Unsurprisingly, our report on further calls to fix life insurance commission caps resonated strongest with Riskinfo readers this week…

A joint submission by eight licensee groups to the Quality of Advice Review includes a recommendation – the latest in a growing chorus – calling for a review of the caps imposed on life insurance commissions.

The joint submission, which is one of 130 submitted to the review, recommends addressing the significant decline in consumer access to personal risk insurance advice by halting any reduction of life insurance commissions or plans to remove their exemption from the definition of conflicted remuneration and reviewing the caps imposed on commissions “…given the costs incurred by the advice provider up front and ongoing, to ensure sustainability in the market.” (Also see: AFA Calls for Return of 80/20 Risk Commissions and Adverse Commission Outcome Would Decimate Industry)

The joint submission was by:

  • AMP Group Limited
  • Australian Unity Personal Financial Services
  • Diverger Limited
  • Fitzpatricks Private Wealth
  • Fortnum Private Wealth Limited
  • Infocus Wealth Management Limited
  • Otivo
  • WT Financial Group Limited

The submission notes that collectively these companies manage 21 Australian Financial Services Licensees which include 2,690 Authorised Representatives, 187 employed representatives and one digital advice platform. They provide financial advice to circa 433,000 retail consumers.

Amongst a number of other recommendations the licensees recommend addressing the reducing numbers of financial advisers in Australia by:

  • Providing exemptions for experienced financial advisers from having to obtain an approved graduate degree by recognising their prior education and years of experience as sufficient
  • Reviewing the structure of the professional year to enable the provisional advisers the ability to provide advice to clients as soon as they enter the workforce with appropriate supervision
  • Consider exploring other initiatives designed to assist employers (many of whom are small business owners) to economically afford to employ and retain new advisers in their professional year

Another recommendation is to enable consumers “…the control and choice to access financial advice (factual information, general advice, limited and holistic advice) at more affordable price points in the form they choose it to be (face-to-face, virtual, digital or phone).” The submissions says this can be achieved by:

  • Better defining general advice in the Law and regulatory guidance to allow for the provision of more strategic and educational help and guidance to consumers
  • Eliminating conflicts between the professional code of ethics and the law (for example standards 3 and 6 and its interaction with the steps of the safe harbour) to reduce ambiguity on the client’s ability to limit the scope of advice
  • Facilitate access to digital platforms, service and technology solutions that can help advisers to provide lower cost/more efficient ongoing service to their client base
  • Enabling the costs of up front and ongoing advice to be tax deductible or tax rebatable
  • Subsidising the cost of advice and making it easier to advise segments who are not easily able to access advice (such as younger consumers, those with smaller investable funds who are nearing retirement or in retirement)

Click here to access the 130 submissions on the Treasury website.

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3 COMMENTS

  1. So glad to finally see this push back in the advisers way but just wait a few minutes…I just know ‘some external genius’ outside the industry will pipe up with their one in a hundred case example where the annual premium is more than $10,000 so they can bitch and complain about the adviser earning 66% of that.

    Before you do though ‘clown’ understand this…

    * the average risk insurance case is rumoured to be around $2,800 – so today, an adviser ‘might be paid’ $1,600 – as policy fees and likely stamp duty aren’t payable as commission. Of that, $1,600 – we lose 10% for GST and somewhere around another 10% as Licensee fees are also then deducted. Then we have BAS & PAYG to pay plus other expenses like software, PI Cover (mine’s almost $900 a month now despite never having a claim in 15 years!!), admin and mandatory industry body fees. (I currently pay $1,760 per month to my Licensee before I even begin each month PLUS they also take another 9% of the above mentioned $1,600 commission.
    * Oh and I will have invested a minimum of 15-20 hours to get to that point (of which, there’s no guarantee the application is even accepted) so my hourly rate before all those taxes, expenses, GST and Licensee deductions are taken is about $80 an hour! By the time, all the expenses etc. are deducted, I might be left with $40 per hour….such an amazing income. NOT!!!
    * You can also add that after going through that process and FINALLY being paid, an adviser then has to pray for the next 2 years that the client doesn’t lose his job, get divorced, move overseas, just change their mind or have some “genius friend with no clue about life insurance” persuade them to change or cancel anything as that results in the adviser having 100% of that remaining money CLAWED back by the insurance for the first 12-months and 60% of it if the client reduces or cancels anything between 1 and 2 years – even though it had nothing to do with the adviser!

    There’s so many cases also where premiums are less than $1,000 so you can only imagine how little income an adviser might earn from that today – which is why many are forced to turn clients away now. It’s not economically viable for the adviser who then has to face his auditors at some point to prove he did everything by the book.

    So all you ‘genius know it alls’ out there who think advisers are ‘taking the p15s’ by wanting higher commissions, I say to you, that you know nothing! This was once a great industry – for all parties concerned. It’s now a barren wasteland that’s been destroyed by incompetent, inexperienced, clueless and corrupt politicians with conflicted interests.

    We need much higher commissions to survive now so I welcome the push for them here.

    • Beautifully stated J.A.D.N, thank you for an excellent analysis. Lots of big names NOT on that list . . . yes, I’m looking at YOU major insurers! No surprise as it would be those big insurers who benefit from lower commissions and longer clawback, adviser support and survival be damned!

      For my 2c worth I’ll just say that unless they achieve 100/20 and no more than a 1 year clawback they may as well pack the industry up and sell the lot to the highest bidder, take their bat and go home. The 100/20 ‘might’ make it worthwhile if compliance doesn’t change but if they cut the compliance burden in half then maybe – just maybe – 90/20 might do. Anyway, doesn’t affect me now I’m gone but I worry for the few remaining risk advisers out there . . . worry in more ways than one . . . 🙁

    • So the commission model was unsustainable when the commissions were high and unsustainable when the commissions are low. Says a lot about commissions.

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