{"id":28718,"date":"2015-02-17T18:35:25","date_gmt":"2015-02-17T07:35:25","guid":{"rendered":"https:\/\/riskinfo.com.au\/news\/?p=28718"},"modified":"2015-02-17T18:35:25","modified_gmt":"2015-02-17T07:35:25","slug":"address-advice-quality-before-commissions-afrm","status":"publish","type":"post","link":"https:\/\/riskinfo.com.au\/news\/2015\/02\/17\/address-advice-quality-before-commissions-afrm\/","title":{"rendered":"Address Advice Quality Before Commissions – AFRM"},"content":{"rendered":"

The Life Insurance Advice Working Group (LIAWG) should look for ways to improve the quality of life insurance advice before making changes to remuneration models, according to Australian Financial Risk Management (AFRM).<\/span><\/p>\n

<\/strong><\/p>\n

\"Nicholas<\/a>
Nicholas Hatherly<\/figcaption><\/figure>\n

Nicholas Hatherly<\/strong>, Managing Director of AFRM, has told the Trowbridge-led LIAWG that the issues raised by the Australian Securities and Investments Commission (ASIC) review into life insurance advice were not really about remuneration, but about the need for better standards of advice.<\/p>\n

In his submission to the LIAWG Interim Report<\/a>, Mr Hatherly said while he agreed with ASIC\u2019s finding that there is a lopsided incentive for advisers to move risk business regularly and that the quality of advice delivered by these advisers is poor, the industry needs to address the quality issues by moving to a more professional footing.<\/p>\n

\u201cThese poor practices need to be removed, however there needs to be an acknowledgment of the cost of giving well researched and analysed advice,\u201d Mr Hatherly said.<\/p>\n

…there needs to be an acknowledgment of the cost of giving well researched and analysed advice<\/h6>\n

He recommended the introduction of a \u2018professional year\u2019 for new advisers entering the risk sector, similar to that employed by the accounting profession. Under this model, advisers would not be able to be licensed or authorised to give advice until they have achieved a certain number of years\u2019 experience in the industry, and successfully passed a professional skills examination. (Note: this model has also been proposed by the Parliamentary Joint Committee for Corporations and Financial Services\u2019 inquiry into advice standards, see: PJC Proposes Significant Restructure of Advice Industry<\/a>).<\/p>\n

He also called for a greater focus on specialist skills training, highlighting that advisers could no longer rely on insurers to provide this.<\/p>\n

\u201cQuality advice is not linked to the insurers. They are only interested in product sales, hence much of the training has been withdrawn from the industry as margins tighten and costs need to be controlled. There is a disconnect between the obligations of advisers and the insurers\u2019 incentives.\u201d<\/p>\n

Mr Hatherly similarly noted that advisers should not receive all the blame for high switching rates:<\/p>\n

\u201cFor the purpose of the client\u2019s best interest, there are many reasons that a policy still needs to be changed. Many of these reasons are caused by the insurer themselves.<\/p>\n

\u201cThe insurers as product manufacturers have a right to put out whatever they like to the market. They must however be cognisant of the need for advisers to act in the best interest of their clients and that may mean they lose that policy. This is not an adviser problem; this is an insurer problem.\u201d<\/p>\n

Our profitability comes from retaining clients for the long-term<\/h6>\n

In addressing the issue of remuneration, Mr Hatherly said he understood the need to review the level of upfront commissions currently paid in the industry, to address sustainability issues, but cautioned the LIAWG to ensure adviser remuneration aligned with the real cost of giving risk advice. He advocated for a hybrid commission model, which is currently the mandated remuneration structure for AFRM representatives.<\/p>\n

\u201cAFRM have calculated many times the real cost of giving clients advice and know that the cost of resources required to provide advice and implementation are greater than the new business income \u2013 much the same as insurance companies. Our figures show that we lose money on new business under the hybrid model.<\/p>\n

\u201cOur profitability comes from retaining clients for the long-term. The importance of this statement is that there is no incentive to replace client policies as that would have our client go through the new business process again creating the same loss described above.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"

The Life Insurance Advice Working Group (LIAWG) should look for ways to improve the quality of life insurance advice before making changes to remuneration models, according to Australian Financial Risk Management (AFRM).<\/p>\n","protected":false},"author":7,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[8,6,270],"tags":[],"class_list":["post-28718","post","type-post","status-publish","format-standard","category-compliance-regulation","category-dealer-groups","category-remuneration"],"_links":{"self":[{"href":"https:\/\/riskinfo.com.au\/news\/wp-json\/wp\/v2\/posts\/28718","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\/7"}],"replies":[{"embeddable":true,"href":"https:\/\/riskinfo.com.au\/news\/wp-json\/wp\/v2\/comments?post=28718"}],"version-history":[{"count":0,"href":"https:\/\/riskinfo.com.au\/news\/wp-json\/wp\/v2\/posts\/28718\/revisions"}],"wp:attachment":[{"href":"https:\/\/riskinfo.com.au\/news\/wp-json\/wp\/v2\/media?parent=28718"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/riskinfo.com.au\/news\/wp-json\/wp\/v2\/categories?post=28718"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/riskinfo.com.au\/news\/wp-json\/wp\/v2\/tags?post=28718"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}