20% Flat Commissions – Trowbridge


Financial advisers will be subject to a flat commission payment of 20% on life insurance advice, if recommendations handed down by John Trowbridge are implemented.

John Trowbridge, Independent Chair of the LIAWG
John Trowbridge, Independent Chair of the LIAWG

The maximum 20% level commission proposal is one of a series of recommendations released by Mr Trowbridge, following his consultation process with the joint Financial Services Council/Association of Financial Advisers Life Insurance and Advice Working Group (LIAWG).

Mr Trowbridge said it is critical that the remuneration of advisers and licensees be restructured, in order to minimise conflicts of interest. He has also recommended that:

  • The level commission model be supported with an initial advice payment (IAP) not exceeding $1,200 per customer, paid by the insurer
  • For annual premiums below $2,000, the IAP is to be no more than 60% of the first year’s premiums
  • The IAP only be available on advised business
  • The IAP can only be paid once unless at least five years have passed and the customer takes out new policies
it is critical that the remuneration of advisers and licensees be restructured, in order to minimise conflicts of interest

In his report, Mr Trowbridge explained that the IAP is intended to address the problem of churn, because it will mean that when new policies are written for existing advised clients, no payments beyond the level commission are made until at least five years after the last IAP was paid.

“Misaligned incentives that have been found to influence the quality of life insurance advice require urgent attention. It is up to the industry to take the initiative to respond positively to these recommendations,” he said.

Mr Trowbridge’s model includes 11 recommendations, including that the changes be reviewed in 2020.

“This suite of recommendations is designed to achieve improved alignment of interests, including the removal of conflicts over remuneration and advice, along with productivity gains in the life insurance and advice sectors.

“The recommendations need to be adopted as a package to achieve the transformation needed for the advice and life insurance industries,” Mr Trowbridge said.

Other key recommendations:

  • Licensees be prohibited from receiving benefits from insurers that might influence recommended product choices or the advice given by the licensees’ representatives
  • Licensees be obliged to include at least half of the 13 retail life insurance providers on their Approved Product List
  • Licensees and advisers to re-examine the advice process to improve client engagement and streamline Statements of Advice (SoA)
  • The life insurance industry develop a code of practice similar to those in the general insurance and banking sectors, aimed at setting standards of best practice for insurers, licensees and advisers

Mr Trowbridge has proposed a three year transition period between the current remuneration arrangements and the new model. During this time, he believes the five year rule should be applied on a ‘best endeavours basis’ immediately, and from a suitable date in 2016, for a period of two years, the industry operate according to the current hybrid commission arrangements, with a cap on initial commissions.

“Bringing systemic and cultural change to fruition is no small task,” acknowledged Mr Trowbridge. “It will involve modifying industry structure and behaviours that will require industry commitment and investment in transition planning.

“Ultimately the recommendations in my report represent an integrated package of reforms that, taken as a whole, can deliver a more competitive industry with more consumers who are better advised and better protected by their life insurances.”

To view a copy of the final report, click here.


  1. What a ridiculous recommendation. Yeah that makes sense, Let’s spend all our time and energy restructuring an entire industry by focusing on what 2% of advisers do!

    • Spot on. I will find something else to do rather than spend time on something that is restricted to a loss making venture.

    • I worked successfully in the insurance industry for years and never churned a single client.
      I then chose to leave and pursue other things and have been considering coming back into the industry specialising only in risk cover.
      However, simply turns my guts to hear a bunch of over-paid, so-called experts on large salaries who have never worked a day in their lives on commission come up with all these ideas of how to fix up problems in an industry that a very small percentage of rat-bag advisors cause.
      So Mr Trowbridge, lets review your income (and how you earn it) and then vote on how much you’re allowed to earn and put a ceiling on it at the same time. In fact, you can work harder, take on more liability and earn less money in the process.
      How does that sound, smarty-pants?
      What a bunch of hypocrites these people are who are coming up with all these great idea’s?
      Yes, lets bring in more education which will stop the rogue-agents hey? I’m all for more real, proper education but if a person (an Advisor) has a bad character and is dishonest, then all that will do is make that rat-bag a more educated rat-bag and they’ll still be dishonest.
      As for me, if i can’t earn a good living from risk insurance by giving what i know would be the right advice to people who need insurance, then i’ll look elsewhere to earn a living rather than coming back into an industry that is clearly becoming over-regulated just for the sake of it and controlled by people who in the majority of cases have never walked in our shoes and don’t really know what they’re talking about.

  2. We have had deafening silence from almost all insurers on this topic. It is time for the insurers to say if they support it it or not. I think the insurers with armies of salaried salespeople will be very, very happy. Let them say otherwise.

    • Why would they defend something that reduces their cost & passes on the retention risk onto another entity?

      • They should defend it Phil as it will destroy there businesses. I spent 2 years helping advisers write risk insurance and they were struggling at current commission rates. Watch advisers run for the door if this goes through.
        Insurers need to be careful what they wish for it might come back to bite them on the ass.

  3. It all suits me and is totally in line with what I have been doing already. However, I am not near retirement. What about the advisor who is retiring next year? In many ways they will be limited in receiving full payment for their time. The recommendations are also not a problem for me as I can charge an hourly fee bringing me above the one off intital advice amount, as I am qualified to give advice on far more than insurance. Therefore I can still charge for estate planning strategies, inside or outside of superannuation etc. But again, what about the adviser who is a niche specialist in insurance? They are penalised by this. In summary, what is being proposed is not a problem for me personally, but I am prepared to protest on behalf of insurance specialists nearing retirement.

    • That’s right. Cross-subsidizing risk advice and implementation with other areas of advice works for a number of financial planners. It does not for those of us who solely specialise in risk insurance advice.

      • Correct Aaron,
        I’m risk only and as I don;t have a large renewal based this sort of irresponsible action would force me out.

      • Hi Aaron

        It also won’t work for a large percentage of financial planners who started writing risk when the GFC severely impacted their business bottom line as most (obviously not all) were and still do charge generally upfront or hybrid commissions to ensure that they are adequately rewarded.

        How many financial planners will be implementing risk on a flat 20% commission and a possible IAP payment? it will not be attractive for the large majority of financial planners regardless of any cross subsidising that may exist.

        I don’t believe many financial planners would bother with the risk to their business if they get it wrong and end up in court for the paltry income they will now earn. They will go back to investment only advice in droves.

        As for the average risk only adviser, well most of them will sell up and leave the industry and billion’s of sum insured will not be written and Australians will become even more under insured.

        If this is the goal of the FSC and the LIAWG then they will undoubtedly be successful.

        Maybe there needs to be a change in commission terms but Hybrid would be a smarter option for all concerned, Insurers, advisers and most importantly our clients who would still be able to get quality advice from a risk specialist and not from the local bank generally pushing the in house product.

    • Your remarks are completely patronising, Anna-Louise, and therefore quite unhelpful. You appear to be a financial planner who writes life-risk as a consequence of full-service planning.

      Naturally, you’re not going to be negatively affected by the Trowbridge Report, if implemented. Reflect though, if you can, on new advisers considering a career in life-risk. How will they manage to do so unless they come into the industry on the coat-tails of their parents’ family business or have access to a huge client base?

      The remuneration structure proposed here will make it very difficult to recruit new advisers. Why so? Because the work we do – much of it non-paid – will make our work financially unviable. Already it’s a case of only 20% of our time in front of clients with 80% spent on follow-up to submitted proposals, much servicing, keeping up to speed with training requirements and meeting the outlandish and continually-increasing compliance foisted upon us. The LIAWG Report will only increase the under-insurance problem in our country, delivering substantial benefits to big business while taking away what little power-base advisers enjoyed.

      • I fully agree with Paul on the following statement :The LIAWG Report will only INCREASE THE UNDER-INSURANCE PROBLEM !!!!

        At the end of the day, you have to lead the client through the whole process. There is so much of our time spent on a client that we do not bill them for. For example to assist a client to correctly and fully complete an application form, ensuring the client is aware of his duty of disclosure and consequences; on its own already take almost an hour.

        Clients do not come and line up as they do at the doctors. We have to explain and make them aware that they have got the “Insurance Flu”. They do not realise they are underinsured. Some don’t even know they could apply for something like Trauma cover. We as advisers have an educational role all through the process. You are going to financially kill the Risk Writers ( there goes the educators).

        It will be impossible to help a young client get insured and a Superannuation fund set up for him/ her as they can not pay for the SOA. More people are going to be uninsured or totally underinsured.

        Financial Planning advice will become a privilege only the rich, and /or the old (Already accumulated money) can afford.

        The Industry Funds will love the report. More members for them, with a one size fits all solution.

        • Jacques, The word I keep using is irresponsible. Under-insurance is a massive issue and this would make the current under-insurance issue look like nothing.
          Remember the add, “you can have up to $1M over the phone, client: “I don’t need that, all I want is to cover my mortgage”. That is what advice will look like with these recommendations, risk advisers will ensure the clients family can still eat as well as pay off the mortgage if he dies?

      • Paul (and Jacques D) are right. If Trowbridge wanted an outcome that served the general public, issues of underinsurance and addressed issues of “churn”, then applying a threshold on the maximum fee for “low value” policies is certainly not the way to go.

        Who in their right mind is going to agree to help clients with “small” policies find and take out a contract with a product that suits their needs?

        I’ll tell you who: an adviser who knows the ins-and-outs of the myriad of products out there; an adviser who knows how to determine and quantify what a client’s needs are; an adviser who goes in to bat for their client to ensure they get the best policy at the best rate (particularly when negotiation around poor medicals is the difference between getting cover at standard rates, or with a 100% loading plus exclusions); an adviser who acts in (and for) the client’s best interests so that when it comes time to claim they’re not left to blindly trust the insurer’s claims assessment teams.

        So, in Trowbridge’s world, let’s say a client comes to you wanting a replacement of their dodgy $1,000 p.a. direct life insurance policy, and although the client has high cholesterol and blood pressure and had cancer 7 years ago, you see that you can offer the same cover for $600 p.a. Tell me, how many advisers are going to take that client through the process? SoA, 1 or 2 meetings, applications, pathology tests, follow-up etc etc…

        It might be well and good for Trowbridge to sit and throw rocks at what appears to be a small problem of rogue advisers (who insurers have the power to ban), but these changes will do nothing more than strip the “advice” from the retail insurance advice space.

        If these changes were adopted I imagine that many advisers (I for one) will shift all sub-$1,000 p.a. policies to “general advice” only (let the client decide on sums, choose product and apply).

        As always seems to be the case, the burden of compliance and red tape is carried by the “lower end” of the market.

      • I agree Paul. We are actually a full advice business and even so, in many cases our fee is reduced because of the risk revenue we receive. The fact now we have to charge more fees for clients to make up for lost risk comm payments is really a detrimental outcome for everyone except the life insurance companies and banks who will profit from it. If it was 30/30, how would that provide any further incentive to ‘churn’? Or leave at 80/20 and have a two year period of no additional upfront payments…. There are so many other options they could consider whilst being fair to all parties and removing the incentive to ‘churn’, which I am sure no one has the time or inclination to do these days anyway. The few that do seem to be the focus for the full ‘reform’ which is rediculous. Ps if anyone wants to sell their book, please let me know 😉 it’s the only way we will ba able to pay for our 6 admin staff required to do all the admin and compliance required to give advice…………..

  4. Hi Riskies, I write hybrid and level risk comms now as a disclaimer . If this becomes mandated law I will buy all the risk writers lunch. Only the ones that are left. Sub 100.
    This is ROFA as opposed to FOFA. Still trying to digest some of the 96 pages.
    Stay Tuned.

    • I really thought they would adopt a hybrid, not this level of commission, I would have been happy to see end of upfronts, I never use them, how can anyone run a business based on this now? The only good part is the changing of adviser doesn’t help the one taking the client as they cant be paid.

  5. Wow, and this is the outcome that was conceived WITH the support of the AFA?? Are we as advisers being well represented by our representative bodies??
    I know for one, my business model cannot function under these terms. It seems clear to me that Trowbridge (and the AFA – if they support this) has NO understanding of what it is we do, and how difficult it is to do it.
    I fear for the futures of Australians in crisis if these recommendations are passed.

    I guess that we can also assume that other professions will be under these same scrutiny as well – or is it just financial advisers – with particular focus on IFA’s??

    • YES Geoff , the AFA supported and encouraged this potential adviser revenue outcome/ pay cut ??? 80% of riskies who write up front who are members of the AFA. Will be wondering the same question. AFA run by advisers for advisers seems a bit shallow today. The AFA July road shows will be a fairly torrid affair at question time I would think. Very concerned AFA Member of 6 years.

      • Hold your horses here gents, the AFA has been representing its members via the LIAWG with representation from its adviser Board members. Did you not get the emails from the AFA outlining their role and views? This is a cynical play for competitive advantage from the banks. It’s not time to implode on eachother

        • Yes, I do agree with your comment, Modern, and Brad Fox has now made a statement distancing himself and the AFA from Trowbridge – so they are off the hook in my opinion. I did also comment on his statement which I will place a copy of on this link.

      • no the AFA does not support this, the FSC does. This was an “independent” report sponsored by the AFA and the FSC.
        The suggestions in the report are Trowbridges not the AFA’s

      • Sorry but that response is weak and does not provide me with any confidence in AFA.
        Full Advice practices can hide their costs within the overall advice fees charged or can offset initial costs for long term gain. Full Advice practices can please themselves and charge fees – they are servicing clients with some form of wealth and are in a position to pay for it.
        The people who need insurance the most are generally those who can afford it the least. These same people will not be able to pay for advice so they will end up with inappropriate products from direct insurers.
        It is farcical to think that removal of upfront commissions will deliver better advice to clients and increase insurance take-up rates.

        Better Advice will come from:
        1/ Quality Advice Documentation (not war and peace)
        2/ Continued Professional Standards – Education/Training
        3/ Life Companies being forced to deliver a better system for Increase/Decrease/Alterations.

        • I must agree with Anthony, while I’m happy to hear the AFA not agreeing with this, I’d like to hear Brad Fox say he will strenuously fight against these recommendations?
          Brad needs to understand that this will have massive consequences to the risk advice industry. I spent 2 years talking adviser (AFA members) down off ledges who were struggling to survive under current conditions. This will send them packing.

  6. What a load of nonsense …… how can cutting our pay increase the amount of insurance taken up by the public.

    I have NEVER had hoards bashing down my door to take out any insurances. Usually the most keen are those who are already sick and scared ….. of course they don’t get the insurance or at best some modified type of terms

    PS CHURN ……. I asked an insurance company rep of a large insurance company what was their rate of churn….. the comment came back that there are many definitions of “churn” and she will look into it…. God help us all…….its about naughty insurance agents changing a clients policy every second year for no good reason other than getting extra commission, I would have thought…. and I said to her, “surely you would know who these people are, don’t you talk to other insurance companies…. you simply then ban them ?!

    the truth is the insurance companies want to make more profit and one way is to cut costs… which you and I know is called “commissions” …. you know the stuff… cut those nasty agents out of the money loop …. let the client pay both the premium and the adviser… what a joke… well good luck I say…. and the insurance companies are having trouble getting new business ? as I said before…. I have never had anyone bashing my door down clamouring to take out an insurance policy

  7. This is an absolute disaster for the whole country, why would advisers stay if they do have majority Insurance? (I wont be) This will only mean that there are no advisers or not enough to be able to service the growing needs of underinsured Australians, this will have the opposite effect he was wanting to achieve, what was he drinking when writing this report? Maximum $1200 from a client and only 20% flat commission, they could have at least kept the 30/30 which I do use, I was all for taking out upfront as I never use it but not to this extent, also client cancel policies, where is the incentive to get them to put another in place now? Most Australians wont pay FFS for Insurance Advice only.. well done John, you have now destroyed this industry completely!

  8. this will just make most risk writers exist the industry. to run a business with Ar costs, staff etc just will not be worth it at all. Alot easier ways to earn a living than be dong this. very sayd if this gets implemented love helping clients, but unfort sometimes you gotta do best whats for your family.

  9. Is this the Trowbridge Report or simply a representation of the big 5? Will it result in cheaper premiums? Never – the insurers will simply bolster their profits and only the Insurer & shareholders win. Customers won’t benefit – they will pay the same price, and there will be less advised (ie less informed) customers.

    Pity all the professional advisers who invested many hours in their submissions – only to have them completely ignored. Very disappointing.

    Well done to the big 4 banks and AMP – you got your way.

  10. John Trowbridge should hang his head in shame – he has now lost any credibility at all. It is clear from his report that he does not have the faintest idea about how the life insurance industry works.

    Hi recommendations will only result in less insurance being taken up (compounding an already under-insured population problem) and will lead to more advice being provided by product providers rather than objective financial advisers – even the most basic reading of the statistics shows VERY clearly that insurance written by financial advisers has substantially lower lapse rates than direct insurance and that direct insurance has substantially higher non-payment due to non-disclosure.

    How does this serve the best interests of the consumer – I thought that was everyone’s focus? It seems to me that the only winners here are the insurance companies. You don’t think they have a vested interest do you?

  11. Yes, we have a problem of a few Advisers that “churn” insurance business to receive a new Up Front commission with the new insurance company. That is the responsibility of the Licensee to jump on those few Advisers that still continue this practice.

    I have been involved with the Insurance Industry for 29 years and there have been “churners” for 29 years, however, they are a small minority.

    Who gives this bloke the right to “pluck a figure out of the air” which would totally wipe out many dedicated Insurance Advisers that have spent many years providing a wonderful Insurance service. Australians would be more under-insured than what they are now! Oh, and just a minor detail, what happens to the future sale value of their Business when they wish to retire?

    Some of these smart blokes such as Mr Trowbridge just don’t get the bigger picture of the real life situation of Insurance Advisers and Financial Planners, or their Businesses, and are just worried about the “huge” commissions that are paid to us. Mr Trowbridge, we have a right to earn a living, just like everyone else. I have never had a Client query the commission that the Insurance Company pays us, so let’s jump on the Churners and leave the rest of us alone!!

  12. What else would you expect from an Actuary who has no idea. He will kill off the majority of advisers leaving the insurance companies making huge profits. Banks will be laughing because they will pay salaried staff peanuts and the client will not get any advice.

  13. A client has just recently left PSSap due to change of employment.
    Coincidently, I happended to speak with them a week ago and have called PSSap to confirm any changes to beenfits (insurance) due to employment termination.
    All insurance ceases (including the top up cover personally underwritten for the client 3 years ago) upon termination of employment.
    60 day continuation option requires member to reinstate directly with the insurer (AIA).
    Now I have 3 weeks to pick up the pieces and reinstate this client either via a non-super AIA policy (affordability issues) or something else if more suitable – and subject to health!
    Most infuriating of all, is that NO corrospondence has been sent to the member since his emplyment ended as “the information is in the PDS” (which has also not been reissued to him as a reminder). APPALLING!
    How two faced that such a large public sector fund would drop it’s ex-staff in the s*^#, yet government calls for tighter control over advisers remuneration while we pick up the slack.
    And ADVISERS are the risk to clients???????

    • Hey, you think that’s bad (and it is), you should see some of the sneaky fine print the Industry Funds slip in! But still, not as bad as those evil “advisers” who, from time to time, might take a clip of commission for their time!

  14. What a mess There has been no logic at all put into this Simply upfront commissions cause bad advice!! This whole report is based predominately on commissions and not the real issue behind the problem Lack of education
    If an adviser.changes a policy to another company there had better be some good reasoning behind it ASIC. has already indicated their approach to “churning” and how they will approach it !
    No no no Mr Trowbridge you have not been listening to anyone except ASIC and their belief that larger commissions are the cause of bad advice Once again 37% of the cases “202” I believe that were audited by ASIC that were not cpliat had 96% upfront commissions What were the commission structures on the 63% that were compliant all Level and Hybride I doubt it !! no one knows ! Has anyone ever been told If this is a basis for the report and the proposed changes God help us in the future

  15. I can not believe after being in our practice for 20 years, paid over $16 million in claims, never churned because we write the business so well in inception, that our industry has got to this. Who does this guy think he is. Why don’t we put the same rules on these assholes. Let’s write in their contract that they only get paid 20% of their proposed salary unless they meet targets every month and if they leave the job within 5 years, they have to pay every cent of their salary back. That’s basically what they have just done to us. I use to love what I do, now, why would I spend hours on end, sleepless nights making sure I’ve financially secured my clients families when I’m not even going to be able to sustain my income and support my own family with this ridiculous outcome.

    • Gutted you are 100% correct. It’s a Game Changer only problem is the major stakeholders are not even on the field. So all we have are the self appointed referees plying their games to appease the corporate policeman that gas forgotten about the other 98% of Advisers that do the right thing and always act in the best interests of their clients. In addition the value of existing practices will fall dramatically for new income assuming existing income is grand fathered.

  16. Mr Trollbridge obviously doesn’t understand the cost of providing advice. We can probably all cover it if there is full financial planning advice provided and fees are beiing charged on investment somewhere, but where someone wants comprehensive risk only advice there will be a mass exodus of planners even offering it.

    Doing it properly usually involves researching industry super funds that the clients hold as well as all the retail products and all their estate planning needs. If we happen to find someone who has been sold the wrong product in the last 5 years, we are expected to provide a comprehensive SOA for 20% only. Good luck with that one; a 20 to 30 page document for maybe $600 to $800.

    Hopefully the policy makers have a bit more sense and come to a fair compromise. This doesn’t appear to be one.

  17. A bit rich getting the client to pay the IAP when the premium will not be adjusted in any way. An alternative it to have the insurance provider pay that initial payment which then makes it similar to hybrid structure.
    Insurance companies will be rubbing their grubby little hands right now…

  18. Is this actually assisting clients and the problem of underinsurance. So clients need to pay for insurance with an out of pocket fee and also the premium.

    Trowbridge get out of your ivory tower.

  19. Jason is spot on!

    1. As a specialist risk writer, I can also attest to the FACT that people will NOT pay a premium for their insurance AND an adviser fee.

    2. Independent risk writers’ business running costs simply will not be met with such a commission structure. This has been said time and time and time and time again! isn’t anyone listening?

    3. After 18 years in this industry – call it experience – I have absolutely no doubt that these ridiculous recommendations will definitely have the opposite effect as Jason has correctly pointed out.

    4. Review these recommendations in 2020? There will not be any risk writers left in 2020!

    I cannot word it any better so may I quote Jason – “well done John, you have now destroyed this industry completely!”

  20. John Trowbridge should be ashamed of these utterly misguided recommendations.
    He is effectively proposing the obliteration and destruction of the entire Risk Insurance specialist adviser industry.
    To propose an initial advice payment (IAP) not exceeding $1200 per customer is the most misguided suggestion ever put forward and demonstrates a complete misunderstanding.
    Some highly complex risk insurance advice cases can take 40 hours of work and John Trowbridge believes it is ok to not be allowed to charge more than $1200…equating to an hourly rate of $40. What a disgrace.
    I want John Trowbridge to fully disclose his fee for his role as so called Independent Chairman of the LIAWG including his hourly rate and the log of his hours.

  21. Not sure if Mr Trowbridge and AFA realises that if this goes ahead, inflow of new premiums will reduce substantially as most advisers will bypass Insurance, but the claims keep coming in, with the result being increased premiums.
    Good job AFA.

  22. What a joke. Again we see the majority being hacked down by the minority. Our industry is an aging industry, changes like this will only make it harder for young advisers to get a start. Why, why, why are we so worried about Rogues? There are rogues in every industry/profession, surely licensee and insurance companies know who they are – send them to ASIC! This not only will have a negative affect on our roles, but I can see that this will increase the grossly underinsured population in Australia. No struggling Australian will even consider Risk Insurance now because of the fees they will need to pay ON TOP OF THEIR PREMIUM. Fees might work for the upper echelon of society but when you deal with Tradies/Labourers, Mums & Dads, young adults that struggle to keep up with the premiums now, how are they going to act when we tell them that there needs to be a fee added for our service – come on, wake up and smell the roses! FFS the bloke who did the report is an actuary, has he ever been on the frontline? Does this mean that Life Insurance companies will reduce their premiums significantly? The real issue is, there isn’t enough healthy lives in the ‘pool’ shouldn’t we be focusing on growing the ‘pool’ by getting more people insured? How about funding that report instead of putting our balls in a vice.

  23. Here is an excerpt from the executive summary of the ASIC report –

    “Of the 202 files in our sample, we found that where the adviser was paid
    under an upfront commission model, the pass rate was 55% with a 45% fail
    rate. Where the adviser was paid under another commission structure, the
    pass rate was 93% with a 7% fail rate. ”

    What they fail to disclose is, of the 202 files sampled what percentage of those paid upfront commission vs level or hybrid? My guess would be more than 80% were upfront.
    So the question is – Is that a fair sample for ASIC to base their conclusion on?

    • I just did a little napkin maths and came to around 80/20 split between upfront and level/hybrid based on the total number of files and the % breakdowns from ASIC.

    • The question is whether the % of fails on Upfront is significantly different from the % of files under Upfront overall. I am almost certain that the correlation is not statistically significant (ie, it is an unjustifiable basis to base the changes on). I think ASIC has a responsibility to confirm this.

  24. Once again an “independent report” after a farcical investigation and working group has returned a verdict that appears pre-determined. I truly hope the AFA comes out swinging to denounce this attempt at restricting risk advice to the ones that need it most. The notion that consumers will get “better advice” for paying less to an adviser is absurd.

  25. Editors note: The Initial Advice Payment (IAP) is paid by the insurer to the adviser on a per client basis (which would generally mean the insured life).

    • Just to clarify does this mean it will be:
      20% upfront commission PLUS a maximum of 60% (maximum of $1,200)

      or 20% commission paid as an IAP up to a maximum of $1,200 and then 20% ongoing?

      One being level commissions with a capped initial of $1,200 and the other being a type of Hybrid commission structure with a cap of $1,200 + 20%

  26. There is a lot that will and can be said about the end result of this long process and about what it will mean individually to many many advisers and what change many WILL decide to follow through with because they believe in what they are doing and have a true advice model.
    I can’t help, though, but remind everyone that without this we may see the end of commissions altogether – still an anathema in principle; but what we have here is our lifeline to retaining commissions as an advice delivery model. It was very clear that if we didn’t come up with change, government and regulators would tell us what to do instead – FACT.
    Let’s not forget that…
    I’m also pretty sure that those commenting above re the fee have not realised that – as far as I am interpreting it – the fee IS paid by the insurer?? I’m sure it’s clear in the report which I have not had time to read yet. Thanks Pete for the summary!

    • Hi Sue – excellent to see you weighing in here. Well said above and it prompted me to recall how many times over the past few decades that the life companies were TOLD to fix the commissions mess and churning or it would be fixed for them.
      Well, guess what!
      So here we are now and only a few people are blaming the life companies. I don’t want to rough them up too much here but for crying out loud doesn’t anyone see what has happened? The life companies sat on their hands while aware of the problem for decades. They did nothing, waited, assisted the various minority advisers with their churning over the decades (in the face of ASIC warnings) and did NOT clean their own backyard. It is NOW being cleaned for them. The odd holdout like Jordan Hawke at Asteron, God bless him, tried by sacking a number of rogues recently but t’was too little too late.
      It should have been you Sue, and other industry luminaries like you, that should have been given weight on compiling this report – not the unknowledgeable (and dangerous to consumers interests) fool suggesting 20% commissions – what’s his name? Oh yes, TrollBridge. All the best Sue.

      • To be honest Sue I’d be more confident that our government would have a greater understanding of the long term consequences of this type of action. The Australian Government would need to pay for a greater under-insurance problem and they know it. I believe actions like this will destroy the risk industry and the government would understand the flow on effect of this. If anyone thinks that the risk business is sustainable long term at these figures their kidding themselves. We need new people more than ever to enter this industry. Why and how would anyone starting out be able to live on this model. No new people means no industry long term.
        This report is ignorant and shows total disrespect for the invaluable benefits risk advisers provide to not only our clients but also the great community.

  27. This is how well he understands the issues:

    Some submissions from licensees raised areas of insurer practice that they believe promotes churn, such as takeover terms and the role and education of life insurer Business Development Manager (BDM) as an area that should be covered in a code of practice. Such a code could cover the appropriate behaviours and education requirements for life insurer BDMs. However, underwriting practices and how they interact with takeover terms are: (1) an area of competition amongst insurers that can deliver value to consumers; and (2) an issue for the insurer to determine the appropriate level of risk they wish to engage in their business. Further, the recommendations on adviser remuneration, in particular the IAP, will limit the commission available to an adviser accepting these terms to level commission only.

  28. riskinfo’s clarification just popped up at the same time as my comment – thanks!

  29. This is a joke, the only advisers that could survive would be the Bank “Salaried” advisers, 20% commission will kill of the Independent Risk Advisers.

    • Mark it will do more than that, it will kill the industry.
      I did a presentation to 200 Financial Advisers, my brief was to convince them of the benefits of including risk in their advice. I was told none of them wrote risk?
      I know there are financial advisers out there who are writing risk well, from my experience this is not the norm. If risk advisers are run out of the industry, where is all the new business going to come from?

  30. I see the words “Recovery of initial costs” used a lot in this report. I dont know of any business that sets out simply to cover their costs. This is madness. I live in a democratic capitalist market based economy and yet I am being told that the payment I can receive can only partially cover my costs!!!
    Can I get a IAP for a case that is declined by the insurer…NO. So if my IAP is not even covering the initial costs (as according to Trowbridge is between $1,500 & $3,000) of a client who actually gets a policy placed, how am I supposed to make a profit? Charge the client a fee for “trying” to get insurance cover in place?
    All of this to supposedly reduce premiums by 5%-10% some time down the track???
    I’ve just spent over 30 hours putting a Biz Succession Plan in force and I’m allowed to receive $1,200!!! Premiums were over $10,000 so these clients may have their premiums reduced to $9,000 but I have to charge a fee of at least $5,000 so that I can at least take home the minimum wage. How is the client better off?

    • Hi Dan K
      Perhaps I haven’t understood your point but if you are currently not working within a fee-based model, then currently you would not get any remuneration for a declined case – so there is no difference in this model.
      What have I missed?

  31. This is the beginning of a journey to professionalism.

    We have found that fee for service premiums are better off for clients on a level structure over 20 years which is a solution to the issue ASIC are trying to address. Sustainable long-term premiums inside and outside super.

    Change your model and innovate. If anyone thought 100% + commission was going to stay then they are deluded. Fee for service is more profitable for businesses and better for consumers. Mom and Dad consumers also want objective advice that can be provided through running a practice not reliant on product commission.

    Further to this, students completing their FP bachelor degree do not want to work for advisers that earn a living from placing products. They want to work for professional services firms who provide advice and strategy.

    Maybe its time for the advisers who do not want to embrace change to hang up the boots.

    • Dean,

      So what you are implying is that the majority of Risk Advisers are unprofessional and do not provide advice and strategy because they are paid commission.

      If fee for service works for you on a risk only basis so be it , but please don’t denigrate a whole industry based on your assumptions.

    • Over 20 years??? Are you serious?? You have to be from a different planet if you believe that any insurance policy remains unchanged for 20 years.

      You have to be a Banker. I am super impressed!

    • Dean,

      On one hand you appear to be intelligent as I see your sentence structure, grammar and spelling are exemplary. On the other hand, based solely on the content of your argument I get a diametrically opposed view of you. I’ll be kind here as this argument can quickly flare with emotion and simply suggest you are misguided. In the old vernacular “them’s fightin’ words” you’ve used in a risk writer’s forum. Surely you know that.

      To suggest that by reducing the income of risk writers to an unsustainable level is the “beginning of a journey to professionalism” is deluded in itself. Please take your financial adviser pad and pencil and go home Dean. Leave this to the adults to sort out.

      We are talking about saving the risk writing industry for the benefit of clients AND RISK WRITING advisers. Financial planners (like you) that view this from an elevated plain with disconnect and arrogance have no place in this argument. They should go sit with the accountants. I know there are a FEW exceptions but you appear NOT to be one of them Dean.

    • Good for you, Dean. You’ve managed to crack the code of being able to provide your clients without products. The only people I’ve heard of doing that have ended up in gaol (should we also assume they write their cheques out directly to you?).

      On all other counts you seem to be perhaps a little uneducated about how things work in the real world.

      For one, as is the case with most (non bank aligned) advisers, I don’t “sell” products for insurer A or B or C or D…. I recommend the best product for my client.

      Fee for Service is great, but for “lower end” retail clients – you know, the “mom and dad” you refer to, it does not work well. I don’t know about your motives, but mine are to take care of my clients in the best way possible; issuing them an invoice for $1,000 but waiving all commissions so they save a mighty $100 p.a. is not in their best interest…. I know a thing or two about businesses (run, bought, sold and valued many throughout my years) and I can tell you that cross-subsidisation occurs across nearly every type of business, and is actually a defining characteristic of many efficient services. It provides access to those who otherwise would not be able to afford it.

      I should point out that my business is predominantly Fee for Service (~87% of total revenues last year), so although these changes might have some affect it would be relatively minor. But that’s the thing: these proposals aren’t about me. Or you. It’s about what is sensible and what is not, and about considering the implications on our clients past, present and future. These changes will push the cost of advice further outside the reach of clients.

      • Dean, I’ll match our professionalism any day selling risk on commission. I’ve seen some of the worst advice and lack of consideration of a clients needs and concerns from fee for service advice.
        Don’t think for one second the fee for service model has anything to do with professionalism. Ignorance, greed, and total lack of professionalism is just as prevalent in the fee for service model as it is in the commission model. It’s called human nature and there isn’t an industry in the world that isn’t affected by some bad eggs, but for you to say all who receive commission are unprofessional is simply silly.

  32. For all of my working life I have managed to avoid Union Membership as I always felt that I was more than capable of negotiating a reasonable outcome for all parties. BUT, right now I feel that we need to give birth to our own IFA Union (Yes, that is “Independent” Financial Advisers). I will be 65 this year and my Industry has seen many changes over my 35 years of service but this proposed “Re-Direction” imposed by very ignorant parties will cripple not only Practices similar to mine but the Insurance Companies themselves will be faced with “a Life Threatening” even “Terminal” disease.
    For those of us that have fort our way through the myriad of changes imposed on the Practitioner this could be the final straw that does break the back of our Industry.
    Commission structures do not dictate the appropriateness of our advice. Upfront commissions allow me to employ a level of competent staff that assist me in providing an acceptable level of service to our clients (all the time), ie we are still trying to get a death claim settled after it was lodged last July????. And we do not get paid to handle claims (not yet anyway – watch this space)).
    I seriously believe we need to stand up and be counted on this interference to our livelihoods and to tell those that think they have a dictatorial right to impose their view on our right to earn a proper income to find their way to the Foreign Office (FO for short – if get my drift)

  33. It’ll be interesting to see where this goes, if taken up.

    Will it be the Banks and Insurance companies, who’ll just deal direct with customers, or, will it be embraced by advisers, that will be working a lot harder for less pay?

    I cannot see that this proposal, would “deliver a more competitive industry with more consumers who are better advised and better protected by their life insurances”.

    One positive i noticed, was John Trowbridge suggested that the Statements of Advice need to be streamlined somewhat.

  34. One more important comment. I have no idea why established practices who have been in the game for many years are worrying about this change.

    It is much easier for an established practice to innovate and change their revenue model by drawing a line in the sand to review their strategy using an activity based costing model linked to a value proposition.

    I will admit it is much more difficult for a smaller practice to make the move to say fee for service. It is achievable but it comes down to innovation and smart business strategy.

    Reminds me of a quote “The only certainty in life and business is change”.

    • Change your model? How can any IFA, who doesnt already have a high recurring revenues, expect to put food on the table?
      Bank aligned advisers certainly won’t be charging a fee for advice. Those organisations are more than big enough to take a few years of losses as a means of turning a marginal profit in the long run. The same can’t be expected of IFA’s.
      IFA’s are central to providing objective advice. By virtually eliminating them you are all but guaranteeing that advice is skewed by alignment.

    • Pretty unfeeling comments here, Dean. And pretty unrealistic. You may come from an advantaged position so your remarks are understandable. But they don’t represent the views of most, if not all, life-risk advisers. Changing a business model is a major paradigm-shift for most of us and we have to live in the meantime.

      Your quote above is noted, but it’s hardly helpful in this forum. Benjamin Franklin said ‘There are two certainties in life: death and taxes’ – that’s true, but it doesn’t make us feel any better knowing it.

    • Hi Dean, there’s change and there is cutting someones throat. As an adviser who is trying to build a business this is untenable. As someone who previously ran a larger business with a strong ongoing income with high cost to boot. This would have had a massive affect on me.
      This is about the survival of the industry and all the people who live off it, not just advisers but their staff and all the people working in the life insurance industry.
      Dean is it ok that an established financial planning business who specialise in risk will sack admin staff and advisers because the business is no longer as profitable? Is it ok that a larger financial planning business with string renewal base no longer chases new business because it is less profitable and so now less people are insured?
      This is much bigger than a few riskies feeling their life’s work slipping away, the consequences of this could be massive on an Australian community scale.

  35. Well… time to find another career folks!

    How is any small business going to be able to take a 80% plus hit on their revenue.

    • Totally agree. Throw in having to redo all my study is not making staying in the business look attractive at all.

      • Will AMP keep BOLR now too, this is a big big thing I need to keep out for, I have 2 years left before I can exercise this, I can just see them taking it away or reducing the calculation..

        • Glass half full: Given how poorly the recommendations have been thought out I’d expect the consultation process will take more than 2 years

  36. Dean – you have absolutely no idea what you are talking about!

    it has been stated time and time again that consumers will NOT pay an insurance premium AND a fee to their adviser!

    Therefore what a ridiculous and ignorant statement you make that fee for service is more profitable and better for businesses and consumers! Surely you jest!

    Students completing their FP bachelor degree want to work for a company who can actually pay them a salary!

    • I have to say I did get a chuckle out of his “FP bachelor degree” comment…. Someone who thinks that pieces of paper mean something. Cute.

      (let’s just say I’m qualified to throw stones on this issue, 3 undergrads, masters, fellow/life memberships with various finance/economics institutions etc etc…. and that doesn’t mean I’m any better (or worse) than the next guy).

  37. Well done John, your mates in the banks, insurance companies, and union owned industry superfunds will be proud of you. You have delivered exactly the outcome they desired – the demise of IFAs and a resultant increase in their market share. Unfortunately, in the process you have put a lot of specialist advisers out of business and reduced the ability of Australians to receive expert advice.

  38. I was told an interesting thing from a BDM today that I cannot see in this artice, apparently there was initially a “fee” paid from the Insurer which may bring it up to a similar to Hybrid type income but this “fee” was only payable once in a 5 year period and the commission would be the only this payable for that period, that was the stop churning part, interesting if this was then scrapped?? That at least had a bit of saving grace in it.. I could live with that as I don’t churn and 99% of my business is hybrid/level anyway..

  39. To the man who is frustrated,

    Who has stated that consumers will not pay? Because right now, this week, last week, and the week before that, our clients are excited to join my practice on a fee for service model.

    How dare you you say I have no idea what I am talking about when you have no idea what I do. That in itself shows me you are shortsighted.

    I have my own AFSL and have built it from the ground up to accommodate my clients.

    Mom’s and Dad’s.

    Your comment that fee for service is not more profitable demonstrates that you are not an astute business person. How do accounting firms, law firms, consulting firms survive. They just charge a fee and I see plenty of wealthy and successful businesses who operate under a fee arrangement?

    I see plenty of students with a salary in professional services firms. That is if you wish to be a professional services firm? Times have changed mate and the AMP Whole Of Life risky of the past is all but over.

    I think you have to change your name from ‘frustrated’ to ‘innovator’ or you will have a difficult time going forward.

    • Dean,

      To answer your question, it has been stated in the responses by advisers to the many articles in riskinfo these many months that consumers will not pay a premium for their risk insurance and an additional fee to the adviser.

      Which provides a segway to my second point. You are not making a realistic comparison when stating that accounting, legal and consulting firms simply charge a fee. Their clients pay one fee for the work they do and that is pretty much it.

      Students can only receive a salary if there is money to pay them a salary.

      As I write this, 80 responses have been received about this issue. How many support your comments? Not to mention the responses made directly to you. As Brian C has said, if a fee for service works for you, so be it, but don’t denigrate a whole industry based on your assumptions.

    • Hi Dean, I am curious to know whether your practice is a Risk Only practice or Comprehensive advice model?

      If it is a Comprehensive Advice Model, do you believe a Fee for Service model would be viable for a small Risk Only practice that only has $50-$100k in ongoings? (ie young adviser or someone breaking free from the insto’s)

      I struggle with the concept of charging a client a fee if they are declined, particularly those that are struggling with debt . All I have done is identified a problem for the client and they get to walk away with an invoice. A commission system with a higher upfront allows for the law of averages to play out and only those that are actually provided a solution to their problem pay.

      • Hi Dan, Correct.
        Dean you’re incredible, if you have met a client with a combined income of $150,000, $500,000 mortgage and 3 kids and you have convinced them to pay a ongoing fee for service on top of their $5,000 risk case (with no other financial planning fee).
        By the way, did you still charge your fees when they got a 100% loading? If yes are they still excited to sign onto your fee plan?
        By the way, when they were declined cover did you still charge a fee? If yes are they still excited about your fee plan?
        Dean there are many different business models and I’ll let you in on a little secret, yours isn’t they only one that works or the only one with merit.
        I’ve met so many incredible commissioned advisers and so many incompetent fee for service advisers. It doesn’t mean they are all either though.

  40. I am not sure how John would expect an adviser to fund a professional office under his proposal, which incidentally Colonial Mutual under Peter Smedley’s leaderhip tried to implement 12 or so years ago as did Lumley Life, both of which failed miserably.

    The maths is quite simple, if someone is able to write 100 applications, have 80 complete as the others are decliend or terms unacceptable to the client, then that leaves say $ 200 000 of Annual Premium ( assuming $ 2500 annual premium per application) upon which 20% commision may be paid.

    Assumiong that the client is happy to pay $ 1200 for going through the process – and this is a big assumption- then the income to the practice is calculated as $ 40 000 commission + (100 applications x $ 1200) $ 120 000 = $ 160 000.

    From that you would beed to deduct salaries of a risk paraplanner ( say $ 70 000 ) and allow for business expenses of another Staff salary, Professional indemnity insurance 9.5% Compulsory Superannuation,Electricity Payroll Tax,Gas, Depreciation,Heating,Rent, telephone, Computer leases,Property rates and taxes,Computer software,Accountants fees,Computer hardware costs,Auditors fees , Photocopier leases,Office and Building insurance, Professional, Membership Fees to Professional bodies.

    What is left over is business profit to the risd specialist, i.e; their salary , which would be in the order of $ 25 000 – $ 30 000 first year.

    This is not sustaionable and will find that the sepcialist risk adviser can not survive.

    • Hi Simon!
      The insurer pays the $1200 not the client so it can be assumed. Just thought that should be clarified.

  41. FACTS:
    1/ Banks, Industry Funds, Insurers, Re-Insurers and Investment Financial Advisers fully support these changes.
    2/ Our representative organisations (AFA / FSC) will not fight this because they are financially assisted by Industry and their members predominantly made up of Investment Financial Advisers who work in an entirely different dynamic of client than the traditional Risk Writer.
    3/ One of the significant points the report is based on does not provide any clear evidence to support a need for change. It was stated that ASIC found 37% of files to be not in the interest of the client “OR” non-compliant. How many were not in the interest of the client versus a compliance issue, such as missed signature? Then it was identified that 95% of these were Upfront commissions. Well – how many of the 63% of good files were written with Upfront commissions.

    It seems to me we have been fed one-sided information. We have been tarnished by the problems at corporate levels (Bank influence with Storm, etc including poor regulating by ASIC). Insurance companies continue to provide a system of New Business Only and refuse to invest in quality infrastructure to help advisers deliver cost effective increases, decreases and alterations.

    Four of my last six pieces of advice have been for maturing clients to reduce cover based on their improved financial position (assets up, debt down, kids moved out, etc). I provided that advice at no cost because they have been clients for many years. I have received upfront commission and ongoing trail. Some have required assistance and/or help with a claim and others haven’t but because of the current model I can confidently do the right thing by the client. If remuneration is solely based on ‘handling’ for a flat 20% commission advisers potentially will not see reviewing these clients as a priority. In addition, why make any recommendations to move to a more suitable product. Extra work for no benefit. If Trowbridge & Co believe these changes will change the way of ‘Bad Advisers’ then they are kidding. These culprits will deceive and misrepresent the industry in new ways. The Good Advisers will be lost to an unsustainable business model that will drive mediocrity to new heights. A willingness to build, develop and improve will become a void in our industry.

    Continue the development of sound strategies already underway. Lift educational and training requirements. Professionalise the industry and recognise quality advisers whilst removing the rotten ones. Remuneration is not the issue. A rogue adviser is a rogue adviser no matter how they get paid.

    It is also worth noting – just for the fun of it – that I cannot recall seeing any Today Tonight or 60 Minutes shows or other media platforms doing an episode on a Risk Adviser moving a clients risk policy from one insurer to another. I have, however, almost on a daily basis seen/heard news of another Financial Investment Adviser ripping off clients money.

    …really tired of all the constant changes risk industry has copped over the last 15-20 years, especially given a majority of it has not led to any client benefit.

  42. I’m sorry Sue, but receiving less money than it costs to run a specialist risk business may as well be replaced with a NIL commission model.

    The outcome is the same:
    Specialist Advisers leaving the industry;
    Clients buying product off misleading TV and online brokers which don’t meet their needs
    Clients being unrepresented at claim time – forcing them into the hands of lawyers
    Clients loosing out – population remaining underinsured
    Pressure on Government hospitals and welfare

    1. I’m still reading the report, but it seems that we still remain unpaid for cases which fall over, after sometimes months of report gathering to reach this result. We wear this now on law of averages with larger sums insured (on any model of commission)

    2. There is no provision in the average costing muted for cases which do not complete on medical (or other) grounds.

    I’m a half glass full person, and a Hybrid advocate, but without the current basis of Hybrid for the long term, I just can’t see this being sustainable for any specialist advisers.

  43. Speechless.

    Time I move to NZ and set-up my new Practice. I say to the younger Independant Riskie, it must be time to go learn SMSF, and send all your admin work Offshore for $4 dollars an hour. Time to make one last call to my local Member.
    Sorry AFA, my renewal won’t be in the mail.

  44. I agree with the sentiments expressed above. But this is clearly a Big Bank/AMP stitch-up, as it enables AMP to ditch BOLR, and the rest to gouge profits lost in the Group Life in Super frolic

    When the banks adopt Robo Advice for their in house insurance sales, with everything sold on General Advice ( thank you ASIC ), and sell their un-profitable dealer groups with the inherent liability risk to the cheque book, the profits to the Big Five will be even more than that delivered by Mr Trowbridge

    My AFA was in the tent, but clearly has still been pissed on by the FSC. Next time, if there is still a membership, don’t trust anyone !!!

    BTW, judging by the ACCC comments on Piggy Forest, why is this recommendation not the start of an insurance CARTEL. Its definitely anti-competitive, unless regulated by Parliament, and even then the High Court might not like it. After that is tested, and the Trowbridge proposal is declared legal, the consumer groups can lobby for lawyers and real estate persons to be regulated as to fees. Can of worms anyone !!

    Seriously, why wouldn’t surviving advisers take nil commission, take fees for advice and establishment costs ( BUT not for claims or policy maintenance work ) , and not care if the policy lapses. That will be the insurers problem, and a big one at that

    But , as happened when introduction of the SGC was opposed by the FSC’s predecessor in 1992, it just needs one insurer to break ranks. Membership of the FSC, a type of cartel in itself, is not compulsory on insurers

  45. This is a sad day for the specialist risk advisers and a sadder day for clients. During the ASIC investigation 4 of my files were sought for scrutiny. All were upfront commission and 3 were Level premium recommendations. All 4 passed. So much for up front commission equals bad advice.

    In my submission to John Trowbridge I included 2 case studies. First a new client with health issues. The medical underwriting process took 6 months from application to issue and time spent by myself and staff from Fact Find to completion was 47 hours.

    Second, TPD under super claim that took one year and 135 hours of work by myself and staff to complete with a successful outcome. Client $2.5 million, Adviser $0.

    Who will be funding our claims service moving forward Mr Trowbridge? After all, isn’t that what we sell our clients as Risk advisers – Security, service & peace of mind in the event of a Claim?

    • Good on you Russell, We need more like you who take the time and effort like you have giving these reports to Trollbridge. You must feel even more frustrated than most to see this non-sensical outcome after all your effort.

      Personally I am reviewing my place in the industry now after 30 years specifically risk writing. I’m only 54 and didn’t see myself retiring before 65 (if ever) but you know what, IT ISN’T FUN ANYMORE! I always said I’d call it a day if I felt like that. It is a bit harder to bite the bullet now that I’ve arrived at that place. I dare say I may not be alone. The true numbers may surprise everyone of us.

      I will say though that since this FOFA idiocy started I have not jumper out of bed each morning with anywhere near the same enthusiasm as in decades past. Maybe a blessing in disguise to spend more time with my kids!??

      Fair dinkum, we should cut the wages of politicians down to 20% of current levels and make them perform properly for the rest of it. Then they’d get to understand what it takes to get real results in the real world. What right do they have to do this to our industry when they have NOT the qualifications nor ability to understand properly the issue at play?

  46. The negativity and complaining in these comments reminds me of primary school when the school decided that from Monday, everyone will wear wide brimmed hats and long socks.

    There are so many opportunities out there:
    – Technology providers have an opportunity to deliver new innovative software to provide cost effective and high quality plans.

    – Product providers have an opportunity to support advisers in research, processing and faster underwriting.

    – Advisers have an opportunity to review the changing landscape and what they need to do to remain relevant and unique. Do you want to be a Kodak? Someone who could not embrace change?

    I thought the advice community was passionate about helping clients ‘change’ and embrace new ways of living their financial life?

    In fact from the majority of comments above, it looks as if advisers are quiet the opposite.

    • Really??
      Thanks for your input Mr. Zuma. Clearly you have the whole situation under control.

      The rest of us think it sucks. So you will be the winner!

    • Mr Z;

      *How do the opportunities for technology providers help advisers or the client?
      *Product providers continue to improve their processes; these changes do nothing to accelerate this process or improve it for clients
      *Maybe risk advisers are like Kodak? Maybe risk advice is like film processing and direct risk is like digital photography. Is your point that advisers should stop advising and move toward general advice “sales”?

      The comments from advisers could be viewed on one hand as “self centred”, but the fact is that with the changes would come the requirement to charge clients another way for their time. Result will be fewer clients being provided with advice, and those who are provided with advice will be handed an invoice.

  47. This is the outcome of an investigation conducted by a person appointed by the AFA and the FSC??

    Is this person the best that the “leadership of our Industry” could identify to conduct such an activity??

    Having spent the last 40 years of my life looking after clients I find it offensive that our earnings base is being threatened by such a

    nonesense recommendation.

    Commissions however they are structured are not the problem – the real problem comes down to individual honesty, integrity and ethical/professionalconduct of advisers and how much an adviser really cares about his/her clients. You cannot legislate to enhance this as evidenced by the recent conduct of “salaried representatives” of two of our largest banks.ie those who choose to will flout the rules at every opportunity and the banks have become very good at doing just that and then simply buying their way out of trouble after being caught out!!!!

    In my view the industry has a serious problem because some of the major players lack honesty,integrity and indeed in my opinion have serious conflicts of interest ie our major banks who have been allowed to provide a broad range of financial services and who have a vested interest ( profit making ) in controlling their customers from the cradle to the grave regardless of whether this is always in the best interests of a particular client or customer.

    This has been clearly shown in recent reports into the activities of two major banks.

    Again it is clear that the small adviser is being screwed by the big end of town and largely because of the excesses of some Insurance companies and more specifically where insurance companies are owned by the banking industry in particular the big four.

  48. OK. So for my lousy 20% I will then be able to spend about 10 minutes getting to know my client and write up a 2 page SOA in about 15 minutes. That should just about cover my time with the 20% commission.

    I don’t know how this ridiculous recommendation is going to lead to better advice outcomes for consumers or going to make advisers diligently comply with the best interest obligations. Goodbye to hours of research and comparing the best options available for the client. My advice will become “one fit for all”. Welcome Storm financial into the life risk world!

  49. High commissions only represent a small percentage of policies and these often require a lot more work, sometimes with no result due to health issues. By the time you have deducted business expenses including admin staff from an adviser’s commission, the average taxable income is comparable to any other industry. There is a significant amount of non-billable time involved in managing client’s policies to the standard they deserve, day-to-day admin and regular reviews and not to mention the time and stress involved in getting clients’ claims paid when insurance companies deny them for unfair reasons. If advisers cannot afford to stay in the industry, clients will be forced to buy direct and we will see more and more claims declined, thus increasing insurance companies’ profit. The current hybrid commissions would sustain the industry and allow advisers to provide their clients with the personal advice that they require.

  50. I am part of Synchron an independent licencee and one of the largest in the country. Funnily enough we have been the only licencee to speak out against this! There has been deathly silence from all other licences e.g. Securator! why? its owned by Westpac!

    The owner and directors of Synchron are heading to Britain to interview officials who were at the forefront of similar regulations implemented that effectively destroyed the industry in Britain. The industry has only recently recovered. How did it recover you might say? They raised commissions back up! Why because insurance is bought not sold!!

    Private insurance serves as a means to take pressure off government social services. In a time where the government books are blowing out in debt and the economy is slowing (particularly in W.A). It seems utterly ridiculous to lobby for the destruction of an entire industry that reduces the cost pressures on government spending on welfare when we already have a very under insured nation. On top of that, estimates report that you will see greater job losses in our industry than you would if/when they close the Holden and ford factories.

    What we are seeing is blatant tactical moves for further monopolization of the financial sector by large Banks.

    More independent voices need to stand up with Synchron or we will loose this industry, period!

  51. Advisers at all levels have been required to disclose their methods of remuneration – i.e. who pays us, and the levels of commission earned in percentage and dollar values through our FSG’s and SOA’s. We have never complained about this, and nor do our clients in the main.

    In the spirit of transparency and fair play, I believe that Trowbridge should be compelled to do the same. It may shed a little light on the transparency of his recommendations.

    • Well said Geoff, Your comment should be shouted from many rooftops around where politicians live mainly.

  52. If this reduces insurance premiums (which it should), wont it encourage further so called “churn” over the next few years as advisers can now get a better and cheaper product elsewhere? Some of those advisers will also benefit from changing to a renewal that was previously 10% to now 20%.

    Isn’t this the problem they are trying to address?

      • Apparently the level premium isn’t a good thing for the insurer anyway, they obviously don’t like churning (I only write Hybrid/Level) but they make more off an upfront as if the policy is kept they get less over the longer them than legitimate upfront policies, I cant see if this is the case where any savings can be passed onto a client at all?

        • I’ve heard that too. However, that was based on a 30/30 level commission. I assume that could change under the new 20/20 level scheme that is being proposed.

    • Hi Adam,
      Premiums will go up because there will be fewer people selling life insurance which means insurers will be losing money and increase the premiums. Insurers will need to do more of the work that advisers do now and there cost will go much higher. There is not a chance that premiums will go down. I can prove it, direct insurance is more expensive than the cover I represent. How could that be if insurers aren’t paying commission, they are doing all the work, that’s why.

      • Hi Adam

        The other issue is that without risk advisers helping to write new business (the bulk of which is for healthy lives) and helping to maintain existing business, the lapse rates will go up as healthy clients cancel their existing policies and the unhealthy ones continue their policies and then claim.

        The long term profitability will go down and premiums will rise higher and higher. This happens with most legacy books of insurance and it will be no different in this scenario.

  53. ITS A WORRY that I note the report recommends they will revisit the topic in 2020 effectively to see how things are progressing… in other words to see if this has been a stuff up or if its working… that itself is a worry – Mr Trowbridge obviously is hedging his own comments and recommendations as he really doesnt know with confidence what the outcome would be if his recommendations were adopted.

    WHO WILL SUPPORT IT? Anecdotally it would seem that to implement all the recommendations would be a massive problem; Most advisers who have responded (over 80 responses above – only a chap by the name of Dean seems positive about it – and I note is taking the opportunity to take the high moral ground and stick the boot into everyone else – ‘good on you mate!’) and the AFA have already come out and say they disagree with many of the recommendations tabled in the report.

    CHANGE IS INEVITABLE – the status quo will not remain as Sue Laing said if we don’t move towards changes – expect a bigger stick to be used by the Government – particularly if there is a change on that front.

    A SUGGESTION: In my mind I ask ‘wouldn’t it make sense to a) move to hybrid immediately b) only allow level on any case replaced within 5 years of inception?’… try that for a while and see if it starts to sort out the issues that were raised in the report?

    A FINAL THOUGHT: And by the way how was the figure of $1200 arrived at – I’ve read the explanation in the report and it still makes no sense at all… in 10 years time an SOA will cost $1200… its a ridiculous amount anyway but that aside it doesn’t even appear the amount is indexed…

  54. I’m no expert in this whole story however I cannot believe that this Trollbridge creature is serious when he suggests 20% commissions. I’m more of the view that he’s throwing mud at the wall to see what sticks. Suck it and see, if you like. I think we will see a revision to at least 30% level commission (at worst) or the suggestion by him then of a hybrid mix if the level commission is laughed out of school completely.

    This 20% should perhaps be viewed as his ‘first offer’. Stranger things have happened. Most advisers have renewal commission – maybe now is when this will be really counted on to subsidise our ongoing trek in looking after clients? Who knows. Just my opinion.

  55. I think we’ve all been a bit hard on Mr Trowbridge. He has tried to put himself in our shoes. That is, he has conducted some research and made a recommendation about insurance in a lengthy report. The report is not compliant because of the lack of remuneration disclosure. However, I’m sure he is receiving a fee of only $1,200 for the recommendation and only if that recommendation is put into force and would certainly not have received any other form of remuneration from product providers!

  56. As a claims manager I’ve worked in group and retail for several life insurers. It’s plain to see that on an underwritten product the financial adviser’s advice makes a huge difference into whether the application is completed correctly or not and it takes time to complete an app correctly, never mind all of the other work that goes with making sure a person is adequately insured. Advisers are no different from anyone else in just wanting to be paid fairly for all the time and effort they put in and for the time it takes to become professionally capable in the first place.

  57. What are the chances of this getting up?

    I know it’s a recommendation but how seriously will it be taken?

    It is farcical and obvious this dope has never been self employed nor sat in front of a client.

    What is this going to do now to business risk book valuations going forward?

    He is doing his best to decimate an industry.

    • TD, to call Mr Trowbridge a “dope” isn’t helpful. Whatever he may be, uninformed or otherwise, to resort to name-calling is the last refuge of those who don’t have a worthwhile view to present.

      While most of us agree with your sentiments re doing what an adviser does, we must acknowledge that John Trowbridge is a person of some note. For that he merits at least some respect. By so doing our remarks may, in turn, earn us a respectful hearing too.

  58. Yeah that’s right, make me spend tens of thousands of more dollars going to university and then slash my pay to below the minimum wage. That makes sense to me.

  59. Sad to say no surprise. I was quietly told months ago by some in the know that Trowbridge would recommend flat 20% because that was his brief.
    Sad that all the effort put into submissions by advisers was simply ignored.
    Sad that this decision will undoubtedly lead to a spike in IP claims as advisers find they can no longer cope with the stress of dealing with the workload required to make a sustainable living.

    The one thing I don’t understand is how a government can legislate to an insurance provider the manner in which they can invest in their future.

    Perhaps it’s time for a new insurance company, owned by the advisers who write the business. 20% commission + dividends based on profitability. Of course, given the owners would want to maintain profitability, they would probably leave the clients with health problems with the current insurers.

  60. I think people should read the report in it’s entirety before passing judgment. Mr Trowbridge is talking about renumeration within the context of a completely different operating environment.

    The payments for advice through upfront commissions exist to support a very high cost and time intensitve business process. A business process that has to change, not because of mis-selling or churn but because the current approach has failed to protect more Australians.

    The net industry movement over the past 5 years has been less than the CPI indexation of the average policy holder, this means that total industry sales have stagnated and margins have collapsed.
    Trowbridge has made some basic (and I believe incorrect) assumptions regarding potential premium savings and I don’t think it’s reasonable that an IAP is clawed back when the insurer can keep the premium from a lapsed policy, but that’s a nuance.

    The current structure results in advisers seeing very few people per week compared to other professions and it’s comparative productivity is horrendous.

    Don’t imagine that the banks are any happier with this report by the way. It recommends that APL’s are opened up. Compare Westpac Financial planning’s closed APL to ANZ’s semi open APL and you can expect that Trowbridge’s proposal will cost WBC $30million in new business sales, I don’t think they will be happy with that.

    Licensees will also be unhappy, those Insurance volume payments can be staggering amounts of money.

    Insures need to establish a code of conduct and they are not fools, they know that a reduced payment to the adviser means a higher marketing expense for them and massive investments in systems to reduce the time required to implement advice. With a $1200 payment they must find a way to reduce the cost of implementation to below $400 and you can absolutely bet that quite a few people’s jobs will be resting on finding ways to be more efficient.

    So you could argue that if everyone is dissatisfied then Trowbridge might have struct the right balance. The full report outlines a long term transition to a conflict free environment and a more productive profession. Both are objectives we should strive for.

  61. So pleased I just started my degree to have my earnings potential slashed by some clueless idiot. Does any other profession have mandated limits on the fees they charge?


  62. Sorry, another bit I forgot to add:

    The AFA should be commended for their efforts. Since the FOFA debates began they have been on the front foot in representing adviser interests. Advisers need to understand that they are a small group flying our flag against an army of detractors.
    The fact is that advisers are not loved or respected by anyone in government, by the majority of operating staff in product manufactures and certainly not by the media or the community more broadly (important to note that those who have worked with an adviser love us!).

    Against this backdrop they do a fantastic job attempting to influence the conversation and advocate for the work we do. Some of the comments above are disappointing, we haven’t seen the other professional body advocating for anything other than professional association and higher education standards, both of which are obvious in their self-serving nature. While the ex-chair of one association is taking pot shots at people within their own sector, Brad and the AFA have been championing programs like “your best interest”, high quality industry white papers into claims and the future of advice as well as actively responding to ASIC’s report with this important paper.


    • The AFA should be commended????

      The AFA should have done something about conflicted remuneration years ago. Advisers getting paid ongoing commissions for setting up group investments in super was the driver of all this and they sat on their hands and ripped off Australians for years.

      The AFA do not represent the majority of advisers and are out of touch with the concept of independent advice. They represent the big players (banks) and their only care for the Financial Services Industry as a whole is their own businesses which deal with the multimillion dollar clients.

      I support fee for service for investment because I have seen too many older advisers grow rich off the savings of regular Aussies. A fee for service for investment advice is appropriate as the client can see if their advice was good or bad by the performance of their investments.

      With Risk advice clients cannot guage how good the advice was until they come to claim time. They do not see the need for advice until it is too late. Clients do not think they will claim and therefore want to minimise the costs of insurance. If there is no incentive to provide correct advice at implementation time then clients will not get the advice they need.

      Insurers will not drop the costs as there will be other costs in getting new business. Clients will be left to sort out their own insurances and will ultimately be uninsured.

  63. They only want hybrid rates and the 20% is a smokescreen to get all advisers to cave in and think they have done well when they back off to hybrid rates.

    End result is Banks/Insurance companies get what they wanted anyway.

    Good luck guys I got out 18 months ago and after 30 years sold my book at 3.5 times. I am disgusted what these people are doing to a great industry and great people.

    • Thanks Arnold – makes us feel better that you got out selling your book at 3.5 times – good on ya mate.

  64. It seems to me that on this basis no adviser will be incentivised to provide advice and the consumer is the one who misses out.
    It will unfotunately lead to the demise of many ethical and responsible advisers.

  65. Where do I start with this outrageous rubbish. We have been totally sold down the river. One would hope that the AFA vigorously water down what is just a massive hit to our business. How does a potential increase of just 8 – 10% in trails cover costs. In Trowbridges own words, these reforms will lower our costs. Say what! And will also fall short of meeting our running costs. He himself makes this comment. Come on AFA, do you really represent us, or the banks and unions who are silently running this campaign. So consumers you are being screwed too. I know one or two advisers who churn, and I know hundreds of advisers ( can anyone quantify the percentage that do? ) no because this information has never been sought, because this issue is just the excuse. Anyway the small minority that do will simply start pumping out SOA’s on a production line, and revert to selling more using more hard sell, pressure tactics, harassing consumers creating more bad press for us. It won’t fix a bloody thing!

  66. IFAs had a chance to manage this issue when the FSC proposed the 3 year clawback rule (even allowing upfronts to remain). Instead it was rejected out of hand.

    IFAs needs to get in there NOW and find a *middle* ground.

    The unmentioned ‘sleeper’ in all of this is the change in consumer behaviour through the rise of comparator websites. This no doubt has increased policy turnover and worsened retention rates (to what degree??). Some comparator sites base their business models on retail cover and retail commissions.

    Let’s accept for now this is consumer driven (not adviser driven); then add increased claims through mental health (partly driven by a loosening of diagnostic criteria used by doctors). You end up with potential ongoing and *structural* increases in the cost of business for Insurers.

    It’s not all that hard after all, to have a website calculator which the consumer completes (needs analysis), have a list of proposed insurers with ‘research ratings’ and premiums – and hey presto, the whole thing is client instruction. You can propose advice, but by that point they have 90% made up their mind.

    Meanwhile Insurers are looking at the profit margins on their Direct Models (highly limited products I agree, and with all the risk of reputational damage that comes with it). But will the Managers who launch the new direct products be there to clean up the mess that will come years from now?

    Throw in a potential increase to the unemployment rate with a slowing economy (drives increase in TPD/IP claims) and we can see the industry has a few challenges to manage. I won’t elaborate on adviser challenges as this has been done well by other bloggers on this page.

    Trowbridge has acknowledged the upfront costs in producing advice and tried to remove the windfall element (fair enought). But it is nowhere near enough to cover cost of doing business (compliance, infrastructure, PI, etc).

    If the goal is to offers Australians financial protection in the long term, then IFAs AND INSURERS NEED TO WORK *WITH* EACH OTHER.

  67. I do not usually comment twice on an issue but with one like this that has such serious consequences if passed I think one more statement needs to be made
    Despite AFA distancing themselves from the report and supposedly not agreeing with “areas of it????” Now is the time for them to step up and represent the members who have financially supported them for many years
    The board of AFA let’s hear you loud and clear on this stop “dilly dalling” around on this and “sick em!!” Or you may not have enough members left to form an association and what are won’t want to be associated with one that won’t stand up and start “swinging”

  68. Dear Mr Z

    I just can’t let you warble on without riposte

    “Technology providers have opportunities”- you obviously have not been in the RISK industry too long. Who will do the spend – the insurers, 50% of which are owned by banks?. When David Murray and CBA purchased the Colonial Mutual Group he was told in due diligence that a new combined Internal Computer System was urgently needed, and it would cost $40 million. He spent just $5 million and the results are still obvious.

    Insurer and fund manager internal systems are ALL RUBBISH because the insurers will not spend $$$ on properly upgrading the “system ” , because their bank owners cannot justify the spend to the shareholder

    The technology backwaters in which most insurers operate their internal “system ” hinders risk product development ( “we will need system changes and that costs “) and hinders advisers seeking to alter policies for clients. Try increasing an existing policy Mr Z. Do you know that many insurers still do not have a system to automatically send out a Life Buy Back Offer letter 12 months after a Trauma claim

    The only BANK technology spend that will occur will be on Robo Advice Systems, so the banks can dispense with in house advisers and flog crap products on a GENERAL ADVICE BASIS without the liability exposure of Personal advice.

    The banks who run the FSC are not interested in helping advisers save money on the costs of introducing new business.

    So advisers will need to do the innovation then?. With what?. This proposal basically means a huge drawdown on capital, while not surviving on 20% level. Get real !!!

    The Trowbidge proposals, which I still argue are un-competitive and the actions of a CARTEL, are not creating an environment for positive change for us risk writing serfs in the financial services feudal system. The adviser-driven technology review you seek may occur for the limited number of advisers left, but only by big operators, and in an atmosphere of fear and loathing

    No one will spend money on anything that’s not a absolute necessity while in fear of loss of lifestyle – just ask Mr Abbott about our Budget driven recession.

    And to suggest that risk writers are not passionate about our industry shows your total ignorance of why risk writers stay for 25 years and investment advisers leave the industry in droves every time we have a GFC.

    Risk writers have to learn to face rejection, have to work un-paid when a proposal is rejected after months of investigation, have to put themselves under stress when an insurer is bloody-minded, and spend months on a business insurance case only to have the inevitable older director sabotage the case because of the size of his premium compared to the younger directors. Only a mug would stay.

    We are passionate about the risk business because any sane person would do something else less stressful and more profitable

    That’s why it hurts when a small number of dickheads burns it for everyone.

    BTW Mr Z , if every risk- only adviser leaves the industry to the fee charging lot, and the size of fully underwritten new risk business drops off, I will guarantee you there will be massive premium increases to prevent the failure of Number One funds in terms of capital adequacy and solvency.

    The insurers need risk advisers, but you wouldn’t know it

  69. The common theme by the AFA and Trowbridge is “publicly unacceptable high upfront commissions”
    Never have I heard the public (being the clients) complain about how much commissions I get paid. The only thing I hear from clients is “I wouldn’t pay out of my own pocket for the service!”

    In all these recommendations and most of the comments the Key Features are missing: HOW WILL THIS BENEFIT THE CONSUMER? What feedback have we had from consumers (Real consumers not demographically/socially controlled groups)

    The Industry Funds have made commission a dirty word, the AFA have supported fee for service for feeling guilty over commissions – everyone charges a commission in one form or another. A profit margin on any product on any shelf is calculated as percentage – thus it is a commission!!!!!

    Our fight will only end – not with the Government and regulators but the industry funds and the unions behind them!!!

  70. If the long term plan is to drive the IFA market into extinction or close to it then John Trowbridge will certainly succeed with his recommendations.

    I wonder how many months ago a flat 20% was decided upon as I hear that some of the FSC members have been pushing for this from day one as it has always been what they wanted.

    In Money Management today John Trowbridge also said “the industry is not accustomed for fee for service and it would take a long time for the industry to adapt”

    “I’m encouraging the adviser groups to look more towards fee for service which happens everywhere else. They shouldn’t assume they should rely indefinitely on it,” he said.

    John needs to do his homework as fee for service “Everywhere else” clearly doesn’t seem to apply to General Insurance brokers, Mortgage Brokers, Real Estate agents or Stockbrokers to name a few.

    It is also interesting that John wishes to copy the General Insurance Code of Practice (page 60 of report) as an industry code but they don’t work solely on a fee for service which is where John wants our industry to head.

    How about making all Mortgage Brokers, Insurance Brokers and Real Estate Agents charge a Fee for Service and also make it law to provide a written Statement of Advice outlining all fees, commissions and what each individual and their business earns upfront and ongoing just like we have had to do for over a decade.

    Maybe a ongoing Hybrid model could work for advisers over the long term but the current recommendations will see most advisers shut their doors to risk business or leave the industry altogether. This will only lead to higher underinsurance nationwide.

  71. Well said BillB

    Who else out there is sick and tired of being used as a political and self serving football for every government, insurance company, industry super fund, or so called consumer groups to kick around?

    Enough is enough!!

    John Trowbridge missed his calling as a he would make a great magician. For his first trick he could perform the “Now you see an IFA industry and “shazaam” now its gone” trick.

    Some of this report could be laughable it is so ridiculous and mostly unworkable but then reality hits and you realise the IFA industry who in the large majority provide quality insurance advice and service to clients including claims help is on the ropes getting suckerpunched into oblivion!

  72. BillB, i agree totally with your comments.
    I will be very interested in which insurance Companies come out in support of the IFA market.
    Right now the big 4 Banks and Amp certainly are winning this battle.
    We need to hear form those Insurance companies who are against this.

  73. Enough is enough!!

    Who else out there is sick and tired of being used as a political and self serving football for every government, insurance company, industry super fund or so called consumer groups to kick around?

    John Trowbridge missed his calling as a he would make a great magician. For his first trick he could perform the “Now you see an IFA industry and “shazaam” now its gone” trick.

    Some of this report could be laughable it is so ridiculous and mostly unworkable but then reality hits and you realise the IFA industry who in the majority provide quality insurance advice and service to clients including claims help is on the ropes getting suckerpunched into oblivion!

    • Paul you are 100% correct, one thing that these people do not understand is that selling risk insurance is difficult. I know that there are many good advisers out there doing it very tough.

      For advisers to continue to sell risk insurance there needs to be incentives. I will not hide away from the fact that I’m not doing this job out of the goodness of my heart, I am proud of the fact that I get paid to do an incredible job. “Ïf you are good at something don’t do it for free”. I love this industry and the benefits I provide to my clients, although if I’m not getting paid adequately I will not longer work as an adviser. Moving forward passionate professional advisers like you will continue under this suggested structure. Will you continue to write new business at the levels you currently do? I’d doubt it.

      If these recommendations come in, I’m out and I know many good advisers are out too. Some would say good, but who is going to replace them if there are no incentives to sell risk insurance. If that happens it won’t just be the end of IFA, it will be the end of risk advice and Australia can’t survive financially if people aren’t getting adequate insurance.

  74. It seems exceedingly obvious that you ‘quality advisers’ should

    1. stop taking commissions
    2. refuse the cost payment or IAP;
    3. ban all commissions; and

    wait for it…

    4. Charge a fee for your services!

    Accountants, Doctors, Lawyers all charge fees. Fees are charged in investments. This is a massive echo chamber.

    The real shame is Trowbridge didn’t go far enough!

    • People see Drs because they know they are unwell… Most dr surgeries are full of patients… Plus their business receives a helping hand from Medicare… Look at the hullabaloo which the suggested co payment caused… people see an accountant because a) they must submit a tax return and b) they may be hoping for some tax back… People use a lawyer because the feeling of injustice drives action… Most of the people who really need insurance can least afford to pay an out of pocket fee… They live week to week and are up to their eyeballs in mortgage, credit card and other repayments. This change needs carefully managed, the insurance business pays out millions of dollars every day to people who badly need the benefits which are paid… Many of these people would not have paid a fee for the advice. I had one myself last week who received a $1.6m tpd payout. Oh and my client also has an income protection benefit payable for the next 20 years. This isn’t an isolated case it’s happening every day all over Australia but if Trowbridges recommendations are followed, it will happen less and less.

    • Danny, that is overly simplistic I’m afraid

      Doctors receive a Medicare rebate (i.e. taxpayer funded) or private health insurer rebate;

      Accountants work under a government mandated regulatory compliance service (tax returns, BAS, etc)

      Lawyers provide full planning type services to those who can afford it. Services to middle Australia are transaction based (think conveyancing) or crisis based (cleaning up the mess – divorce, death, disability claims, etc).

      Life insurance is not mandated. It is a voluntary choice to not rely on the State in the event of death or disability. Automatic group insurance through employer funds is nowhere near enough for most people.

      And by the time most people make the decision to get insurance it is too late.

    • Hi Danny,
      I think you’re trying to start a fight, the fact is the vast majority of people in Australia don’t see the need for risk insurance until they have it highlighted to them. 99% of clients (for risk only) would be scared off at the first meeting if you said they needed to pay a fee before I could even show a benefit.
      Please don’t be silly, this is a very important topic and has massive consequences to many people, not just advisers. Just think of the staff of financial planning firms and insurance companies that will lose their jobs, let alone all the people who will go greatly under-insured if these measures go through.

    • Do clients of Accountants, Doctors and Lawyers pay twice? You are asking the client to pay the insurers premium AND pay a fee on top of that.

      Now run along back to your industry fund and let the adults chat.

    • “Exceedingly” obvious Danny? Haven’t you been reading what the “quality advisers” have been stating? Consumers will NOT pay a fee to their adviser for advising them in and helping them establish their insurances AND pay a premium! If consumers were prepared to pay such a fee then risk writers would not be defending our only means of remuneration so vigorously!

      Ban Commissions? Are you not aware of what happened in the UK immediately following the GFC when they did just that? It was devastating.

      Scroll back and read the responses to the similar nonsensical comments made by Dean late last week. Dean also tried to use the argument that other professions charge fees. Please use your common sense – once the clients of these other professionals pay for their service, then that’s it. The consumer is not hit with another ongoing fee. Your comparison in that regard is not realistic.

      There is a lot to be said for the professional risk writer who works in risk insurance day in and day out, and as a result of their experience, can see very clearly the dire ramifications of what Trowbridge is advocating.

  75. If it’s all so exceedingly obvious Danny, why are so many of us experienced and TOP QUALITY advisers so concerned (note the absence of the condescending inverted commas)? If charging a fee was the obvious answer then why aren’t we doing that now? If it was as simple as charging a fee why didn’t Trowbridge suggest that we do that?

    I would LOVE to charge fees in my risk only practice – life would be so much easier.
    Rather than point out why what you have suggested is clearly not a viable option for a risk adviser, how about we look at this from another perspective? For these purposes I will assume you are a financial planner who specialises in investment advice.

    Danny, can you do me a favour mate? Can you have a read through the client scenario I’ve layed out below and then answer these three questions for me:

    — What fee would you charge this client if he decided at this stage (before the SoA) that he did not wish to proceed?

    — What fee would you charge this client if you completed and presented an SoA and he advised that he did not wish to proceed?

    — What % of your client prospects do you estimate would not actually wish to come see you at all if they knew that there was no guarantee of their investment being placed? Or that their investment returns may be affected by their personal background?


    I wonder how you would go if your investment-focussed world looked like this:

    Let’s say a client has $100,000 to invest and seeks your advice (by the way, this in itself is an advantage not afforded to most risk advisers – clients actively seek out investment advice (driven by greed), whereas it’s nowhere near as common for clients to actively seek out a risk adviser (driven by fear).

    Now that you have a client who has $100,000 to invest, you need to decide which of the six investment platforms you have access to will best suit your client’s specific needs. They each have varying investment options and pricing structures, and so researching takes a bit of time. As well as extensive research into the features and benefits each of these investment platforms offer you will also need to send numerous emails and have numerous direct conversations with each of the platforms to see if they will in fact be willing to accept your client’s $100,000. As you know, having money to invest and having a desire to invest doesn’t provide the client with a god-given right to actually invest. The platforms have to approve his application to invest his money.

    Your client’s overall profile and investment history will present a challenge in this case, and you suspect that a number of platforms may reject his application to place the $100,000. However, as you can’t be sure and as you wish to provide the client with the very best possible outcomes you decide you’ll liaise with as many platforms as you can.

    The platforms have some requirements that you need to pay heed to. As the client is self employed and therefore his income may have fluctuated over the last number of years, the platforms all advise that before they will consider accepting the client’s funds they will need to review the client’s last few years of income. You therefore need to liaise with the client’s accountant.

    After providing the financial information as requested, a number of the platform administrators express a concern that the client may not present a “good risk” – they have noted that the client’s business suffered a loss two years ago and this has concerned them. As well as that, even though your client’s business had a decent year last year, a number of the platforms don’t believe the prospects for his particular industry are particularly rosy – they are concerned that the client may redeem his funds too early and that he will be an administrative burden who won’t provide as much profit opportunity as other clients.

    Three of the platforms at this stage inform you that they do not wish to accept your client’s $100,000. They just don’t want that type of client. You are disappointed because two of these three platforms were the ones that you felt were the best suited to your client – the investment choices were terrific, the flexibility suited the client and importantly they had the lowest overall fee structure.

    There are three remaining platforms you are now liaising with. At this stage, you are not really sure where you will end up placing this client’s $100,000. Given the income history concerns, the remaining three platforms request that you ask the client some additional financial questions. This requires you to again liaise with the client’s accountant. You are asked to find out about the client’s family financial history. The platforms wish to know whether the client’s parents, brothers or sisters have ever been declared bankrupt.

    The client divulges that his father was declared bankrupt at age 49. Now things are getting a bit tougher, as two of the platforms have strict rules in place for self-employed clients with a business loss in the last two years and at least one blood relative who has been bankrupt. Both of these platforms reject the application.

    The last remaining platform advises that they can accept the client’s money but only if the client agrees to accept some special terms. The platform advises that they are only willing to allow the client to invest $50,000 using their platform. They also advise that however that $50,000 investment performs they would only be willing to provide your client with 50% of the returns (keeping the other 50% for themselves due to the extra “risk” this client represents).

    At this stage you haven’t written the SoA – all you have done so far is complete the investment pre-assessment process. After a number of client meetings, consultations with platform administrators, liaising with the client’s accountant (all adding up to over 10 hours of your time) you advise the client that you can invest $50,000 of his funds (not the full $100,000) and you explain that he will only receive 50% of the investment returns.

    The client says “let me think about it” and your left chasing him for the next few weeks.

  76. Dean P
    The insurance companies who are most likely to come out in favour of this are those with the smallest exposure to group insurance and direct insurance, and those least affected by high policy retention rates in the retail sector.

    The remaining retail insurers who do not fall into these categories will content themselves with generic motherhood statements about the value of advice and so on, while not making any specific commitments.

    I anticipate that whatever the outcome, it will require the tacit approval of APRA and the more explicit approval of ASIC. In that respect, the FSC has considerably more influence ‘with’ these institutions (i.e. not ‘over’) compared to our FP associations (AFA, FPA, etc).

    Generally speaking the Life Insurance industry is Retail 60% / Group 30% / Direct 10%. The latter two have grown in the last 7-8 years. Insurers will be arguing this has helped with the underinsurance problem.

    What the AFA appears to have *not done* is DIG INTO the data on Group and Direct and point out why there are false economies with these products. Such as:
    – rising costs of group claims due to use of lawyers (as there is an absence of an adviser to facilitate the claim, and the call centre support is grossly inadequate or misleading).
    – Deteriorating product design in the group space (to make the product profitable again in view of recent experience).
    – FOS and SCT complaints (Industry funds and Employer funds tend to have higher complaint rates, compared to retail funds. death and disability benefits are a major reason).

    An over reliance on these product lines is not a good result for consumers. Competition in retail (promoted through advisers) has offered substantial improvements for consumers even within products themselves – e.g. rehab and return to work support on IP claims equals financial and quality of life outcomes.

    In return advisers will have to offer some changes. In my view, accepting a hybrid commission with a 3-year clawback is workable.

    • I agree on all points but the last. Where else does someone have to pay back their income 2.5 years after they have received it? There are a multiple of reasons why a policy may not stand the test of time none the least affordability on behalf of the client. So why should the cost of someone else’s personal issue or what every problem become the adviser’s issue. A hot topic I know but there is no other profession that has such ludicrous laws/requirements.

      Although different but inter-related, if a lawyer, doctor et al fail to provide what they state/things didn’t work out as intended…… off to court you go. There is no FOS which then passes the cost of the “false” claim (circa 10-15K) to those professions irrespective of the fact that the claim was completely and totally false with no basis in the first instance. Alas the whole discussion has been hijacked by vested interests pushing their financial agendas.

Comments are closed.