A resounding call from advisers for the Government to review the LIF commission caps was clearly our Story of the Week…
- Agree (92%)
- Disagree (5%)
- Not sure (2%)
Advisers have sent an unequivocal message to the Government and the regulator that it’s time to review life insurance commission caps.
As we go to press, 90% of those voting in our latest poll agree the law-makers should reconsider the current LIF commission caps, which evidence suggests has had a significant and detrimental impact on:
- Life insurance new business levels
- The number of risk-focussed advisers operating in the sector
- The number of Australians being able to access life insurance advice
Other factors have contributed to this trifecta of outcomes, including the implementation of new minimum adviser education standards and the rising costs associated with delivering financial advice across the board.
But the most critical of all the contributing factors – based on hundreds of Riskinfo conversations with advisers and advice businesses – is the LIF commission caps.
Last week’s report highlighting the miniscule level of life insurance advice complaints requiring AFCA’s consideration (see: Financial Complaints Soar…) only adds further fuel to the simmering sense of injustice felt by so many advisers around a mandated remuneration restriction – in a free market economy – that has its basis in a report released almost ten years ago. Yes, it’s ten years this October since the release of ASIC Report 413.
Much debate in the ensuing years has centred around the methodology employed by ASIC in compiling Repot 413 and its resulting outcomes, especially the extent to which it reflected reality, including the relative incidence of what the regulator referred to as advice files considered to have “…failed to comply with delivering appropriate and compliant client advice.” (See: “…Unacceptable Level of Failure”)
Regardless of the debate around some of the findings contained in ASIC Report 413, one ‘truth’ is that the advice world in Australia today is very different than it was ten years ago – made so by the implementation of recommendations contained in the Future of Financial Advice Reforms, the Life Insurance Framework Reforms, the Banking Royal Commission and more recently the Quality of Advice Review.
One recommendation made by ASIC in Report 413 was for insurers to “…address misaligned incentives in their distribution channels.” This was code for abolishing upfront commissions – an area highlighted by ASIC – and potentially banning commissions altogether.
…it’s reasonable to suggest there remain little-to-no misaligned incentives in any life insurance distribution channels in 2024
Given all the other reforms which have since visited the sector, all designed to ultimately serve the best interests of the consumer, it’s reasonable to suggest there remain little-to-no misaligned incentives in any life insurance distribution channels in 2024. If this point is accepted by the law-makers, then surely the time has arrived – as supported by 90% of Riskinfo readers – to review the current life insurance commission caps and the two-year responsibility period.
It’s now over to you to continue the conversation as our poll remains open for another week…
Where there has been tremendous growth is the Legal fraternity, where one firm who opened their doors in 2019, has had exponential growth and now has 20 staff who mostly work in the TPD claims area, where the poor client can lose a huge percentage.
Just one multi-million dollar TPD claim we were successful in getting paid for our client, of which we charged Nil fees, though had the Legal eagles handled it and "if" they had been successful, the client would have ended up with around $700,000 or more in legal fees.
No wonder the Lawyers love taking on Life and TPD litigation and yet the Government has the nerve to call Advisers out for trying to make a living, doing a great job advising and representing Australians for a fraction of what the Lawyers charge and who have never set up a Life Insurance contract in their lives.
The Legal fraternity use fear and uncertainty to prey on all Australians, so they can charge outrageous fees and the only competition to this theft of people's money, are Advisers who have been attacked by none other than the Legal Profession, who see no hypocrisy in their actions of helping destroy Advisers abilities to operate economically and profitably, while they then effectively steal clients money, that had an Adviser been looking after the claim, the money would have been paid direct to the client without a huge fee to dilute the payment.
This is tantamount to criminal activity and it certainly is unconscionable behaviour which should be called out.
It's been going on for some time and needs to be stopped.
This should be brought to the attention of all the relevant bodies; the Law Society, AFCA, consumer affairs, government and even the media.
Be careful with the media though because they could have it in for the adviser cohort.
I like to think that I'm a fair-minded person. When LIF was thrust upon us by the banks, and endorsed by ASIC with their continuing ideologically- based hatred of commission-based advisers, there was indeed one measure in LIF of which I approved.
That is, all those special volume-based deals, which created distortions in the market, supposedly disappeared. Suddenly there were no "mates rates"
But I'm reliably informed that some insurers have, at least organisationally, found ways to get around such limits on preferential treatment to their favourite advisers,who are usually those who produce a lot of business with that particular insurer. These days it comes in the form of a seemingly less severe set of underwriting standards for preferred advisers, along with dedicated new business processes.
The cynics amongst us would put that down as "just doing business " But when you think about it, it puts advisers into position where, in the best interest of their clients, they should have put that policy with another provider, but chose to do so in the interests of "savings" in time.Got to be a conflict in there somewhere, and only time, and AFCA, will tell.
Anyway the point of this Vote and report is that a high proportion of advisers writing risk would like to see LIF "restored to normal".
That little project will only succeed if the CEOs of our insurance "friends" decide they have no option in attempting to save their company from oblivion than to go back to the Government and say, hand on heart, "LIF was bad, LIF is bad". They will have to outfox ASIC along the way.
So we'll have to wait until they've exhausted all of the alternatives, including jumping on Mr Jones's little bandwagon to the industry funds of "qualified advisers" and not to mention the fabulous "Duration Based Pricing" (a.k.a.BIG UPFRONT DISCOUNTS on new business), has run its course, hopefully with the much promised ASIC intervention. Remember that?
Sadly those CEOs think they've still got it under control and accordingly LIF is not something they like to reconsider, not just now.Shareholder value and CEO bonuses rule the world folks
I agree with so much you've said, however saying, "a high proportion of advisers writing risk would like to see LIF "restored to normal" is only part of the story. The industry desperately needs advisers who currently choose not to write risk to start doing so and that's only going to happen if they can do it profitably. I find it interesting that insurers who say, 'we can't afford to pay more', happily do so in New Zealand, where risk advice is thriving.
Yes, good words AA. Sadly, it is all just rearranging deck chairs on the Titanic at the moment. The life companies need to pay 100/20 to attract serious numbers of newbies and/or get some of the big-writing old riskies to return to their craft. I fear that won't happen as many have sold their businesses in disgust never to return. I know I certainly did. The mooted 80/20 won't even raise a ripple in getting new risk writers – it is still under only breaking even. 100/20 is what's needed in this crazy, unnecessarily compliance ridden world.
It's not just the law makers who need to revisit this. The insurance companies must also get on board. Brett Clark, the TAL CEO and TAL's BDM's maintained that advisers need to give the 60% commission rate a go. They just did not get it. Advisers who specialise in Risk said from day one that they just could not make ends meet financially on a 60% payment for the amount of work required to get business over the line. Let's hope the insurance companies swallow their pride and accept that they have let the adviser network down in this area and did so from day one. It may be too late, but they need to now step up and do the right thing by their advisers.
The execs in the insurance companies, I think, are more likely to "swallow their pride" as you say than swallow a reduction in their bonuses. It amazes me that bonuses are still being paid given the wholesale reduction in risk business wrought by this LIF nonsense and ridiculous newly minted IP policies without a shred of quality terms or definitions.
Let the market (insurers and advisers) determine price (upfront commissions and trail commissions) rather than the government.
What the government can do is mandate that a table of commissions for the top 10 life insurers be included as an SOA appendix which the client needs to initial.with the selected life Insurer highlighted or underlined and the client initials next to the life Insurer chosen for them.
So simple!!!
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