Not surprisingly, ClearView’s call for no further changes to commissions is the Riskinfo Story of the Week. Debate continues, however, as to whether – on the assumption risk commissions get a reprieve following the 2022 Quality of Advice Review – a 60/20 commission model will sustain a risk specialist advice business…
No further changes to risk commissions, slashing advice paperwork and measures to support stable, sustainable IP solutions should be top of the financial services industry’s reform agenda as it prepares for a landmark regulatory review, according to ClearView Wealth.
In releasing the group’s 2022 top three priorities for industry reform, the company reiterated its support for the life insurance commission model.
The Reform Agenda paper states that ClearView believes current life insurance commission rates in Australia are appropriate, capped at 60 percent upfront and 20 percent ongoing.
“Further changes are unnecessary and would have a detrimental impact on consumers, society and the life insurance industry…”
ClearView states that the commission model is “…globally-accepted, economically rational and reflects how consumers prefer to pay for life insurance advice.”
The company says it enables product manufacturers to cover the full or partial cost of life insurance advice. “Without this subsidy, the majority of Australians would not be able to get adequate protection.”
The report adds that the potential unintended consequences of reducing or banning life insurance commissions include:
- Fewer people seeking professional advice and getting adequate cover
- Fewer advisers providing life insurance advice and those who do focusing on wealthier clients
- The financial cost of caring for the sick and injured falling back on families, society and the government
It notes that at claim time, life insurance provides funds to cover living expenses, medical bills and other costs, and enable households to focus on recovery.
…it’s crucial that regulatory settings facilitated easy access to financial advice and protection for consumers…
In a statement releasing ClearView’s top three priorities for industry reform Managing Director Simon Swanson says it’s crucial that regulatory settings facilitated easy access to financial advice and protection for consumers, citing recent local and global events as adding further pressures on household budgets.
“The devastating impact of Covid-19 and a spate of natural disasters, including the recent floods in NSW and Queensland, have heightened awareness of the importance and value of professional advice,” he says.
“However, this trend is occurring at a time when the cost of operating an advice business is significantly increasing and, in turn, pushing advice fees higher. It is important that our regulatory system is fit for purpose and does not add unnecessary complexity.”
ClearView is also calling for a slimmed down Record of Advice to replace the Statement of Advice in situations where simple advice is being delivered, as well as the removal of the Safe Harbour steps, in line with the recommendation of the Financial Services Royal Commission.
The group’s reform agenda citied research that showed the cost of a SoA had risen more than 30 percent in the past four years.
Deferring Five-Year Contract Term for IP
The insurer also welcomed APRA’s recent decision to defer five-year contract terms for income protection (IP) products for at least another two years.
“It is crucial for life insurance solutions, including IP insurance, to be stable, sustainable and simpler for consumers,” Swanson says.
“ClearView welcomes the revised approach and we support APRA’s ongoing sustainability work. We recognise the importance of engaging with Treasury on issues about product rationalisation and quality of advice, and strongly advocate for engagement with financial adviser bodies, licensees and advisers.”
ClearView adds that it is “…committed to being a passionate advocate for public policy that underpins a strong, vibrant financial services industry” and will participate in the Quality of Advice Review, which submits its final report to government in December.
Click here to view ClearView’s Reform Agenda 2022.
Commissions, unfortunately, are indeed going to be bitten into by the rabid rats once again. More than likely to zero this time. The woke revolution, being carried with gusto by the powerful lobby groups and vested so-called ‘consumer’ interest parties, has evolved since LIF and even the RC. The next time commissions are put under the microscope of public scrutiny I guarantee you they will not survive. It will be a sad day for clients because that will singularly be the death nell of the risk insurance industry. We all know only too well we cannot charge fees for pure risk advice – anyone who says they can is either an extraordinarily unique individual OR they are kidding themselves majorly – you guess which is which. It is baked into the cake.
The life companies are chomping at the bit for this, the fools, just like LIF and the last time they went to 60/20. The life companies not only ‘think’ they benefit from this but they also ‘think‘ they will benefit when this type of idiocy causes more riskies to leave the industry so their assumed ‘cheaper’ RoboAdvice can ‘serve’ the clients for the life offices. No more pesky advisers demanding a slice of their diminishing profits as commissions.
If you think I’m making this stuff up, think about it – what did we see the life coys do when commissions were forced down by regulators? – NOTHING, they loved it!. What did we see life coys do when regulators forced the 2 year responsibility clauses? – NOTHING, they loved it! There’s more proof around but these two things seal the deal for me. Just atrocious so-called ‘support’ of their adviser ‘partners’.
Seems like the pressure from the FSC on life insurance CEOs is still ongoing. The facts are, in the absence of anyone being prepared to pay FEES for risk advice, that LIF 60/20 is a recipe for advisers going broke. The CEOs of our life insurance “partners” really do need to either find some, or grow some, and tell whatever government is in charge after May that the industry will go out backwards.
Life insurance is a relationship sale, everyone knows that, but some CEOs are resisting accepting it as a foundation requirement for selling their life insurance products. Restoring it back to 80/20 must happen. Stop the ideology, and the pro-bank favouritism, and allow advisers to deal with clients who are would normally be regarded as un-economical on an up- front commission of 60/20
Simon is correct about that dreadful Apra idea on five yearly renewable contracts. Apra have totally mishandled this matter, failing to sell the whole concept to the people who really matter, the distribution carriers, risk advisers. Some one should send Apra a copy of the FASEA Code of Practice, and take the highlight pen to Standard 5 because that is the standard that will hang advisers who recommend the replacement of existing IP policies with post 2021 policies just to save a few bucks in the short term.
You never know there might be some common sense somewhere in that particular regulator, but as Mark Twain once said “common sense isn’t very common” particularly with people who are paid to administer legislation, and whose narrow focus has taken them right out of the real world.
“Leave commissions alone because we don’t have any ideas for alternatives.”
Article states:- “The Reform Agenda paper states that ClearView believes current life insurance commission rates in Australia are appropriate, capped at 60 percent upfront and 20 percent ongoing”.
Question 1 to Clearview:
Are you that out of touch with your risk advisers and their businesses that you think they are anywhere near profitable, let alone sustainable, at 60/20 commissions?
Question 2 to Clearview:
Do you have dealer fees as a percentage of adviser earnings or a fixed fee? Based on your attitude in your above quote I would bet you have a fixed fee to ensure YOU at least get paid what YOU want.
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