- No (87%)
- Yes (8%)
- Not sure (5%)
Last week’s poll asking for your views on the Reform remuneration model for advisers proposed by John Trowbridge has triggered the biggest-ever response to a riskinfo poll.
This poll, and this remuneration debate, are both ‘last chances’. Most importantly, Mr Trowbridge has labelled his package of recommendations, released following a consultation process with the joint FSC/AFA working group, as a ‘last chance’ for the life insurance industry to self-regulate before the Government intervenes to impose its own new rules on the sector. It appears to be widely accepted by many industry stakeholders that this is exactly what will happen if the industry does not use the recommendations in the Trowbridge Final Report as an opportunity to develop a consensus approach to addressing the issues that have plagued the sector.
… And it’s also your last chance to make your voice count in this poll before we move on to another topic (but one which will probably focus on another ‘Trowbridge’-related issue).
For those who have yet to add their vote, we’d love you to do so, while we encourage all advisers to add your reasoned thoughts and ideas to the substantial body of comments we have already received from many hundreds of advisers, about how you believe your remuneration should be structured in future (see: Adviser Thumbs-down to Trowbridge… and 20% Flat Commissions…).
As we go to print, the vast proportion of the huge volume of votes we have received (87%) have rejected the notion that a 20% flat commission, supplemented by a $1,200 Initial Advice Payment, will translate into a viable business model for a risk-focused advice practice (or any advice practice).
But as important as it is to register your opinion on this proposal, it is equally important to articulate your preferred alternative, which will range from calls to retain the status quo through to how a fee for service model might work in future.
riskinfo is YOUR publication and we hope you will add your voice to this critically-important debate.
I agree that insurance commissions are too high however I feel that the proposed structure is far too low. Like any situation I believe there will be a to-and-fro scenario and all parties concerned will meet somewhere in the middle (and if not then someone is being either too greedy or too stupid). The model I would support would be for a flat up-front plan fee of $1,200 plus GST (tax deductible to the client) and a flat insurance commission of say 70% (reduced from the current 110% in most cases). This represents a significant drop for clients in the cost of the cover (therefore making it more affordable and attractive to clients) but also ensures the adviser receives appropriate remuneration for their time and work. I would like to see John Trowbridge work as an insurance adviser on 20% commission! He wouldn’t last a month. Common sense must come to the fore and a suitable solution worked out otherwise some high flyer will make a ridiculous decision which will kill the insurance industry and make Australia become even more under-insured compared to where it is today. The only winners will be those that utilise group insurance (ie: pretty much most industry funds) and charge what they like and change their rules when and how they like without consultation or consideration of their clients.
Discussing and debating alternative commission structures, then coming up with a lower figure, is a bit like having a internal lock on a cockpit without a keypad to enter, which means the pilot cannot get access to fly the plane when he gets locked out.
If there are fewer existing advisers and no new advisers to bring in clients and look after established clients, then the whole thing becomes like the UK experiance, which was a farce that cost Billions of pounds and achieved nothing.
The people looking at commission as being the cause of the problems with the Life Insurance Industry, remind me of Neville Chamberlain waving his bit of paper and proudly boasting, peace in our time, which of cause promptly led to world war 2. Another example of someone who had a good heart, though no idea of what needed to be done.
If we want a sustainable retail Life Industry, commission is a small part of the equation that will have no beneficial impact upon it being reduced, apart from a reduction in commissions being paid, with a much bigger reduction in premium inflows and lapses, as there will be fewer advisers to explain to clients what features and benefits they have and to help fix admin issues when the Life Companies complicate everything.
whilst it is easy to criticize the Trowbridge report and take aim at the various zealots in our market place who hate commissions, it is not easy to come up with answers that might actually work – except leave things largely unchanged.
Radical change that puts greater cost on the consumer will not fix the problem. Neither will legislation fix poor behaviour – if it did, then no murders would occur where the death penalty is imposed…or drug possession in countries with the same ultimate sanction.
I believe there are powers in play that have other motives beyond the consumers interests and also beyond the maintenance of the status quo….but I cant prove it.
Churning is seen as the wrong thing to do….and if there is no provable benefit to the client, then it is absolutely wrong.
But what if the life companies did automatic, retrospective policy upgrades (including premium adjustment) so that there is little benefit in moving from one company to another? Churning then could not be justified in the advice and auditing would pick up the practice and ideally re-education or industry exit would occur.
Problem solved.
Commission is paid on just about any item or service we purchase but isnt always called commission….bonuses etc are used instead. It has served the world really well and has provided incentive to sell products and services without imposing greater cost on the consumer….imagine if we were required to pay someone to source a car/product and their only reward was the fee…no other benefits allowed. So a manufacturer would charge the normal price and we would pay that PLUS the sourcing fee. There would be uproar. Same goes for every other item. Then add in a requirement for the sourcing agent to put recommendations into writing and justify them having already gone through a full fact find. Of course they would have to have gone through an accreditation process with all manufacturers as well to ensure they knew what they were talking about and maintain that accreditation with upgrades each year. But could only be rewarded with a legislated limit on the fee no matter the value provided….who would do that job? But wrap it all up into the price and allow negotiation in the chain (dial down comm) and it is acceptable to everyone.
Put another way, upfront commissions pay the adviser to do all the work and some of it is a pre-payment for when a claim occurs. It works.
Life insurance has always been a product that is SOLD and seldom BOUGHT which is why a fee model doesn’t work very well for risk advice in isolation. The only people who have come to me for life insurance without being approached first have been sick or recently diagnosed with a problem. And that is over 24yrs in the industry. Everyone else has had to be educated in their needs and have subsequently implemented some cover.
Level commissions don’t cut it either as the adviser is not rewarded sufficiently to make it a viable service and certainly would be inadequate to research the market place and go through the whole process to improve the product offering to the client regularly.
Why is a section of our society trying to regulate the income of our industry? It is counter to our basic freedoms as a business owner. The consumer can decide whether they will pay or accept advice proposals and I am sure that if they were actually asked their opinion, they would be hard pressed to come up with reasons for changing the current position…..because in the main it works.
I have been back in practice writing only life insurance, for nearly 10 years now since my departure from corporate life.
For the last 7 years, I have been writing all of my risk business on a “Hybrid Commission, and sometimes on a level commission basis”. The effect on my renewal income has become significant, and so much so that new business sales are still required but not essential as it was in the early years. (A great position to be in). This has given me enough incentive and income to really service my clients very well, and assist with the costs of servicing clients including whilst on claim.
I would like to propose the following simple solution to this whole life insurance commission debate.
1. Ban Upfront commissions.
2. Retain the Hybrid and Level commission options as they are today.
3. If a policy is replaced within say 5 years, then this policy can only be written on level commission basis with the new insurer.
4. The so called churners would be stopped in their tracks, however their renewal income would benefit significantly.
Spot on Mark, that has worked for me also, its not easy in the first couple of years, but pays off as long as you keep your clients educated about the noise that is competition in the market..
A sensible approach. I like all 4 points. Maybe this will all settle around these points.
That didn’t take umpteen enquiries and 5 years to come with now did it!
How many governing bodies or reports does it take to work out a solution?
When 1 alone guy comes up with such common sense fixes to the issues.
Unless we are not being told the full story on what the real issues are!
The compliance regime has spawned a sub industry of highly paid bureaucrats who specialize in closing the stable door after the horse has bolted.
The key to good governance is prevention not cure. In the sales situation ,( yes I used the S word because generally risk is sold not bought) , the way to ensure good practice is to focus on quality of advice not legal jargon and disclaimers.
Commission has become another expletive but is a fair way of remuneration if managed sensibly.
Cutting commission to 20% will decimate the interdependent risk writing profession and may benefit the in house group and tele sales products where advice is very limited.
Retention of business depends on quality of advice and regular reviews.
Replacement from time to time is inevitable from time to time as products and peoples circumstances change as long as the client is clearly placed in a better situation with no hidden disadvantages .
Risk writing is a complex and honourable endeavour and the implication that advisers are only thinking of their own pockets is downright distasteful, especially for those who have been in the industry along time.
By all means penalise the transgressors but don’t tar everyone with the same brush.
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Agree with Mark … plus make Hybrid and Level rates the same across all insurers so you can sit in front of clients and say “we have found the best/most appropriate insurer for you, and I am remunerated the same regardless of who we use”. Can we make these changes soon before someone who has no understanding of our industry makes ridiculous changes without our input.
Mark is absolutely correct it can be that simple, I have been in this amazing industry for 37 years, have looked after hundreds of claims. Have laughed and cried with clients and have been blessed to be part of it. My intention was to be here till I am 70 another 13 years I love my industry and my clients. I have never had one complaint in all that time because my clients needs came first. I could not sleep last night, at 3am this morning I made a decision to exit the industry and sell my practice. I had a very emotional talk with my wife this morning, and she said those clients need you, please don’t stop doing something you love. If this change goes through we will loose thousand’s of outstanding people in our Industry, from Underwriter’s to Clerks to BDM’s to Dealership staff to Adviser’s and their staff, it will kill the Industry and of course the big looser is Australian Families. There will be nobody left to provide the advise that our communities require to ensure they are adequately covered.
Everyone has had their say and when you look into every comment there is the underlying “tone” that this ridiculous approach has some sort of underlying altierer motive.
We need the life offices {particularly the bank owned ones } to come out and advise us where they stand on this. There has been a lot of silence from all bar Clearview who are not in favour of it at all {thanks Simon} at least someone is not hiding in the shadows. Without their support of unattached advisers it will make our quest that much harder
I agree with Mark a workable solution appears relatively simple. However, as Ken has noted there is larger forces at play here that are definitiely driven by ulterior motives – that being the destruction of the IFA industry. The FSC Cartel (banks, AMP, Industry super) are hell bent on a strategy to remove IFA’s as a competitive force, further enhancing their vertical integration strategies and increasing market share.
If the government, ASIC, APRA, and indeed the journo’s at the SMH, really are committed to ‘cleaning up the financial planning industry’ & benefiting the consumer they will support a robust & sustainable IFA industry and see this FSC sponsored report for what it is – a greedy commercial grab for business.
The non-bank insurers (TAL, Zurich, AIA etal) need to come out and voice strong oppostion to this report as they too will be among the losers. The AFA & FPA also need to be more actively supporting IFA’s or be called to account for their timidity in the face of the FSC cartel.
While the discussions in this forum are helpful it is the politicians, decision makers, and mainstream media (SMH) who need to be hearing the comments to enable them to hear all sides of the discussion. At present IFAs are a voice in the wilderness who are going to be steam rolled in to extinction if we don’t make ourselves heard.
I lol atThrowbridge today saying that Insurers profitability has nothing to do with this argument…. Their BDM’s for the last two or three years have been telling us it is for this exact reason, must think we are idiots.
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