{"id":6028,"date":"2010-05-03T06:26:55","date_gmt":"2010-05-02T19:26:55","guid":{"rendered":"https:\/\/riskinfo.com.au\/news\/?p=6028"},"modified":"2020-02-06T08:10:06","modified_gmt":"2020-02-05T21:10:06","slug":"risk-fee-for-service-ban-trail-commissions","status":"publish","type":"post","link":"https:\/\/riskinfo.com.au\/news\/2010\/05\/03\/risk-fee-for-service-ban-trail-commissions\/","title":{"rendered":"Risk Fee For Service &#8211; Ban Trail Commissions?"},"content":{"rendered":"<p>Advisers were given an opportunity at the risk store&#8217;s annual 2010 Life Risk Forum\u00a0to consider the consequences to their business if commissions on risk products were banned.<\/p>\n<p><!--more-->In\u00a0a packed breakout session featuring key advisers, <strong>Mark Westcott<\/strong> and <strong>Rob Winch<\/strong>,\u00a0there was a general concensus\u00a0that it was probably unlikely a full commission ban would ever be applied to risk products, but some\u00a0advisers contemplated\u00a0the possibility of a future where trailing commissions, at least in their current form, could be banned.<\/p>\n<p>Such a scenario would see the adviser paid\u00a0an upfront\u00a0commission for establishing the policy in the first year, but being required to confirm an agreed fee each year thereafter to continue to service the insurance needs of their clients.<\/p>\n<p>This ongoing service fee \u00a0model is to be applied for investment and superannuation advice, as outlined in last week&#8217;s announcement by Minister for Financial Services, Superannuation and Corporate Law, <strong>Chris Bowen<\/strong> (see: <a href=\"https:\/\/riskinfo.com.au\/news\/2010\/04\/26\/government-bans-commissions-risk-not-included-yet\/\" target=\"_self\" rel=\"noopener noreferrer\">Government Bans Commissions&#8230;<\/a>).<\/p>\n<p>While the debate on imposing fee-based risk advice\u00a0is only hypothetical at this point, there were a number of\u00a0key issues\u00a0raised during the discussions:<\/p>\n<ul>\n<li>Under fee for service on risk products, the adviser is still paid for the genuine value provided during the underwriting process, even if the client is rejected or does not proceed for any other reason<\/li>\n<li>Fee for service on risk products may work in some circumstances for high net worth clients, and some advisers already take this approach<\/li>\n<li>However, it would not be viable for &#8216;mums and dads&#8217;.\u00a0 Even if lower-value clients were prepared to pay a fee for service, the adviser could not afford the time it would take to properly service those clients&#8217; needs, given the lower level of maximum fee that would be available<\/li>\n<li>Charging an upfront fee can generate greater levels of trust, for example, in\u00a0 business insurance cases where accountants and lawyers may also have input.\u00a0 Rather than taking remuneration via commission, the client and his\/her other advisers will more directly associate the value of the role played by the financial adviser with the upfront fees they charge.<\/li>\n<\/ul>\n<h6>&#8230; people have got used to\u00a0&#8216;free&#8217; insurance advice<\/h6>\n<ul>\n<li>Also in favour of charging a fee for service on risk products is the notion that people have got used to\u00a0&#8216;free&#8217; insurance advice.\u00a0 This is\u00a0because commission payments to advisers are invisible to clients and take place at a\u00a0date some time after the provision of the advice, subject to acceptance of the proposal,\u00a0as opposed to fees that would relate specifically to the advice provided, irrespective of the outcome of the insurance application.<\/li>\n<li>A\u00a0move to fee for service on risk products may see the &#8216;commoditisation&#8217; of\u00a0insurance advice services, where each element of the advice process could be individually costed<\/li>\n<li>This in turn could lead to a future where product providers become wholesalers, distributing\u00a0their products through advisers who would be the retailers of the product and the services that underpin their delivery<\/li>\n<li>Would more advisers consider charging fees for time involved in protracted claims cases?\u00a0 Opinion remains divided berween those who offer the client the choice of dealing direct with the insurer or effectively contracting the adviser to act on their behalf, for a fee, and those for whom it will continue to be part of their existing commitment to be available for thieir clients when needed most.<\/li>\n<li>If advisers charge a fee in future for servicing claims, and are paid from claims revenue, how would they charge in the event a claim was denied?<\/li>\n<li>The value of an advice practice under a fee for service regime for risk advice would reduce, but the value of existing risk advice businesses would increase in value as\u00a0trail commissions already in place could be retained<\/li>\n<li>Under a risk fee for service model, would independent financial advisers survive, or would the industry revert to salaried &#8216;agents&#8217; employed by larger instritutions, because this would be the most robust model under which risk fee for advice could operate?<\/li>\n<\/ul>\n","protected":false},"excerpt":{"rendered":"<p>Advisers were given an opportunity at the risk store&#8217;s annual 2010 Life Risk Forum\u00a0to consider the consequences to their business if commissions on risk products were banned.<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[8,241,270],"tags":[],"class_list":["post-6028","post","type-post","status-publish","format-standard","category-compliance-regulation","category-conferences-and-events","category-remuneration"],"_links":{"self":[{"href":"https:\/\/riskinfo.com.au\/news\/wp-json\/wp\/v2\/posts\/6028","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=6028"}],"version-history":[{"count":0,"href":"https:\/\/riskinfo.com.au\/news\/wp-json\/wp\/v2\/posts\/6028\/revisions"}],"wp:attachment":[{"href":"https:\/\/riskinfo.com.au\/news\/wp-json\/wp\/v2\/media?parent=6028"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/riskinfo.com.au\/news\/wp-json\/wp\/v2\/categories?post=6028"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/riskinfo.com.au\/news\/wp-json\/wp\/v2\/tags?post=6028"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}