FPA CEO Mark Rantall has called for the financial services industry to hold a risk summit following the introduction of Future of Financial Advice (FoFA) reform measures.
Mr Rantall made this call during a CEO panel discussion at the MLC Risk Specialist Network’s 2011 Risk Retreat.
The panel comprised Mr Rantall, AFA CEORichard Klipin, Financial Services Council CEO John Brogden and MLC Advice Solutions GM, Greg Miller.
With the discussion focusing on those elements of FoFA that may impact the life insurance sector in particular, the panel was confident that risk commissions, at least on retail life insurance products, will not be banned. Each panel member agreed this outcome was likely, based on the different approach taken by Government and Treasury officials towards the question of banning risk commissions to that taken by them towards the banning of commissions on investment and superannuation products.
… this does not mean that all life insurance industry issues have been resolved
However if risk commissions do form part of a post FoFA advice landscape, this does not mean that all life insurance industry issues have been resolved. Mr Rantall pointed out that the practice of churning life insurance policies still exists and is one of several issues that must be addressed.
Mr Rantall’s call for a post FoFA risk summit is based on the premise that the life insurance industry should take a pro-active leadership position in addressing other key issues impacting the sector, especially those issues that impact consumers, such as churning, before it is forced to do so in future by Government and regulators.
While his call for a post FoFA risk summit was a spontaneous suggestion based on the nature of the panel discussion, Mr Rantall’s suggestion that was endorsed by other panel members and, importantly, by the adviser audience.
The consensus of opinion held by CEOs, General Managers and advisers on the concept of a national risk insurance summit was that it was an opportunity for the life insurance industry to lead from the front and take a pro-active stance in addressing key industry issues rather than having to act in a defensive capacity in response to future reform proposals initiated by the regulators, as has been the case with the proposed FoFA reforms.
Other key points raised during the panel discussion included:
- Concession by Mr Brogden that any issues impacting life insurance in the FoFA reforms are a small component within a ‘massive’ reform agenda being conducted by the Government
- While commissions for ‘directly-advised’ risk advice are likely to be retained, commissions on group insurance will probably be banned
- Mr Miller emphasised the importance of understanding the difference between strategy and product when it comes to the provision of advice, and the need for the message to reach consumers that it is strategic advice, rather than product advice, that delivers them true value
- Acknowledgement that the Government is no longer seeking to legislate on the ‘Fiduciary Duty’ requirements of advisers. The language from the Government now refers to the adviser being required to act in the client’s ‘Best Interest’, but it will be crucial to achieve the ‘correct’ definition of the term Best Interest.
- The prospect of a future conflict of interest that may emerge if retail risk commissions are retained but are banned within the superannuation environment. Will the client need to pay advice fees to the risk adviser if it is in their ‘Best Interest’ to hold insurance inside super?
- Public advocacy of the value of advice and of financial advisers will be taking place in the second half of 2011 via the AFA’s Make a Plan campaign and the FPA’s financial adviser promotion campaign
While Financial Services Minister Bill Shorten apears on target to release the Government’s final FoFA reform proposals in April, pending legislation being introduced in the Spring sitting of Parliament, Treasury officials in their most recent public information sessions suggested there was a possibility that because the question of life insurance had only been addressed since January 2011 there may be a slight delay in any final announcements regarding the future of risk commissions.
The future of Financial Advisors Income is at risk due to the government control and determination to bring down anyone who owns a business and employees people. The same government which supports without a doubt, the Industry Funds advertising denegrating the comparisons of super funds. The industry funds which do nothing to provide advice, but charge fees to their own members and do not diclose them. What the heck is wrong with this picture! I am all for maximising returns to super fund members through lower fees, but how low do you go, before you achieve the level of non-advice provided by the industry funds, and continue to charge fees for nothing? Wake up Labor government! Or is that Union government?
I am only commenting on the churning issue
for over 30 years BDM’s, managers at all levels in the insurance profession have been fully aware this was going on but turned a blind eye especially when the churning was in their favour I agree churing just for the sake of another set of commissions is not on but the blame is not just with the advisers but the whole industry.
Insurers have been informed of the advisers carrying out this practice but I am not aware of one of them acting on the substantiated information.
What about the adviser that moved dozens of clients from a fund manager just so he could go on an overseas trip? the clients lost thousands of dollars in exit fees (still in place at that time) the recipient insurer knew what was going on but did nothing!
And the adviser had a great trip.
It concerns me that this group would advocate a banning of commissions on group insurance. Obviously noone has had any experience in the group market or they would understand the difficulties.
Why not drop the idiology that commissions are all bad and give thought to the client. Most of the proposals do not address the wants and needs of the end user.
A comment above spoke about churning. This does not happen in the group market. Its too hard. There is a lot of work in group insurance and trying to charge a flat $ is going to be even more difficult than in personal insurance.
It seems to me that this group would prefer people to pay higher premiums in a personal product that to get group benefits and reduced premiums in a GSC. All because of idiology. Good work.
Just one more thing. Will banning of commissions extend to product providers and industry funds? They all cahrge a 5% commission or will they be excempt to please the industry funds?
Churning, is hard to monitor. I don’t agree with churning for income, but often there are valid reasons to move a client, and any way the government goes to monitor/limit will just effect the consumer.
I regularily transfer clients IP policies after 1 – 2 years, not because I’m churning, but because I deal with young tradies who when starting out want CHEAP, but once established need something more substantial.
So the Government wants to ban group commissions. On what producs? Do they know what group products there are? No they don’t, which is typical of this government. They make decisions on things that have disastrous effects on other areas. Do we remember the unneccessary bank deposit guarantee, and the consequential freezing of good quality mortgage and income funds which has distressed thousands of investors. I work in the group salary continuence market, and there is heaps of work involved. I know i would do it for nothing, wouln’t you.
This Government of extreme left wing idealists,aligned to the Union Movement,has a Ministry largely represented by past Union leaders.Industry funds are in fact a part of the Union Movements assets.Shorten has a vested interest to destroy the FP Industry,as a Union backed Minister.Quick way?Remove the means of planners to earn a living in a reasonable manner and in doing so remove the likelihood of those in need of advice to afford advice.Classic Lenin.
Happy to see that at least a concensus of opinion is emerging that hopefully is somewhat reflective of what the Minister has in mind. I do hold my breath in the meantime!
I will be truly interested to hear openly what the FPA has to contribute in terms of the commercial world of the retail risk writer. To date they have heralded only the importance of their own importance: can we please get anunequivecal statement from them? I think they owe that to the market that they struggle to represent, yet claim to speak for!
The issue around churning has been bandied around for years,yet the Insurance Companies ignore the main reason why old policies are replaced with new ones.
So every one understands,it is a basic formula of; TIME = MONEY
As with most things in life,the solution is usually staring everyone in the face,though no one seems to see it.
In todays world of Government and Big Business run by Beurocrats,Lawyers and Accountants,we have an example of a absurdly simple Business called the Life Insurance Industry and after these 3 learned groups have dug their claws in,we end up with a asylum run by the lunatics,who cannot agree on what needs to be done,mainly because they don’t have a clue about the very business they are in.
So back to churning.
The solution is simple.
Make it easier for advisers to alter or increase policies and churning will all but disappear.
Case in point.A review is done for a client and it is determined that they need to increase their Insurance by 15%. The premium is an extra $25 a month.
The current system says the client must fill in a 30 page application,the adviser must comply with the regulatory requirements that once done,(including the adviser having to help the client fill in 30 pages of mostly irrelevent information)has now taken the adviser 6 to 10 hours plus all the outgoings/expenses to do all the work.
So we now have a situation, where the 15% increase is finalised,the adviser recieves $270 minus $200 in expenses to get the Business on the books and the adviser is left with $70 divided by 6 hours = $11.67 per hour or more precisely,less money than a junior with no experiance.
Oh by the way,once we have paid the junior employee,we end up with $0.00 per hour for 6 hours work.
With automatic acceptance insurance offered by Industry super funds,with the risk carried by Insurance Companies,it would seem logical to give retail clients a easier process to increase their Insurance covers,
(which advisers end up having to do all the work anyway)so it becomes a simple step,compared to the current onerous administration nightmare we work in today.
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