The biggest issue impacting the quality of life insurance advice is the lack of focus on professionalism, not upfront commissions, ClearView’s Managing Director, Simon Swanson has argued.
Presenting as part of a panel discussion at the Australian Securities and Investments Commission (ASIC) Annual Forum, held in Sydney this week, Mr Swanson said he did not believe upfront commissions were the key culprit in poor quality advice, and that the proposed level commissions or fee-for-service models were not practical options for addressing the regulator’s concerns.
Instead, Mr Swanson said the industry first needed to fix culture and professionalism. He recommended that membership of a professional association should be a pre-requisite of providing advice.
“This would drive a professional mind-set, enable codes of ethics to be implemented, drive professional advice processes, and ultimately drive a professional ‘culture’ where the client’s best interest is truly at the centre of the advice process,” he said.
Mr Swanson also reiterated the position expressed by ClearView in its submission to the John Trowbridge-led Life Insurance Advice Working Group (LIAWG) that the industry should avoid high-risk changes to adviser remuneration, and focus on upskilling advisers, professionalism and banning poor licensee behaviour.
He said the only changes that should be made are those focused on fixing the main concerns outlined by ASIC in its review of life insurance advice, namely:
- Overselling
- Unjustified policy replacement
- Possible under-servicing
Mr Swanson proposed the following measures to address these issues:
- Capping or limiting adviser payments on large premiums
- Reducing payments on policy replacement, but only to remove the windfall gain element
- Implementing a reasonable responsibility period, potentially of three years
- Allowing additional servicing payments approximately every three years which are linked to actual client reviews occurring.
“This approach would limit payments that may distort best advice, while soundly funding adviser businesses and appropriately aligning payments with activity, and indeed encouraging improved servicing via linked additional servicing payments,” he said.
John Trowbridge is expected to hand down his independent report on life insurance advice later this week, coinciding with his presentation to the Financial Services Council (FSC) Life Insurance Conference on Thursday.
I agree with Simon’s comments on improved standards, but many advisers whose primary role is investment advice also dabble in insurance advice. Yes, they are members of relevant associations, yes they are as honest as the day is long, yes they attempt to act in the clients best interest, but unfortunately they should never provide advice on insurance because they just don’t understand some of the fundamentals of insurance. It’s like me giving occasional advice on CentreLink issue (dabbling) to retirees; a bad result for all.
Simon is right in pointing out that commission is not the main reason for bad advice.
Bad advice is the main reason for bad advice.
His suggestion of capping commission for larger premiums is flawed when in most cases, the larger premium carries time and insurability risk.
Many more hours will be spent for Business Insurance which can take months to finalise and older lives invariably have health issues that could lead to declines, loadings or exclusions that takes up a considerable amount of extra time, that could mean nil income for all the work done.
What is a windfall payment? That would need some clarity.
A 3 year responsibility period is unworkable as most Businesses have expenses and rely on the premise once you are paid, you can then confidently pay your bills. Would Simon work on a nil income salary, though be given a 3 year loan which would be repayable if he did not fulfill his job, bearing in mind he does not even have Business expenses to pay.
If the way a Business can earn revenue is diminished because of a theory based on little data and assumptions that are not clearly explained, it does not bode well.
I can’t speak for all of course, but this notion of anything over a 12 month responsibility period is just ludicrous.
If they believe this would only affect advisers, they are misguided. Once the advisers leave the industry; Every level of the industry would be decimated. Every level of the economy would be affected. Every level of government health expenditure and welfare expenditure would be affected.
I guess insures can just rely on TV sales and continue to deny claims on their mis-advertised “real” no underwriting policies, and their ever changing policies in super so they can remain sustainable.
The consumer is the one that will pay the price at claim time for lack of sound advice.
Good luck with that. Many x-advisers will be watching from the sidelines.
I agree with Jeremy Wright on his second point. Would you work for three years Simon, knowing that your salary is only a loan, to be FULLY repaid if for some reason you did not perform? Because that is exactly what you are proposing for advisers!
Since all this started we have had varying statements from numerous people some with the right idea and some with non at all.
I asked the question last week and several times before but no one appears to know or does not want to comment !! so let me ask it again.
When ASIC reveiwed the 202 files of which 37% were apparently non compliant and 96% of these non compliant files were written on upfront commission {obviously making upfront commission the “scape Goat ” for bad advice at least according to ASIC} WHAT WAS THE FEE STRUCTURE ON THE 63% THAT WERE COMPLIANT??. Were they all Level or Hybide Commissions ??? I think not. The industry as a whole works at 90% using upfront commissions most need to to survive and pay their expenses. This idea that ufront commissions is undermining good advice to the client is appaling. It is nothing more than the “leader” to a far reaching and underlying issue. There are too many people not educated correctly in what they are doing and why. Correct the Education issue and you will resolve 95% of the problem.
It would be good to hear from more insurance companies that wish to support IFA’s and our businesses.
I do know that Zurich have been very strong about advisers and the important service that we provide. They are also passionate about advisers continuing to have a choice on how they wish to be paid, whether that be that Upfront, Hybrid, Level commissions or Fee for Service.
I think that there are a lot of insurance companies that have hidden agenda’s about the IFA market and would be more than happy to bring all their business in house through employed advisers. The big problem with this is the total conflict that arises from predominately selling an in house product.
It will be very interesting to hopefully hear which insurance company submissions are supportive of the IFA market and which companies have used this process to push their own barrow.
The problem with 3 year responsibility periods that Simon Swanson is promoting is that most businesses have staff and ongoing expenses that need to be paid and having to repay even 50% in year two or 33% in year three would mean that many practices would struggle with their cash flow if one of their clients lost their job, had a marriage break up or the clients business went bad and so on.
A better option might be a Hybrid structure of say 60 to 70% year one and 20 to 25% ongoing with a twelve month responsibility period. I do not know of another business where two or three years later the business has to pay back money earned because of someone’s changing circumstances. Why should insurance advisers be targeted? Are Mortgage Brokers or Real Estate agents required to refund any upfront fees or commissions if their client’s situation changes and they need to refinance or sell their home due to one of the reasons above? We all know of horror stories in these industries but they don’t have a three year clawback.
The insurance companies know who the churners are and who has a high lapse rate. It would be easy for the insurance companies to just move those advisers and businesses to level commission only and if all the insurance providers did this the churning problem would be reduced very quickly.
If the problem with sustainability is not about churners but instead about changing consumer buying patterns and clients happy to change policies to save a few dollars, then look at moving all business to a Hybrid model as per above where the initial outlay from the insurance companies is much less.
Regardless of what most advisers believe and the logic we apply to these issues it would appear that as usual we are being used as a scapegoat for an industry with some issues mainly around profit and that some of these changes are already a foregone certainty.
Let us just hope that we can all still have a viable business and industry in the short and the long term!
Firstly, it’s nice to finally see some passionate commentary from advisers today about the horrific recommendations handed down yesterday.
You raise a good question Ken with regards to the remuneration structure for the 63% of files that were compliant in the ASIC report. My Licensee conducted extensive research into that very flawed report and found that only 7% of the files were legitimately non-compliant so there is clearly a hidden agenda at play here – which just stinks to high heaven!
A 3-year responsibility period is incredibly unfair to advisers who’ve done the very best they could for their clients at the time of providing advice. Why should advisers have that financial responsibility because a partner decides to cheat or an unrelated business goes under or a change of occupation or industry opens up for a client or a couple have a baby? How can this possibility be an advisers fault or responsibility?
The facts are this – its been the actions of a small handful of advisers that have created this monster so its those advisers that need to be punished – not the 98% of us that provide professional, honest advice to our clients.
I still believe there still is a place for Upfront Commissions for advisers starting out but for a 2 or 3 year period only so they can establish their business. Most advisers naturally transition away from this anyway to hybrid commissions – and not because they’re forced too, but because they know its smart business to do this.
Let’s be honest. If we WEED out the grubby little advisers that churn, this becomes a non-issue.
Its so ironic (and absolutely laughable) to me that the regulators pointing their finger at advisers for being conflicted, clearly have hidden agendas with all this themselves.
It is time for advisers to unite and stand up against this schoolyard bullying and banish the grubby adviser out of the industry so us professional honest advisers can get back to doing the great job we do every day for Australians that need us.
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