{"id":28399,"date":"2015-01-13T15:46:01","date_gmt":"2015-01-13T04:46:01","guid":{"rendered":"https:\/\/riskinfo.com.au\/news\/?p=28399"},"modified":"2015-01-27T19:48:13","modified_gmt":"2015-01-27T08:48:13","slug":"the-end-of-upfront-commissions-future-alternatives","status":"publish","type":"post","link":"https:\/\/riskinfo.com.au\/news\/2015\/01\/13\/the-end-of-upfront-commissions-future-alternatives\/","title":{"rendered":"The End of Upfront Commissions?"},"content":{"rendered":"<div id=\"polls-134\" class=\"wp-polls\">\n\t\t<div class=\"pollHeader\"><strong>What is your most preferred choice of the five remuneration alternatives outlined in the interim report of the Life Insurance and Advice Working Group?<\/strong><\/div><div id=\"polls-134-ans\" class=\"wp-polls-ans\"><ul class=\"wp-polls-ul\">\n\t\t<li>Current hybrid commissions <small>(73%)<\/small><div class=\"pollbar\" style=\"width: 73%\" title=\"Current hybrid commissions (73% | 329 Votes)\"><\/div><\/li>\n\t\t<li>Level commissions plus fees <small>(10%)<\/small><div class=\"pollbar\" style=\"width: 10%\" title=\"Level commissions plus fees (10% | 44 Votes)\"><\/div><\/li>\n\t\t<li>Modified hybrid commissions <small>(9%)<\/small><div class=\"pollbar\" style=\"width: 9%\" title=\"Modified hybrid commissions (9% | 41 Votes)\"><\/div><\/li>\n\t\t<li>Level commissions only <small>(7%)<\/small><div class=\"pollbar\" style=\"width: 7%\" title=\"Level commissions only (7% | 31 Votes)\"><\/div><\/li>\n\t\t<li>Funded level commissions <small>(2%)<\/small><div class=\"pollbar\" style=\"width: 2%\" title=\"Funded level commissions (2% | 8 Votes)\"><\/div><\/li>\n\t\t<\/ul><div style=\"text-align: center\"><\/div><\/div>\n\t\t<input type=\"hidden\" id=\"poll_134_nonce\" name=\"wp-polls-nonce\" value=\"9bc26055c1\" \/>\n<\/div>\n\n<p>We are seeking your input on how you may prefer to be remunerated in future for the life insurance advice and solutions you deliver.<\/p>\n<p><!--more-->This poll is based on the five alternative future remuneration options outlined in the <a href=\"https:\/\/riskinfo.com.au\/news\/2014\/12\/17\/high-upfront-commissions-to-go-trowbridge\/\">Life Insurance and Advice Working Group (LIAWG) interim report<\/a>, which was released just prior to Christmas.<\/p>\n<p>The interim report, overseen by independent chair, <strong>John Trowbridge<\/strong>, offers five alternative remuneration approaches for advisers that may replace the existing upfront commission model.\u00a0 Mr Trowbridge emphasises these are not recommendations from the LIAWG, but are an initial set of alternative approaches put forward for industry discussion, prior to the release of the Working Group&#8217;s recommendations, which are to be handed down in late March.<\/p>\n<p>The LIAWG is a joint industry initiative between the Financial Services Council and the Association of Financial Advisers, created in response to ASIC&#8217;s damning <a href=\"https:\/\/riskinfo.com.au\/news\/2014\/10\/09\/asic-life-insurance-advice-review-unacceptable-level-of-failure\/\">Review of Retail Life Insurance Advice<\/a>, in which the regulator&#8217;s primary concerns focused on the quality of existing life insurance advice and what it saw as a correlation between upfront commissions and poor advice.<\/p>\n<h6>&#8230; the &#8216;no change&#8217; option to life insurance remuneration is not acceptable<\/h6>\n<p>In offering these alternative approaches, Mr Trowbridge has commented that the &#8216;no change&#8217; option to life insurance remuneration is not acceptable. However, he equally emphasised that any future remuneration approaches that did not include commissions should also be &#8216;&#8230;taken off the table.&#8217;<\/p>\n<p>This poll is not about whether you think upfront life insurance commissions should be retained. This will form part of the industry-wide conversation that will be passionately debated over the next two to three months, on which we will report. Rather, we&#8217;re asking that, if you had to select from the five alternatives put forward for discussion, which would be your preferred approach.<\/p>\n<p>In more detail, the five alternative remuneration options and arguments, taken from the interim report, are:<\/p>\n<ul>\n<li>Level commissions only \u2013 rate would be set between 20-30%\n<ul>\n<li>Main argument in favour: all upfront commissions (including hybrid commissions) carry with them conflicts of interest that are difficult to manage in all cases and might be best avoided altogether.<\/li>\n<\/ul>\n<\/li>\n<li>Level commissions plus fees \u2013 level commissions, at a rate to be considered, supplemented with an initial payment (fee) from the insurer to adviser\n<ul>\n<li>Main argument in favour: introduces level commissions, with their consequent avoidance of conflict of interest, while simultaneously maintaining an initial payment that is \u201cunbundled\u201d in order to offset an adviser\u2019s initial costs of providing advice.<\/li>\n<\/ul>\n<\/li>\n<li>Level funded \u2013 variation on level where commissions are level but to offset initial costs, on each policy inception the insurer lends the adviser funds that are repayable over 3-5 years from renewal commissions\n<ul>\n<li>Main argument in favour: Upfront commissions are seen as undesirable but the adviser\u2019s cash flow is a genuine issue that needs a solution.<\/li>\n<\/ul>\n<\/li>\n<li>Current hybrid commissions \u2013 maximum commission rate for first year of 80%, level commission thereafter\n<ul>\n<li>Main argument in favour: some degree of upfront commissions are justified because of the high arranging costs of insurance but the current norm of around 120% initial and 10% ongoing commission is distortive while, say, an 80%\/20% arrangement is better balanced.<\/li>\n<\/ul>\n<\/li>\n<li>Modified hybrid &#8211; comprising initial remuneration of a combination of commission at a level less than the current hybrid plus a fixed dollar payment, renewal commissions could be as per current hybrid arrangements\n<ul>\n<li>Main argument in favour: retains the essence of existing hybrid arrangements that offset the upfront expenses of advisers but ameliorates the problem of initial commissions that seem excessive on large policies and inadequate on small policies.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p>As we seek your measured responses to such an important issue, advisers can <a href=\"http:\/\/www.fsc.org.au\/downloads\/file\/PublicationsFile\/TrowbridgeInterimReportonRetailLifeInsuranceAdvice_2014_1217.pdf\" target=\"_blank\">click here<\/a> to access the Interim Report on Retail Life Insurance Advice by the LIAWG.<\/p>\n<address><em>We note the language used in our headline reporting the release of the LIAWG initial report suggested that upfront life insurance commissions would be phased out: &#8216;High Upfront Commissions to Go&#8217;. It would have been more accurate for us to have reported in our headline that Mr Trowbridge believes &#8216;High Upfront Commissions Should Go.&#8217;<\/em><\/address>\n<address>\u00a0<\/address>\n","protected":false},"excerpt":{"rendered":"<p>We are seeking your input on how you may prefer to be remunerated in future for the life insurance advice and solutions you deliver.<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[8,49,270],"tags":[],"class_list":["post-28399","post","type-post","status-publish","format-standard","category-compliance-regulation","category-polls","category-remuneration"],"_links":{"self":[{"href":"https:\/\/riskinfo.com.au\/news\/wp-json\/wp\/v2\/posts\/28399","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/riskinfo.com.au\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/riskinfo.com.au\/news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/riskinfo.com.au\/news\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/riskinfo.com.au\/news\/wp-json\/wp\/v2\/comments?post=28399"}],"version-history":[{"count":0,"href":"https:\/\/riskinfo.com.au\/news\/wp-json\/wp\/v2\/posts\/28399\/revisions"}],"wp:attachment":[{"href":"https:\/\/riskinfo.com.au\/news\/wp-json\/wp\/v2\/media?parent=28399"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/riskinfo.com.au\/news\/wp-json\/wp\/v2\/categories?post=28399"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/riskinfo.com.au\/news\/wp-json\/wp\/v2\/tags?post=28399"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}