- Yes - but I don't support the remuneration proposals (37%)
- No (36%)
- Not sure (15%)
- Yes - and I support these remuneration proposals (12%)
Our latest poll asks you to consider the compromise Life Insurance Framework remuneration package of proposals, and whether it will it work for your business.
This is a critical moment for risk-focussed financial advisers, for whom ASIC has estimated 80 per cent presently operate under the existing upfront commission remuneration structure.
We have already received a significant volume of your comments, many of which reject the compromise package proposed by the AFA, FPA and FSC, but which has been supported by Assistant Treasurer, Josh Frydenberg (see: New Life Insurance Framework Announced).
For this poll, we’re asking you to tell us whether your advice practice can successfully conduct business under the proposed model, irrespective of whether you agree with the proposal.
One of the most outspoken supporters of the risk adviser position during the FoFA and Trowbridge debates has been Synchron Director, Don Trapnell, who has noted the new Framework could have been less accommodating for existing advisers. He noted the Framework “… is nowhere near as bad as it could have been for advisers or for consumers.”
A less ‘friendly’ proposal from the adviser perspective might have included:
- 20 per cent level commissions only, plus a capped $1,200 Initial Advice Payment
- Banning all risk commissions
- Only a two year transition to the new package
- The clawback structure proposed by the FSC in 2012 of 100% in year one, 75% in year two and 50% in year three (versus the proposed 100%/60%/30%)
- Zero commission for replacement policies inside the first five years, as proposed in the Trowbridge Reform model
- Payment on a per-client basis, not per-policy
While these elements will not need to be considered, at least for the time being, the following Life Insurance Framework proposals will:
- Maximum total upfront commission of 60 per cent of the premium in the first year of the policy, from 1 July 2018
- Maximum ongoing commission of 20 per cent of the premium in all subsequent years from 1 January 2016
- Three year retention (‘clawback’) period, to commence from 1 January 2016 to apply as follows:
- in the first year of the policy, to 100 per cent of the commission on the first year’s premium
- in the second year of the policy, to 60 per cent of the commission on the first year’s premium
- in the third year of the policy, to 30 per cent of the commission on the first year’s premium
- Ban on other volume-based payments from 1 July 2016, with appropriate grandfathering arrangements, consistent with the Future of Financial Advice laws
- Life insurance companies to offer fee-for-service insurance products to support advisers who wish to operate on a fee-for-service basis
The important transitional arrangements include:
- Maximum total upfront commission of 80 per cent of the premium in the first year of the policy from 1 January 2016
- Maximum total upfront commission of 70 per cent of the premium in the first year of the policy from 1 July 2017
- Maximum total upfront commission of 60 per cent of the premium in the first year of the policy from 1 July 2018
Our poll question falls into the category of being a simple one to ask, but potentially a very difficult question to answer. As always, we seek your views and your comments that we hope and trust will contribute to this critically-important and ongoing debate…
60/20 I can live with, you can plan for that. The three year responsibility period is the part of this proposal that is unfair and will probably drive advisers out of the business. What industry in Australia has had legislation where you have to pay back money for a service which you have paid taxes on as well as all other business expenses? None! The Insurance Companies and the FSC have got what they set up to get, a reduction in commissions plus the clawback, no reduction in premiums for the client. The only loser is us the Adviser. Where is the pain for those product providers? None, it’s all upside for them. Here’s a thought, what if all Advisers, on submitting new business, used the tele-underwriting service? The Insurance Companies would wear the cost of arranging medicals/financials etc. Can you imagine their response,”the cost of this will have to be passed on to the Adviser”.
You have raised one very important point Damian. If an adviser has a claw back after he has paid taxes on the income, will the ATO provide a refund?
They haven’t thought this through at all!
The most contentious part of the changes is the 3 year claw back.
No other small Businesses in the world have to wait 3 years to be paid.
The real commission an adviser receives is a fraction of what is paid after time and expenses are calculated.
The Life Companies and regulators, as a matter of urgency, must reduce the time it takes today for advisers to advice, place Business and administer the clients policies and needs, before they slash revenue and add more burden with a 3 year claw back.
The AFA and FPA need to draw a line in the sand on the 3 year claw back.
How many Investment advisers would survive if their fee income had a 100% write back for 12 months and still 30% in the 3rd year if a client decided to retire, move advisers, draw down their investments to cash because of market volatility, or dozens of other scenario’s that have nothing to do with the Investment advisers advice or service.
THAT IS WHAT IS HAPPENING TO RISK ADVISERS AND IS NOT ACCEPTABLE.
The Actual dollars figure for the write back after 3 years adds up to more then 30% with inflation and already paying tax on that Money. No other business or Industry would accept this from our Government. the extra pressure on a small business is enormous and they act like it’s reasonable.
Anyway will be the last vote and the last of my Support for the LNP from here on in…. Goes for all these other organisations who only served the banks, I’ll make sure my customers, family, friends and anyone else I come across knows the truth, that this has been an attack on small business and is not the first industry to be attacked in this manner and wont be the last.
Cheers,
The 110-120% up fronts were always going to go, that is not shocking… What is shocking is to go from 12 month to 3yr clawback period. This compromise is totally unacceptable.
Cutting acquisition costs in this day and age is one thing, but followed up with a big kick to the proverbial groin by forcing THREE TIMES the responsibility for half the revenue is another.
Sure people can carry on about how it could have been much worse on 20/20 etc, but fact is the deal still isn’t where it needs to be. An adviser’s work load is ever increasing not decreasing. Compliance and customer service has never been more important, and it’s just going to get harder.
If this is the deal and its hear to stay, I don’t feel that our point of view has been heard all to loud and clear.
What is important to remember is that these reforms where INSURER, not government driven. The insurance companies themselves sought ways to make their business profitable, riding on the back of the frenzy towards financial system reforms.
I must concur that the really contentious issue is the three year responsibility period. It is the one reform the insurance companies themselves might regret. This is the key factor that might drive many advisers form the industry, effectively killing the goose that lays the golden egg for the insurers. Unless, of course, that’s what some of them want – pushing consumers into far more profitable online insurance. However, I believe this would be a short-sighted strategy on their behalf.
I believe we can and must push for change in this particular area of the responsibility period.
As a hybrid model business, the remuneration changes will affect the bottom line, yes, but are not a real concern.
However, the 3 year responsibility period is a step too far IMV. One which will see many advisers in trouble having to refund commissions down the track through no fault of their own.
How many industries sell a product today and may have to refund the income for up to 3 years? Many hundreds of advisers will not accept this change and leave the industry.
Many hundreds of advisers will not have the ability to underwrite their income for the period expected.
We already know that up to 30% of applications don’t make it to acceptance, so I wonder how much work the powers to be expect us to do for nicks.
Fee for service model doesn’t suit many consumers. So they’re left to buy inferior products online.
I see no benefit for the consumers as an outcome of this extension to what would have been acceptable reform.
More foreseen unintended consequences, I’m afraid Josh just doesn’t understand the affects on the industry long term. .
As already mentioned the hardest part of this to swallow is the 3 year clawback 16 months ago I borrowed a considerable amount from a Bank with vertically aligned issues to pay out my business partner and allow me to work on growing my business How are they going to react if I struggle to make the repayments due to these changes they assisted in implementing ( regardless of what they may say) The insurers and banks complained like spoilt children that their risk businesses were unprofitable after they were the instigators off their own demise by going to the market with commissions of up to 120% in a mercanary attempt to temp advisers to their products It appears some actuaries need the “sack” as this was never going to be sustainable in the long run Their mistake !”our pain” These people and I include half the brain washed staff should look deeper into this and ask themselves ( honestly !) could they forfeit their secu
re salaries and work under these draconian rules ? I think not !
I do not know the answer to how we can stop this before it passes but there must be a way Thd labor party managed to “woo” two senators into changing their minds at the last minute on FOFA Who do we approach
How about the AFA and FPA organise a petition for all to sign and present it to the government for change ( if they truley work for us?)We may not have wanted government intervention in this but I see it as the only way forward now
The 3 yr responsibility period is a joke! It makes running a business too uncertain. Judging by the comments, the FPA & AFA dont actually represent the majority of planners views….. This is a one sided argument, designed to improve Insurers profitability, to the detriment of an Adviser, small business, and the consumer.
The client signs off and the insurer puts the policy(ies) in place as per all requirements. Job done so the adviser can get paid like every other business. Where in the client’s best interest is it that the adviser can have all or part of his/her income taken back within a three year period. Adviser has just subcontracted his/her services to help both parties to the transaction. Anything after this time is in the hands of both the client and the insurer not the adviser. Yes I know that all good advisers will be continuing their professional services to both the client and the insurer. However, those services are different from having been paid for the initial set up of the policies. The initial set up is a particular job for which legitimate payment should be made like any other business is paid. Payment back to the insurers after providing professional services has nothing to do with the client. Who with any basic common sense could even contemplate asking advisers tp pay back legitimately earned income. No one gives back or is expected to give back money that they have provided services for. THINK AGAIN YOU PEOPLE MAKING DECISIONS ON OUR BEHALF. Anyone have any empathy for this situation. There is no way you will give any of your money back for the services you provide. We all have mortgages and expenses to pay like everyone else.
there are too many cooks in our kitchen has been for 3 years.
If nothing else the three years will force us to learn how to charge for a statement of advice.
If that is contracted back to the dealer or some other organisation what is the loss on a rite back then?
This is just a suggestion to all. The Insurance companies and their Owners [ THE BANKS ] rely on Advisers to produce new business so that they have the cash flow to support their unproductive business models. New Business pays for the underwriters to underwrite the business, the clerical staff to process the new business, BDM’s and State Managers incomes are linked to new business, in fact the WHOLE INSURANCE INDUSTRY relies on ADVISERS to write new business for it to survive. Well now they have decided that we should be paid less than 50% of the cost to write NEW BUSINESS, so the answer is very simply. As of the 1st of January 2016 ALL ADVISERS that are currently writing new business take “Extended Leave”, heaven knows we all deserve it, given the tremendous strain and work load we have all been suffering over the past five years. If we all decided to take say, three months off and NO new business is written during this period then we will see what the Insurance companies are really made of. And don’t just stop there, leave a message / tell your clients that you are closing your businesses for the three months and that should they need any assistance with their claims and policies they can ring the Insurance Company’s Customer Services Team and they will assist them. The Underwriters will not have any work to do, the clerical support staff will not have any work to do, the BDM’s and State Managers will not have to spend time trying to convince Advisers that they actual do care about the Advisers. All of these people that were employed by the Insurance companies to generate new business would not be needed because the so called overpaid Advisers have all gone away and enjoying a well deserved rest from an industry that clearly does not see their value in the food chain. Wait a minute, the Customer Services sections are now all under pressure because they will actual have to fix the errors that they have made because the Adviser is not available to fix it. So the underwriters, support staff, BDM’s and State Managers can now channel their efforts and time into doing something that is actual worthwhile, trying to retain the business that the Adviser wrote in the first place. It’s time we all “Chilled Out” and take the break we need starting from January the 1st 2016 and see how long the industry can survive without us. For me I think Greece would be a good place to spend the first three months of 2016!!! PS: Don’t forget to cancel your FPA and AFA memberships before you go because we really don’t need to continue to pay the wages of people that clearly have forgotten who pays them.
I had a perfect example of why the 3-year responsibility period for advisers is a complete farce and unfair to us HONEST advisers on the very morning the reforms were handed down – and couldn’t believe it.
A client I’d spent 8 long months working with to ensure he had the right new financial protection strategy in place, emailed me JUST 10 MONTHS after we implemented it to say he wanted to significantly reduce it all now after coming into an inheritance windfall. I’d done everything I was meant too for this and I even naïvely took a Hybrid commission for my work thinking that this would be a long-term strategy. Thankfully, my client acknowledged and respects the work we have done and was aware of the 12 month responsibility period already hanging over my head and has chosen to make his amendments after the first year anniversary.
Under the new reform measures, I have to pay back 60% of the remuneration I received. Where have I done anything wrong here? Where in any industry does this responsibility period exist? How can any new adviser coming into the industry survive now when the initial commission he receives has already been slashed by 35% next year and that there is no guarantee he won’t have to pay his income back as a result of something that is completely out of his control – despite doing the work.
What stinks the most to me is the finger being pointed at advisers that we have received conflicted remuneration.
Every life insurance company application form has a question on it about existing insurance and if the answer to that question is yes, when that insurance was put in force. It would have been very easy for serial churning advisers to have had their practices nipped in the bud by life insurance companies years ago when they clearly saw what was happening at application stage – but it was THEIR greed for premium inflows, that they are handsomely rewarded for, that enabled this industry to get to where it is today. Management and BDM’s alike were aware of the practice yet turned a blind eye to it because of the remuneration they were receiving.
The big institution providers out there who we all know have been the big wave pushing this, have managers who are the biggest culprits of this. They receive massive bonuses of hundreds of thousands of dollars every year for the business they bring in. Independent risk insurance advisors like me are not the problem here and we all know it.
Yes fellow advisers, we have been shafted by the very action and behaviour that we have long been tarnished as being the perpetrators of and it just stinks to high heaven.
Great idea Warren, I’ll meet you in a bar in Mykonos.
Mark, well said.
You may want to spend June, July and August in Greece, as this is the summer.
Mark, that’s not a silly idea at all. Even those who want to stay in the industry probably need that 3 months.
I can hear the squeals from the insurers now.
At the risk of upsetting some of my colleagues who hate unions with a passion, a 3 month holiday is the advisers only option to equate with the unionists right to withdraw his labour. In our case, we decline to put in new business.
Better still, I think we start telling BDMs NOW that we are considering this course of action. If BDMs do the job they are paid for ( a conduit from adviser to insurance exec ) some insurers might start getting really nervous
Now, where is the AFA & FPA on this – can they finally prove their worth, because on responsibility periods, they both laid back and thought of something pleasant.
Can I suggest you express similar views to other industry outlets
We certainly have been stitched up.I’m taking August off and the first 3 months next year.
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