Both the Association of Financial Advisers (AFA) and the Financial Planning Association (FPA) have reiterated their position on retaining commissions for life insurance advice, saying they are continuing their discussions with Government.
AFA CEO, Brad Fox, has issued a communication to members, confirming that the AFA does not support the remuneration/commission recommendation made in the Trowbridge Report, nor the ‘five year rule’ on initial advice payments.
“The AFA continues to believe that the market for life insurance is best served by a continuation of hybrid and level commission options, as well as an option for the adviser to remove all commissions and dial-in a fee collected with premiums,” Mr Fox said, adding that remuneration was only one part of a package of changes needed.
“Insurers must commit to a code of conduct that prevents them from acting in ways that encourage advisers to operate in conflict with the best interest duty they owe to the client. Insurers must commit to bringing more efficiency to advice practices and clients when putting cover in place, and equally where variations to cover are required. They must also commit to the passing back of new terms and benefits to existing policy holders.”
Insurers must commit to bringing more efficiency to advice practices…
Despite conducting talks with Government, the Australian Securities and Investments Commission, the Financial Services Council, the FPA, insurers, more than 35 licensees and dozens of AFA members, Mr Fox acknowledged that a consensus with all parties had yet to be reached.
“…but we are continuing to expend every effort to get one. It is expected that it will be late-June or early-July before the final outcome is known,” he said.
Mr Fox also committed to members that, regardless of the final outcome, the Association would provide every assistance possible to members to make the transition to the new insurance regime.
“It will be a small step for some, and a leap for others. It will be a time for our members to leverage the best thinking from each other, to connect and participate with our Genxt and Leaders Forum communities, and to share the journey rather than becoming isolated or overwhelmed,” Mr Fox said.
Addressing attendees at the Sydney leg of the FPA’s mid-year roadshow series, FPA General Manager Policy and Conduct, Dante De Gori, warned FPA members that there was no guarantee the Government would pursue a hybrid model, as recommended by the FPA in its Insurance Blueprint (see: FPA Blueprint Calls for Churners to be Reported). Despite securing support from 70% of a 1,000 member survey on the proposed insurance model, Mr De Gori said the FPA was not confident the hybrid model would be accepted by the Government.
“That is under threat. The Government is really keen to push toward a level option, which is the only thing they have on the table at the moment from the David Murray report,” Mr De Gori said.
He confirmed that the FPA was also continuing its talks with the Government and other industry stakeholders.
“There isn’t any doubt that this will change – it’s just a question of where it will go,” Mr De Gori said.
The AFA is wrong, without the current commission structure the industry will fail, many advisers RISK advisers that is will shut up shop, its hard enough as it is with the current RED TAPE of FOFA. and what about you ANZIIF what do you say or do you say nothing? in ay event the only person keeping this argument alive are the reporters.
You are 100% right Gerald. Unfortunately the debate for upfront comm has been lost and it is gone. Have to move with the times and constantly evolve.
The mining industry spent 25 million dollars in advertising on radio and TV and the Government caved in on tens of billions of Tax revenues.
Now the Government is looking at caving in to vested interest groups and the result will be lost Billions of PAYG Tax, due to tens of Thousands of jobs that will go, due to a total collapse of the retail Life Insurance area if a level commission regime is introduced and there will be a collapse of new Business and quality existing Business. WHY?
Premiums to fund expenses and pay claims will need to rise to cover the massive losses that within 2 years will explode upon Australia due to healthy people cancelling their policies in droves to get the cheap and nasty, though easy to attain direct offerings, while existing policyholders with medical conditions and people already on claim, will stay on the books to further drain the diminishing revenue pool.
On top of that, the dumbed down version of Life Insurance, will go down the path of Coles Supermarket style car Insurance advertising, where people will change Companies every year to chase a cheaper premium, with the result of further CONSOLIDATION or in plain English, job losses in some areas of Insurance Company departments and a explosion of Lawyers who will be needed to fight the thousands of court cases for not paying claims.
At least the legal eagles will be happy and the extra result of all this, will be greater under-insurance and Billions of dollars the Government will need to find to support many thousands of people who have been forcibly removed from their homes by the Banks for not being able to repay their loans and thousands of Businesses who will be forced to close their doors because they did not have the correct Insurance, with further unemployment.
BUT HEY, the great news is the liquidator and administration vultures will have a field day.
The end result will be all bad and nil good.
The Government and dare I say it, many Insurance Executives have never ventured into, or sat in front of a client, or never sat in a advisers office to see how the real world works, yet are happy to tell the world what they think is the solution to a problem they have no idea of.
The AFA and FPA need to take the gloves off and tell it as it is and will be and stop pandering to fools in Government and self interest groups who will destroy a great Industry that has served the community through wars and depressions.
There are changes that need to be made and none of them will work if there are no advisers who will be prepared to sell Insurance at a loss and do not believe that the existing Insurance premiums will be protected.
If a direct product policy flogger convinces a client to switch to a cheaper and inferior policy, as they can easily do due to them being able to get away with murder, the hours it will take to go see the client, write up a best interest report, follow up etc, that is extra time and expense that will lead to further losses.
Advisers will cease advising on Life Insurance and do more profitable work.
Maybe Life Company executives should look at how their bonus will be affected and eventually their job will be affected because what they do to Advisers, will come back to bite them if there are no retail sales coming through the door.
Move to pure fee-for-service and wholesale insurance product costing and watch the level of insurance uptake wane severely and more begin to lean on the social security system. Then we’ll hear some serious bleating from the regulators….
as risk advisors we are paid by performance only,we can also work for nothing,,if there is no fair carrot to get us out of bed,it wont be worth it? if have done insurance for over 40yrs,just plain old commision only,no fee,,for yrs just appl,,simple,,now soa,,f/f.fsg..ect.and now less comm proposed,? if you think of it most risk stuff is paid by the month so we have got money on loan for 12mths just in case it lapses..what other job demands this? my opinion,upfront comm should be still available..maybe longer claw back period,,look if it is decided by the powers to reduce our earnings it will be a sad day for all us riskys out there,,remember our overheads ect dont go away,,
Surely when financial planners/risk advisers are a legitimate business,
regulated by government and controlled by ASIC and licencees,
are considered small business contributing not only to the wealth of this country but also the financial protection,
then surely such a small band of people doing such a big job have right to be heard and encouraged to continue doing the great job they already are.
Instead, they have become the whipping post for government bureaucrats and regulators and the minority of do-gooders who are out there to promote or protect or enhance themselves using a few bad eggs as the example of the industry.
Approaching the whole subject from a different angle to highlight the problems already in existence and acknowledged such as the gross under-insurance of Australians as a whole means that perhaps the planning industry needs to walk away from doing this job and instead doing another without all the complications. One that showcases the need for the work done by risk advisers and planners.
Unless you are employed by the banks, you are self-employed and need to make business decisions. Yet everyone remains tightly controlled by what they can do or say by licencees or the regulators who are nothing but employees. That’s the tail wagging the dog.
Little wonder the industry will never mature into a recognised profession while employees tell the employer how to run their business!
I was at a PD day last week and could not get confirmation that Hybrid commission would translate to lower premiums. I would expect not.
Just say it does translate to lower premiums advisers will then earn even less = Hybrid commission on lower premiums.
If the premiums are less how about the insurance companies adjust renewal commission to at least 40%. This will give all advisers a chance to remain in the industry.
I will also in the future being introducing a claims fee in my Client Service Agreement – one percent for Lump sum claims and hourly fees for Income Protection. With the reduced up front this will be the only way to remain in business.
But what about your trail commission more than doubling?
Sam the claims fee would only be put in place if the trailing commission increase was ignored.
Why can the government see into the future like advisers who write risk insurance who do?
Simple as mentioned by many already they have never sat down with a client.
They believe that they are informed when actually they’re not.
I accept upfront are gone but as mentioned hybrid or level or fee for service should so that the planner and client discuss and they can have the option of choice .
its not difficult but it has been, because people are justifying their existence.
It is an interesting conversation the one about upfront commissions and churning. I feel that they are two separate issues. There are appropriate compliance regulations in place that would deal with any inappropriate churning (or regulations which could be tightened to further prevent this) so therefore there is no need to address churning in any other way.
The work involved in creating a risk policy for a client can be quite drawn out and onerous. The connecting with a client, discussing their needs and objectives and then creating a Statement of Advice for your recommendations; catching up with the client once more for the possibility of implementing that insurance and then following that insurance process through to completion(which could entail medicals, financials etc) involves many hours work. This is what upfront commissions covers.
So in light of this immense responsibility Risk Advisers have in giving this advice and the extensive work required to help client’s to meet their needs and objectives, I feel it is justifiable to have upfront commissions whether it be via hybrid or the current commission structure.
It seems interesting to me that those making the decision or impacting upon this decision (the Regulators/Trowbridge/Insurance Company Executives, Politicians) are all PAYG funded. These people are deciding our remuneration structure when they may never have been in the situation that Risk Advisers are in when providing advice. So therefore, they tend to be very flippant about having level commissions and that level commissions will suffice for Risk Advisers to survive.
I do not understand why there is so much fuss when churning can be dealt with by regulation (or a more strict version of this) and where hybrid commissions can have longer-term benefits to the industry (at an 80/20 split).
In considering such drastic changes to the commission structure for Risk Advisers, the industry needs to be mindful that in England there was a banning of commissions which resulted in an unpleasant outcome.
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