- No (60%)
- Yes (34%)
- Not sure (6%)
The majority of advisers think upfront commissions should be retained for replacement business. But the jury is still out on this question.
As we go to print, 58% of respondents to our poll believe upfront commissions should be retained as an option for replacement policies. One third agree that upfront commissions for this segment of business should be banned, while 9% are undecided.
Advisers supporting the retention of upfront commissions on renewal business have given their reasons:
“… we need to stamp out churning but in many cases a replacement insurance contract is in the best interest of the client, and to provide this advice the adviser deserves to be compensated…”
“If you ban upfront commissions on replacement policies, it creates another barrier to entry for new advisers who don’t yet have recurring income…”
“… just because you’re replacing a policy, doesn’t mean there isn’t a whole lot of work and expertise involved. Clients circumstances change. Clients health changes. Insurance products change. And what if the previous advice was from another adviser?”
One adviser suggested product manufacturers were, at least in part, responsible for the momentum driving replacement policy business in the first place:
“Life companies themselves are the reasons replacements occur as they attempt to out underwrite, out feature, out commission etc., each other at least once every year!”
While another adviser questioned the actual definition of ‘replacement business’, a further comment suggested this debate is more complex:
“I do not believe that a straight ban on upfront commissions for replacement business is that simple. There are many good reasons why a policy may be replaced. If there are benefits to the client then replacement may be the best option. A lot of work goes into the client review process and we must be remunerated for that work. The answer I believe is more around “why” the business is being replaced. With the likelihood that clients will need to sign an SoA in future why not add more into the replacement table section and have a requirement where the client has to sign off against this.”
These points all support the proposition that upfront commissions on replacement business should be retained. But in the broader debate about the quality of life insurance advice (see: ASIC Life Insurance Advice Review), is this one area where advisers may need to re-consider the manner of their remuneration? Tell us what you think, as our poll remains open for another week…
If the client is a new one to your business then this argument may have some merit, however I think Hybrid is still the go.
If it is an existing client to you business you have already been paid once for all that work, any replacement is only updating circumstances and less onerous.
Here is hoping we can get some sense out of the divide caused by ASIC and get on with servicing our clients & building profitable businesses.
Ok as an example of what could be considered as ‘replacement ‘business in some back office tick a box situation. I recently met a new client as part of her overall financial review. After ‘ reviewing’ her existing coverage ( just over 12 months old) and conducting the appropriate research it turns out she is incorrectly rated, has an exclusion attached to the policy which is blatantly the wrong exclusion, sums insured bear no relationship with her financial situation and she has a medical condition ( from discussion with her , disclosed but not put in the application ) . Plus the Income Protection was Indemnity where she, clearly as a single mum needed absolute surety of her substantial salary. After speaking to an underwriter who could access the file notes for when she was assessed it was crystal clear this was a disaster in waiting.
So remedy, ‘replace’ existing policy where the client will definitely be better off. I can think of at least six cases this year where there were clear and compelling reasons to replace existing business.
Would the clients be prepared to pay a fee for service for me to fix up previous advisers messes, I don’t think so. At the end of the day clients were all happy and appreciated the work done, I have been renumerated and there are a few less stories of inappropriate advice that would have surfaced at claim time.
After 30 years of protecting clients and their families I have one request …. Leave us alone and let us do our jobs. I’m sick of reading dribble about commissions. I’m dealing with a number of claims at the moment, not once has adviser remuneration (commissions) come up in conversations. It’s always “ how much money can I claim and how quick can I get it “
If you come across crooks deal with them individually , do your job.
It seems to me ASIC seemd to think everyone is a crook and guilty until proven innocent No wonder the public is so afraid of getting advice from a planner !
How about some home truth good stories of how people have saved there lifetime assets from being lost and their income replaced to stop the banks confiscating the family home? How about some positives for a change that may be the best way to gain the communities confidence in what 99% of us do everyday continuing to ” not pick ” commissions as the bad influence in all this is rubbish. Tel the whole story for a change
The Life insurance industry has survived for more than 100 years on the basis that insurance is sold, not bought, hence commissions.
Banning commissions is not the solution to solving the problem of twisting or replacing business.
The life companies can take a giant leap forward in this area because they know those who recycle clients. The question of “replacement” and date of policy issue is on every application I’ve seen.
Since FSR in 2000, life companies have managed to abrogate their responsibility in relation to advisers and the client interest. It’s a bit rich for those members on the FSC to blame advisers, when life companies are part of the problem and can provide most of the solution.
How are they part of the problem ?
Well apart from the example offered by @Stephen, one major life company (which company you might ask) owned by a bank, more that 14 years ago like the rest of the industry issued Lifetime Benefits on their Income Protection policies.
To thank those clients, mainly professionals who had never made a claim in that 14 years, they were rewarded by having their premiums increased by 53.0% over the past 2 years.
Clearly the life company had made a decent profit and didn’t want these clients any more.
How do I know, well the clients… not us, initiated a request to change companies.
The benefit in the client interest was to get a better contract with more cover options included for greater cover at a 40.0% discount to their previous contract.
Our SOA’s disclose, benefits gained and lost, advantages and disadvantages to the recommended change, other options considered and how much we get paid in both percentage and dollar terms according to the law.
The upfront commission had absolutely nothing to do with why the policy was replaced.
If someone can find fault with that process, then one of us is in the wrong business.
Hybrid is the way. You get remunerated failry for the work you do and also obtain a higher trail which makes it more financially viable to review the client. Even for a new business / practice Hybrid still makes better long term sense.
@ Charles.
First off, new advisers can’t earn enough to live off hybrid commission….. unless you write large cases and/or large numbers of cases.
The work sometimes, if you do it properly to get a case on the books can take up to 3 months by the time you start with the client, organising medicals, negotiating with underwriters and then convincing the client that these are the best terms available.
Unless the premium is high enough, hybrid commission doesn’t cover your costs.
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