{"id":60643,"date":"2022-04-29T11:15:19","date_gmt":"2022-04-29T00:15:19","guid":{"rendered":"https:\/\/riskinfo.com.au\/news\/?p=60643"},"modified":"2022-05-04T00:54:17","modified_gmt":"2022-05-03T13:54:17","slug":"retaining-risk-commissions-and-pyric-victories","status":"publish","type":"post","link":"https:\/\/riskinfo.com.au\/news\/2022\/04\/29\/retaining-risk-commissions-and-pyric-victories\/","title":{"rendered":"Retaining Risk Commissions and Pyrrhic Victories"},"content":{"rendered":"\n
\n
\n

The recent reinforcement of Labor’s changing approach to the question of whether to retain risk commissions is the latest indicator of the odds shortening for those who think commissions will be retained post the 2022 Quality of Advice Review. But is this enough?<\/h3>\n<\/div>\n<\/div>\n

<\/p>\n

The current 60\/20 commission caps were included as an integral element in the fanfare of announcements accompanying then Assistant Treasurer Josh Frydenberg’s Life Insurance Framework reform package. At the time of the original announcement in June 2015, the Assistant Treasurer was able to stand before the cameras and declare that the Government was going to halve risk commissions, at a time when upfront commissions were around 120% of first year’s premium.<\/p>\n

There was a ‘neatness’ in the Assistant Treasurer’s ability to declare that risk commissions were to be halved – a position imposed on the financial services industry by the Government following its determination that the industry had failed to unite to adequately self-regulate post the release in October 2014 of ASIC’s Report 413 Review of Retail Life Insurance Advice.<\/p>\n

There didn’t appear to be much science accompanying the announcement of 60\/20 commission caps – as it related to the capacity for this level of remuneration to sustain a viable risk specialist advice business – other than the fact that this number represented a halving of upfront commissions in order to better align the interests of advisers with consumers.<\/p>\n

As the sector looks ahead to the handing down of the Treasury’s Quality of Advice Review in December 2022, which includes ASIC’s review work on the quality of life insurance advice post the implementation of the Life Insurance Framework reforms, latest reports confirm the number of risk-focussed advisers in Australia has been decimated.<\/p>\n

Without debating their merits, it’s generally accepted that the significant decline in specialist risk advisers has been due to a combination of the double-whammy of the LIF commission caps and the imposition of minimum education standards on existing advisers.<\/p>\n

The 60\/20 risk commission caps are also generally accepted by many as a key reason for the almost total lack of new risk specialist advisers entering the sector to replace those who have been and will be departing.<\/p>\n

the question being asked …is whether the retention of risk commissions …will have any meaning whatsoever if the present 60\/20 commission caps are retained<\/p><\/blockquote>\n

While there appears, then, to be a growing momentum that will see the retention of risk commissions as a valid form of remuneration for advisers post the 2022 Quality of Advice Review – regardless of which of the major parties forms Government – the question being asked by a large cohort of advisers and other industry stakeholders is whether the retention of risk commissions into 2023 and beyond will have any meaning whatsoever if the present 60\/20 commission caps are retained.<\/p>\n

Even before the original announcement of the LIF reforms in 2015, Riskinfo has reported both sides of the debate around whether a more nuanced approach to delivering life insurance advice – for example a combination of fees and commissions – might be the way forward for risk specialist advisers.<\/p>\n

Some advisers and some key licensees believe the current 60\/20 commission caps can and will work, to the extent that this can sustain a profitable risk specialist advice business. One of the arguments supporting this contention relates to the 20% ongoing commission, which doubles the 10% renewal commissions that were historically linked with the upfront commission model: 120\/10 versus 60\/20.<\/p>\n

Others, however, have voted with their feet, as evidenced by the declining numbers of specialist risk advisers. Yes, it’s a complex issue, where there are multiple factors impacting this decline in numbers. However, one of the most critical elements is the capping by a government in a free-market economy of the commission an adviser is able to access for delivering life insurance advice.<\/p>\n

The best interests of consumers must always be at the centre of any life insurance advice narrative. That should go without saying. But what’s the point of retaining risk commissions (and the two-year clawback) at their current levels if this results in many – but not all –\u00a0 specialist risk advice practices proving to be commercially unsustainable?<\/p>\n

As noted in previous Riskinfo stories, advisers have never determined the levels at which upfront, hybrid and level commission structures were set. That determination was made by life companies in balancing a commercial premium offer to prospective lives insured. Notwithstanding current issues of overall industry sustainability, the upfront, hybrid and level commission structures set by insurers – again in a free-market economy – were sustainable for specialist risk advice businesses. That is, a hybrid commission level of 80\/20 was set and accepted as commercially viable. 60\/20 was never an option for advisers, unless they wanted to dial-down the first year hybrid commission payment.<\/p>\n

For many industry stakeholders with whom Riskinfo has spoken, one solution to the challenge of retaining specialist risk advisers and specialist risk advice small businesses, rests in a combination of retaining risk commissions and allowing an 80\/20 hybrid commission structure to be accessed.<\/p>\n

Not all will agree with this position, for which many have advocated, and it doesn’t mean there aren’t other solutions. But any future declaration by the Government of the day that it has decided to retain life insurance commissions, but at their current capped level of 60\/20, will be greeted by many supporters of retaining commissions as a pyrrhic victory at best.<\/p>\n

\n

\"\"<\/a>Peter Sobels is Riskinfo’s Publisher and Managing Editor<\/p>\n

 <\/p>\n<\/div>\n

Back to Adviser Focus Main Page… <\/a><\/p>\n\n","protected":false},"excerpt":{"rendered":"

The recent reinforcement of Labor’s changing approach to the question of whether to retain risk commissions is the latest indicator of the odds shortening for those who think commissions will be retained post the 2022 Quality of Advice Review. But is this enough?<\/p>\n","protected":false},"author":3,"featured_media":60655,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[6868,8],"tags":[],"class_list":["post-60643","post","type-post","status-publish","format-standard","has-post-thumbnail","category-adviserfocus","category-compliance-regulation"],"_links":{"self":[{"href":"https:\/\/riskinfo.com.au\/news\/wp-json\/wp\/v2\/posts\/60643","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=60643"}],"version-history":[{"count":0,"href":"https:\/\/riskinfo.com.au\/news\/wp-json\/wp\/v2\/posts\/60643\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/riskinfo.com.au\/news\/wp-json\/wp\/v2\/media\/60655"}],"wp:attachment":[{"href":"https:\/\/riskinfo.com.au\/news\/wp-json\/wp\/v2\/media?parent=60643"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/riskinfo.com.au\/news\/wp-json\/wp\/v2\/categories?post=60643"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/riskinfo.com.au\/news\/wp-json\/wp\/v2\/tags?post=60643"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}