- Yes - but I don't support the remuneration proposals (37%)
- No (36%)
- Not sure (15%)
- Yes - and I support these remuneration proposals (12%)
Cautious approval by some advisers for the new Life Insurance Framework remuneration proposals has been balanced by outright rejection by others. Irrespective of their views about the remuneration proposals, however, around 50 per cent of advisers say they could successfully operate under this model.
In results and feedback so far, where the major concern for advisers revolves more around the proposed clawback provisions, rather than the commission levels, 36 per cent say they could successfully operate their business under the new remuneration proposals, even though they don’t agree with them. Another 13 per cent have given the thumbs up to being able to successfully operate, in addition to supporting of the new proposals.
Meanwhile, 35 per cent of advisers say they couldn’t run a successful practice under the proposed arrangements, while 16 per cent remain unsure.
These results potentially reflect the variety of business models that exist within risk-focussed advice practices in particular. But the comments we have received regarding the proposed clawback provisions are almost universal in condemning them:
“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.”
“The most contentious part of the changes is the 3 year claw back.”
“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.”
“I must concur that the really contentious issue is the three year 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…”
“…the hardest part of this to swallow is the 3 year clawback”
Some other adviser comments have outlined examples of how the clawback provisions would in their opinion be totally unfair, while others have focussed on the potential workings of the proposed clawback provisions, such as:
“If an adviser has a claw back after he has paid taxes on the income, will the ATO provide a refund?”
Do these views reflect your own? There appears to be potential but grudging acceptance by at least a proportion of advisers of a significantly reduced upfront remuneration regime for life insurance advice in future. But this ‘acceptance’ does not extend to the proposed three-year clawback provisions. Elsewhere, the AFA has acknowledged the issues surrounding the clawback provisions and continues to seek input as it address this point (see: New Life Insurance Framework – The Path Not Taken).
We welcome your further feedback on this critical issue, as our poll remains open for another week…
I agree it’s the claw back period and percentages which are just wrong and with lowering remuneration also it plays right in the hands of the banks and insurers, funny how quick their emails came out to support this model? If insurers were truly in support of the advisers why not flick all trail on ALL in force business to 20% NOW to help with the transition and these issues go away?? The future is not looking good!!
A key component that is not being talked about enough is what will happen to the pricing of risk products going forward. This will provide the insurers with their greatest test in regard to supporting advisers. Based on the proposals the commission model is dead, unless you can build significant scale no risk business can thrive using the proposed commission model. The answer is moving to fee for service, but that requires insurers to support the move via changes to product pricing.
I am not sure even the Dealer groups are ready for this, immediate drop in revenue, talk of increased dealer splits and the already onerous and expensive compliance burden to get worse.
The truest words from Trowbridge was a recognition that his model (at least) would not be enough to cover the advice and implantation costs associated with the advice process. a sounder and more sustainable model would have been say a more gradual phase in, maybe say 5-7 years rather than the 60/20 by 2018 scenario. add to that the further uncertainty of a further review in that year that could mean another myopic examination by the power’s that be and the 20/20 could in fact become a reality, “if ” as I (and others) suspect this comes to pass, it will I
believe price advice (not just financial ) out of reach of those for whom the need is (arguably) the greatest.
Let us not forget, Governments (in this country) in recent times are not known for considered long term thinking and planning. knee Jerk policy making, made on the run, time spent on ensuring they pander to every interest group to ensure another term in office. I suspect we need a longer parliamentary term so that a government can get their feet under the table and tackle reform in a considered and consultative manner .
But what would I know ?
Sorry Scott, but you must live in another world
Read my lips – there will be no reduction in premiums as a consequence of reduced commissions.
Why ? Well firstly the insurers know that in the long term ( say 10 years ) they pay MORE commission on a 60/20 deal than they would have under a 110/10 deal.
Secondly, with the exception of Zurich, every Australian life insurer is haemorrhaging profits from losses in Group Super ( source NMG ). They would exit Group Super right now if they could, but are contractually bound for up to 3 years. Unless the ISN funds drop their DEFAULT COVER marketing ploy, and Trustees stop offering TPD, the ISN will be off overseas to get life cover , leaving their members without a consumer protection mechanism against the insurer
Churning, which still needs an accurate definition, is NOT the cause of low profits for Australian insurers, but it is an emotive stalking horse, particularly liked by our regulator
But don’t take my word. Go to the NMG web site ( http://www.nmg-group.com ) and open the Newsletters tab. Read the newsletter dated Feb 24 on Trowbridge
Note that NMG, an international insurance researcher, says that even the introduction of a 20% flat commission could , IN GOOD TIMES, only result in a 5% reduction in pricing. And that 5% could be nullified by an increase in premiums because of increasing disability claims.
And according to Josh, all of this pain inflicted on RISK advisers is said to be of benefit to consumers. Bah humbug !!!
Great comment!
The elephant in the room has always been the retail Life Companies inability to make the necessary systems and administrative changes required to simplify their processes and to cope with the threat posed by Direct and Industry Super competitors, who are not hog tied by regulation that crushes advisers abilities to quickly sell, underwrite and service clients, yet allows Direct and Super Industry participants to create mayhem at claim time.
Many advisers who answered yes, may not have fully considered what the future holds in the current economic environment, let alone when GFC round 2 rears it’s ugly head.
People have unprecedented access to hundreds of alternatives, though the fundamentals never change.
People will first look at price and unless they are made aware of what definitions and benefits they are buying, price will be their determining factor.
Currently, only we the advisers have to fully disclose everything, while we are being smashed by unscrupulous direct product floggers who disclose ZIP.
The current regulations or lack of, as far as direct Companies are concerned, will mean an explosion of competitors that are hell bent on stealing your clients with no recourse.
That will not get better, it will get much worse, unless the Government forces ALL PLAYERS to play by the same rules.
It seems that the government will do as it likes to our (the life-risk) industry and we can do nothing about it.
What makes things worse is the massive amount of compliance/best practice requirements foisted on us and the seeming indifference of life office indoor staff to do their jobs properly that we’ve had to deal with. Additionally, we now face seriously-reduced incomes generally and longer write-back responsibilities. What a far cry for the industry many of us entered a few decades ago.
The only ones to really benefit from the proposals if implemented are the life offices. The insured public won’t, dealer groups won’t and advisers certainly won’t. It doesn’t take a Sherlock Holmes to work out who’s driving all of this,
If a client cancels a policy within 3 years from inception due to an affordability issue relating to an insurance company increasing premiums or they lose their job or their income reduces for whatever reason, and the adviser has to pay back commission under the newly proposed claw back ruling, how will repaying the commission benefit the client and satisfy the enquiry bodies opposed to the current remuneration system?
Furthermore , if a policy ceases inside 3 years from inception in the event that a client refuses to accept a premium increase imposed by their insurer due to an affordability concern, and the client requests their adviser to source an alternate policy via another insurer in search of an affordable policy premium, how can the repayment of commissions by the adviser via the claw back rule benefit the client and appease the above mentioned enquiry bodies if any replacement policy arranged by the adviser and taken out by the client is proven to satisty FOFA’s ‘best interests duty’ ? These questions should URGENTLY be put to the relevant organisation who is implementing the Life Insurance Framework remuneration proposal before any proposal is officially activated..
Spot On Phil!
To those who are implementing these changes – are you listening?
I have just read an article in the SMH Money section about a 48 year old mother of three with terminal cancer, diagnosed in January and still waiting on her Superannuation funds Income protection to process or pay her, 7 months later.
This is the brave new world we are heading into as we have banged our heads against a brick wall of ignorance trying to explain this and no one in the Government is listening.
It also appears the retail Life Companies, AFA and FPA are currently incapable of properly expressing the real danger all Australians face in the future, with the inevitable decline of specialist Life advisers to look after their clients, based on the reduction of income and 3 year clawbacks being foisted upon practices that will make the risks for reward not a viable position.
That poor lady would have had none of the financial stress she is now suffering, if she had a Life risk adviser to help her with her claim, though who does she turn to now in her hour of need?
Based on the options available.
Lawyers, who will cause more stress and take a substantial fee if she is alive by the time a payment is made, or
A fee for service adviser, though she cannot afford that option as the time it would require to take on the Insurer, means an appropriate fee would outweigh any benefit she could receive.
An alternative may be to structure and pay commissions that enable advisers to advise and help clients with their administration and claims.
I must be getting old but that is how I have been getting paid for 28 years and with nil client complaints and a 100% success with claims, what would I know.
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