Proposals to remove upfront commissions and reintroduce longer responsibility periods for life insurance do not reflect the nature of the work undertaken by risk advisers, a dealer group head has argued.
Responding to the recent release of the joint Financial Services Council and Association of Financial Advisers Life Insurance and Advice Working Group (LIAWG) Interim Report, Synchron Director, Don Trapnell, said the report failed to adequately take into consideration the honest hard work and effort risk advisers around Australia undertake.
While not making any firm recommendations, author of the Interim Report and chair of the LIAWG, John Trowbridge, suggested the industry should move away from a high upfront commission model for life insurance advice (see: High Upfront Commissions to Go – Trowbridge).
“There is sufficient dissatisfaction with these arrangements to dictate that the ‘no change’ option is not acceptable,” Mr Trowbridge said.
Mr Trapnell said that having upfront commissions and servicing commissions that are no greater or lesser than each other does not bear any relationship to the true cost of putting a policy in place, nor the true costs of running a life insurance business, where most expense is incurred at the beginning and the end of the life insurance process.
“The trailing commissions a life adviser receives are actually renewal commissions, paid to keep polices on the books. The renewal commissions advisers receive on a whole number of policies compensate them for the time and effort they put into helping an individual client when they genuinely need it most – at claims time. The renewal commission an adviser might receive on a single policy would go nowhere near covering this cost,” Mr Trapnell said.
He argued that appropriate upfront remuneration was also necessary to protect the future of the advice industry, saying new entrants may be less likely to join the sector if they are “… collared into a remuneration system that does not reflect the work involved”.
It is completely inappropriate to attempt to move responsibility away from product manufacturers and on to advisers
Mr Trapnell also cautioned against reintroducing longer responsibility periods, suggesting it could equate to price-fixing.
“In my opinion, for insurance companies to now attempt to reintroduce a long responsibility period, without the market-levelling effect of competition, is in its nature price-fixing. It is completely inappropriate to attempt to move responsibility away from product manufacturers and on to advisers in this way,” he said.
Mr Trapnell urged all advisers to respond to Mr Trowbridge and the LIAWG, who are accepting submissions on the Interim Report until 30 January 2015.
“I believe all affected advisers and advice businesses should make it a priority to read the Interim Report and respond to it, with clear evidence of how they operate their businesses and how the recommendations will affect their businesses,” Mr Trapnell said.
The Interim Report can be viewed here.
Submissions to the report can be made via: submissions@trowbridge.com.au.
Hey, why don’t I just reapply to become a tied agent to a life insurance company like I did in 1986. No choice for clients, one size fits all, conflict of interest if you go into bat for client at claim time.
The banks just want handcuffed worker bees and the socialists don’t want free thinking entrepreneurs running amok.
Don’s points are all valid and unfotunatley the options on the table are not. The cost of running a financial services practice has increased inmeasuably over the last few years with the need to “take on ” the costs the FOFA has created, now lets reduce the income at the time when it is required most ,at the beginning. 10% to review our clients is not much particuarly if the premiums are modest but it is our FUDICIARY DUTY to ensure we do. Maybe the life offices would like the duty of calling every client on their anniversay and seeing what is required and then addressing it where necessary? When was the last time anyone was paid for getting new beneficiary nominations completed or assisting with a query or worse still a claim . What expense would that put on them ?? A lot more than 10% i bet.
Lets focus on the real problem here Commissions do not create bad advice. When was the last time 10% more pay equalled a change in your recommendation Isn’t our fiducary duty looking after that issue ?? UNFORTUNATLY THERE ARE POWERS AT WORK HERE IN THE “SHADOWS” WHO ARE MORE CONCERNED ABOUT THE “BOTTOM LINE” and what shares are on offer to create a better one.
These PROPOSED changes will initially save the Insurance companies millions, But !!how long can they renumerate at 30% renewal ?? Watch the “Goal posts” move yet again.
Things will only get worse unless our industry Associations start to agree and make a stand. When is enough enough !
Don has hit it on the head once again. He understands what is involved, the complexities and costs of running a life practise and there are thousands of us out there, creating jobs as well as providing essential cover for millions of Australians.
There seems to be a lot of finger pointing at Advisers and very little action with fixing the real causes of the difficulties the Life Companies are facing, which we have been telling everyone till we are blue in the face, though it appears no-one is listening.
Don, we are listening to you. Let us hope others are.
Good on you Don
It’s all a con
The insurance companies are trying to cut costs
First they blamed ” churning” but never ever gave proof of the extent !!!!!!!
And knowing the alleged churners , couldn’t the companies black ban the naughty ones
Do potential clients want 2 bills, one is my feeand the second the premium…. Excited clients would want this
Maybe we should just recommend 100k cover all the time but charge large advice fees …. Insurance comPanies would love that …. Remember insurance companies at the end of the big day are simply investment companies getting money on a drip feed…..
These financial gymnastics being played by insurance company lackeys reflect the ignorance of people who have never sold a policy in their lives and no doubt are themselves underinsured!
Shame on them .
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