Further information from the UK this week serves to highlight the issues that Australian regulators may be addressing as they consider the future of risk commissions in Australia.
In a warning from the UK, the Association of British Insurer’s Assistant Director, Health & Protection, Nick Kirwan , has pointed out that a key concern for UK regulators in their deliberations over whether to ban risk commissions was that advisers may use commissions generated from risk business as a way of overcoming the ban on investment commissions.
According to Mr Kirwan, the UK’s Financial Services Authority (FSA) was concerned that advisers might mis-sell risk products alongside investments purely to get commission, irrespective of the customer’s needs.
the FSA … felt the industry was not listening to its concerns about the potential for mis-selling
Mr Kirwan told riskinfo that arguments put forward by advisers and the broader industry about ‘under-insurance’ simply alarmed the FSA because it initially felt the industry was not listening to its concerns about the potential for mis-selling. The key point here was that the FSA wanted to hear that the industry was alive to the issue and was prepared to find ways to mitigate it, rather than playing it down.
Mr Kirwan said this concern over possible future mis-selling of life insurance and other risk products is the reason why the ABI negotiated a deal to keep risk commissions, but with additional commission disclosure requirements when investments and risk products are sold alongside each other.
From 2012 in the UK, advisers will be required to disclose the actual amount of commission to the customer as part of the sales process in circumstances where advice is given that covers both risk and investment products:
“As well as ensuring transparency with consumers, it also empowers them to negotiate the fees for investment advice as they will know how much the adviser is earning from the risk part of the deal,” said Mr Kirwan, who added that this resolution formed a key plank in reaching a solution in the UK where risk commissions will now be allowed to continue.
Mr Kirwan’s message to the Australian market is that it needs to engage with Australian Treasury officials on this issue, even though full remuneration disclosure is already a requirement in Australia, if it is not doing so already. If they hold similar concerns, or indeed others, they must be addressed. If any concerns are not heard, understood and addressed, Mr Kirwan believes it has the potential to shape a decision that will see all commissions banned in the Australian financial services market, which he believes would be a poor outcome for both advisers and consumers.
(See also last week’s story Future of Risk Commissions – the UK Experience.)
here we go again dont these people give us any credit we are already disclosing the commission
and most in the industry do the right thing by clients
This should not be a concern in Australia as we are required to and have been disclosing commissions in all cases!
Gee, thats a no brainer. Life companies can seperate the products AND the commissions. Just a system change.
One would hope that where an adviser recommends a SMSF purchase life & TPD cover that commission is still paid on the risk.
One would also hope that where an adviser recommends to a s/e person that life/TPD cover be put into a Risk Product under a super Trustee to get a Tax deduction, but where there is no investment component, full comm is paid
One positive out of this nonsense may be that the push by some insurers to convince advisers to put income protection into a super fund could die a quick death. IP in super denies some insureds the opportunity to ever claim on IP because there are no presumptive disabilty benefits allowed when the IP policy is owned by a Super Trustee ( thats Scheduled Injuries & Crisis benefits for all the investment advisers )
We have a regulatory system that discloses actual amounts of commission to clients that has been working successfully for over 10 years.
We have to shout from the rooftops;
STOP TRYING TO FIX SYSTEMS THAT ARE NOT BROKEN
Response to Bill B – If they do cut out risk commissions on Life cover recommended through smfs or under super – this will create an admin nightmare for insurers. How do you charge the SMSF?? Would some advisers just set it up as ordinary to get the commission then have the insurers process a transfer of ownership ?? Opening a new can of worms there aren’t they !
They don’t seem to disconnect the “advice” and the product “application and implementation”. I charge my clients a fee for advice on what and how to insure themselves and if they want me to arrange the implementation I take the commission for the time spent and the RISK I take on for doing so. Otherwise I leave it to them to implement and surprise when I do a review in 6 months they haven’t implemented the risk due to the effort it takes!
This never stops. We have been disclosing to clients the premiums, policies, products and commission for years now. Also there are so many advisers that only do risk/insurance business rather than both. I decided to specialise as a risk adviserr 5 years ago due to the number of products, policies etc.
The mis sell argument is a furphy. Underwriters (and insurers) wont let a client have too much insurance.
Yes i hate it when a client recieves to much money in a claim and they dont know what to do with it, but none have sent the cheque back. Im sure when they take it (protection cover) and they are properly covered that the adviser has had to ensure they understand and too prioritise there funds to risk protection needs. ill be damed surprised if clients really would spend a few extra 1000 or 20000 per year without thinking its valuable to them. Why must we continue to think our clients are only as smart as the regulators? and why did they miss such a disaster with “storm”, whilst they seemed to be compliant? the model had no long term potential, a 5 minute look would recognise it would not survive a downmarket. i should have stopped tho before the “storm” and kept my point to ‘risk? somehow I feel the regulatots need to more accountable and should be audited and do more acreditation and learn to deal with the real public. they have let us down and niow they want us to pay the consequence of these mighty mistakes occuring during there naps. I recomend maybe a enforcable undertaking Or as we know it better “EU” to ensure they learn and are guided to delivering the best service to Australia and protecting our wealth…………….Yes that does mean insureances too as its part of wealth creation.
It seems to me this will be a good issue to throw over to the FPA, rather than the AFA. I do read that more “Financial Planners” are becoming interested in the Risk world that the IFA market has worked with hard and long and well understands , along with disclosure associated.
It just seems that every time someone makes a comment to ease the misunderstanding of our future,an equal and opposite curved ball is found. Will there never be clear air. So many experts and so much doubt about the real value of our contribution to the betterment available for the Aust. community.
Pls leave me in peace to get on with what we do at world best practice standards!!
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