
the client makes the decision, not us.
how can there be a conflictof interest in this situation??
Over the past 14 years of providing advice to clients, I have never had a client raise concerns about the amount of revenue that we receive from the companies. I don’t think there is an issue with conflict of interest in the eyes of consumers for the risk/insurance industry.
Their main focus is having appropriate levels of cover, good structure, comprehensive products and receiving the benefit in the event of a claim.
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