Financial Services Minister Bill Shorten has left open the possibility of adjustments to the Government’s position on banning risk commissions in superannuation from 1 July 2013.
On Monday this week, Minister Shorten addressed a packed industry audience in Sydney, hosted by the AFA, at which he outlined his Government’s position on the two main points of contention within the Future of Financial Advice (FoFA) package of reforms, namely client opt-in requirements and the banning of risk commissions in superannuation.
Mr Shorten reiterated to the audience the intention of the Government to stamp out conflicted remuneration structures and to ensure an advice environment in which the client’ s best interests are served. But within this framework, Mr Shorten left open the possibility of late change regarding the blanket banning of risk commissions in superannuation.
In his presentation, Mr Shorten categorised insurance in superannuation into three main sections, being ‘default’ cover, group insurance and ‘advised’ insurance (insurance cover within superannuation generated by personal financial advice).
Mr Shorten told the audience he was not convinced the same effort was required by advisers to ‘sell’ insurance within the default and group categories inside superannuation as the effort and skill required to place insurance business outside of the superannuation environment, where the same tax advantages do not exist.
However, Mr Shorten said he understood the keenest point of argument centred on the ‘advised’ insurance category.
At a media interview following his presentation, Mr Shorten was asked by riskinfo whether there was any room for compromise in this ‘advised’ category of insurance advice within superannuation. Mr Shorten responded:
“At this point we’re saying commissions on insurance products in superannuation are banned…. There were a couple of individual planners who put a fair case… our policy is as we’ve announced it but of course we keep talking to [the] industry.”
When asked to further clarify his position, Mr Shorten added:
“I wouldn’t want to announce there is any divergence from the policy… but I’m listening carefully to what people are saying.”
… the Minister suggested… the industry also consider what its Plan B looks like, just in case Plan A doesn’t work
In completing his earlier remarks, Mr Shorten suggested that most interest groups will always have a ‘Plan A’. In this case, Plan A is the advice industry’s agenda to overturn opt-in and the banning of risk commissions in superannuation. But the Minister suggested to his audience that the industry also consider what its Plan B looks like, just in case Plan A doesn’t work.
To the extent that his advice applies to the issue of banning risk commissions in superannuation, Mr Shorten may be suggesting the industry accept the ban on all risk commissions within default and group insurance in superannuation but find a compromise that would allow the continuation of risk commissions in superannuation within the personal, ‘advised’ catagory – Plan B.
In not taking the opportunity to rule out any room for movement on banning risk commissions in superannuation, the Minister has left the door slightly ajar for further discussion and possible compromise, while still ensuring the main objectives of FoFA are achieved, which includes building greater public confidence in the industry and making sure financial advice, in the best interests of the client, can be made more accessible to more people.
The AFA has made it clear, however, that if it is not able to work with the industry to change the Government’s position on opt-in and risk commissions in superannuation it will continue its dialogue with the independent MPs who hold the balance of power in the House of Representatives, and with the Greens Party in the Senate, who will hold the balance of power in the Upper House from 1 July 2011 (see FoFA Message Reaching MPs).
Plan B looks like a Liberal Government to me.
Shorten just doesn’t get it at all. I would like to see him present a cheque to a terminally ill client who just can’t thankyou enough for activly encouraging them to take the correct amount of insurance in the first place and ensuring that they retain the insurance when cancer was diagnosed even though the clinet was going to let it lapse. I would really love to see a Widow take an industry fund to court for not adequatly advising on the total insurance needs of a member rather than the cheap and nasty cover we see so often. Then and only then he might understand and possibly change his mind. Can’t wait till Shorten et al are in opposition because they are going to be there for a very long time.
If the Government is finally seeing some light that most individuals won’t pay for risk advice and the likely outcome of less insurance being in force, lets maintain some common sense and remove conflicted situations and legislate for one level commission across all providers so the Government’s somewhat legitimate concerns on “conflicted advice” is removed and consumers should have greater faith on the quality of the advice rather than the possibility of a higher commission with provider A versus B being a theoretical issue.
Mr Shorten certainly does need a Plan B when there was no real industry consultation about risk commissions in super & Opt In for that matter. Opt In & any ban on advised Risk commissions is just poor policy & the ultimate loser will be the average working Australian family as Advisers would lean more towards the higher net worth clients who can afford to pay for the quality advice! That is a lose/lose scenario.
Plan B will occur as Shorten has moved from having one eye on the leadership to both eyes transfixed on Gillard & will do whatever it takes to have FOFA legislated & this cant happen without industry & the Independants support. In summary these two issues will have to be removed from FOFA in order to have it passed. Once the ammended FOFA is passed then Shorten can have his crack as PM & try to make some ground back on LNP (good luck)….
I’m with you John, let’s all hope Plan B is the turfing out of this incompetent bunch and the restoration of some common sense with a Coalition government.
As time goes on, the polls suggest this is looking increasingly likely….
Incidentally, has anyone told Shorten that we have Opt Out now, clients can opt out anytime they like.
I listened intently to Bill Shorten at the latest AFA lunch, where he was the guest speaker.
He was very articulate and I enjoyed his history lesson. He was fair and open at question time and when the question was asked:
“What reason can you give to outlawing commission or risk insurance in superannuation?” his response was along the lines of “There is not a lot of skill that you need to have to convince clients to buy insurance on a mandated product. So I don’t believe you should get paid for it”.
Now back in my office after listening to Bill’s defence of his policy, I thought I would detail the effort and hours it took to have a recent new client underwritten for death cover owned by his self managed superannuation fund.
Pre appointment email 10 mins
Sales pack 15 mins
Thank you letter to referee 10 mins
1st appointment, including travel time 2 hours
Statement of Advice 2 hours
Conversation on telephone 30 minutes
Revised insurance quotes 20 mins
2nd meeting, including paperwork to complete application and travel time 2.5 hours
Lodgement of application, photocopying confirmation letter 1.5 hours
Organising blood tests, ECG and medicals 45 minutes
General follow ups to get blood tests completed etc 2 hours
Receiving substandard terms and explaining these to client, including travel time 2 hours
Discussion with Underwriter 20 mins
Discussion with client re: revised terms 30 mins
Cancellation of application and making sure client received his refund before Christmas 30 minutes
Re applying with new SOA with another company for insurance, including travel time 3.5 hours
Lodgement of application to new insurer, with confirmation letter 45 mins
Follow ups, medicals and discussions with underwriter over the next 3 months 2.5 hours
Discussion on new amended terms with client, including travel time 2 hours
Discussion with underwriter re: amended terms 30 mins
Follow up client for acceptance of new terms 30 mins
Acceptance of application from client 15 mins
Contact the insurer to re issue the policy as the trustee of the superannuation was incorrect on the documentation 30 mins
Follow up our payment 15 mins
Hours
1575 minutes or 26.25hours
Bill believes because the owner of this policy is the trustee of my clients self managed superannuation fund I should not get paid!
Yes, there was other cover applied for in this case, which was outside superannuation. However the effort and skill to get this client cover was no less.
Bill believes that because superannuation is mandatory for employers to pay for their employees, up to 9% pa, there should be no compensation for the Adviser who is organising insurance within the confines of superannuation. He does miss the point that self employed do not have the obligation to contribute 9% to super and therefore not mandatory.
He then went on to defend the decision, saying that we have a retirement underfunding problem and if he can reduce fees there would be more in the clients account at retirement.
If this is such a concern, why did this government reduce the concessional contribution limit by half? Which will surely contribute to the chronic gap between what Australians need for their retirement and what they actually end up with.
Bill Shorten needs to remember he is dealing with real people giving real people real advice. Financial and life advisers are not the big bad businessmen in ivory towers, we are employers, we are employees, and we are the working families trying to help other working families get ahead in life. If it was not for financial and life advisers superannuation would not be anywhere near the size it is. The government would have to support more people on centre link pensions. There would not be the funding in place to help people when they are sick or injured. There would not be the funding for the widow, her children and the mortgage. We got into this industry to help people and we do this every day very well. WE are also the people on our communities, family groups, social circle who people listen too. I think Bill forgets this, I think he forgets he is dealing with real people. John is right, there is a plan B. If this government won’t listen to us then it’s time we talk to people who will. We need to discuss this with our local members, our families and our clients.
A socialist government with no understanding of what it’s like to run a small business. What do you expect. Onevcan only hope sanity prevails.
Bill’s comments implied that it is easier and does not require “as much elbow grease” to get insurance cover in place inside of the super.
Automatic cover is given within employer super funds (up to a small benefit amount) & group (company) policies.
However the long, challenging and uncertain process with medical and financial assessment, research, quotes, applications, producing a statement of advice, premium loadings, policy exclusions etc applies to insurance inside of SMSF and retail super funds. Prospects also do not proceed due to the cost of premiums and the impact on their budget.
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