The third day of the sixth round of Hayne’s hearings is underway, where the commission will continue to hear from Freedom Insurance chief operating officer Craig Orton and new witness Helen Troup of CommInsure.
Yesterday, the commission heard from Grant Stewart, a Baptist minister and the father of an adult son with Down syndrome on a disability support pension. Mr Stewart told the inquiry that in June 2016, his son, who was 26 at the time, was sold policies by Freedom Insurance.
But financial advisers won’t be in the spotlight this week, according to counsel assisting Rowena Orr QC.
In her opening statement on Monday, Ms Orr reminded Commissioner Hayne that the financial advice industry was the subject of the second round of the commission’s hearings, which took place in April.
“Because issues relating to financial advice were considered in some detail in those hearings, the sale of life insurance through financial advisers will not be the subject of a specific case study in the coming week,” she said.
“However, in recognition of the significant role that financial advice plays in the sale of life insurance, we want to say something further about what the witness statements from the 10 life insurers say about the sale of life insurance through this channel.”
The royal commission asked the 10 life insurers to provide information about the monetary and non-monetary benefits that they, as product issuers, provide to financial advisers.
One of the topics addressed in the second round of hearings was the way in which particular remuneration structures for financial advisers could lead to poor financial advice. Another topic addressed in that round of hearings was the ban on conflicted remuneration that was introduced in July 2013 as part of the Future of Financial Advice reforms, and the various exceptions to that ban.
The commission heard that life insurers paid over $6 billion in commission to financial advisers over a five-year period.
“In the five-year period that we asked about, Zurich paid more than $113 million in commissions in respect of its life insurance products,” Ms Orr said.
“AMP paid more than $380 million. MetLife paid more than $390 million, CMLA paid more than $460 million, Suncorp paid more than $590 million, Westpac paid more than $640 million and a further $112 million in grandfathered commissions in relation to life insurance arrangements within superannuation accounts. AIA paid more than $690 million.
“OnePath paid more than $830 million. TAL paid more than $840 million. And MLC paid more than $1.16 billion in commissions.
“That amounts to a total of more than $6 billion in commissions to financial advisers in connection with the sale of life cover issued by these 10 insurers in about five years.”
The commission heard that in 2017, more than half of the premiums paid in relation to new policies issued by these life insurers came from policies sold through financial advisers.
$6billion in commission over 5 years paid to advisers.
Consumers received $9billion in claims paid IN A SINGLE YEAR in 2016 and that had been steadily rising from $6billion back in 2015. One could reasonably estimate that for every $1 paid in commission claimants received $6 back in claims over the same period.
Commissions by their very nature mean that those who have less pay less and those that have pay more and those premiums are collected and go to the person who needs it most. The system works no matter how much people don’t like it.
This is nothing more than a witch hunt to help line the pockets of lawyers
AND SO WHAT if $6bn was paid in commissions over 5 years. Do they expect advisers to work for charities??? Why don’t these fricking blood sucking lawyers work for nothing…the scum bags.
Let’s have an Enquirie into how much commission (lets Call this on Stamp Duty) does the government, yes our government make from a sale of a house. No advice , just one bit of paper. Let’s have Rowena Orr QC to ask that question. If we charged the same fees as they receive on a $1.5mill home from SD we would be called thieves , how dare you take that . much from the poor client. But with the government it’s legal so it must be fine. We need to stand up to these people as they have no business meddling in our structure unless we can meddle into theirs
And how many Billions were paid through adviser (retail) policies in the last 5 years?
I think you will find the figure being over the $20 Billion mark.
What a lazy headline.
Why on earth do IFA give oxygen to this sensationalist headline James ?
I am beginning to have an uneasy feeling that IFA do not have the best interest of advisers at heart.
It seems that whatever grab they can use to encourage debate and comment is the main goal.
The level of of commission earned over the last 5 years!!!!!…..so what !
If it was $16 billion at the current commission rates, that simply means that more advisers are recommending insurance to their clients and the public are better protected financially than before.
So, why is the level of commission earned an issue…is it deemed to be too much ?
How much should advisers have been paid over the 5 year period ?
Just because the Royal Commission has an agenda doesn’t mean that IFA should too.
What do you want IFA to post? Nothing but pro-planner propaganda? Saying “oh nothing to see here, everything is fine – we’re the poor defenseless victims being picked on by big bad Hayne & co” is so incredibly detrimental to the industry as a whole.
As for the level of commission earned, it is an issue because it is a direct result of (and often an incentive for) selling products. Insurance is incredibly important, BUT.. When you see operators selling policies to at-risk individuals, companies refusing to cancel policies (or making it incredibly difficult to do so), and just the general contempt insurers have for their policy holders… You must ask “Have they actually earned this? Is this remuneration justified?” If there is doubt surrounding this, then there will be scrutiny that follows.
And how much has Rowena Orr QC or the participants of the Royal Commission, including the Commissioner been paid for their work on the Royal Commission or for that matter the last 5 yrs?? Last time I looked, there wasn’t a st Vincent De Paul sign out the front of my office!
Based on RC commentary so far the only people in this world entitled to be paid are lawyers and journalists.
Wonder if the QC is going to disclose how much her mates in legal firms cream off clients for submitting run of the mill insurance inside super claims? The ones that advisers do for free or even the policy holder themselves and get payment within a week? When was the last time you saw an ad on TV from an advice firm offering this “service”?
If the heading is correct, the advisers EARNED, which should translate to, they worked dammed hard to source, fact find, prepare statements of advice, consolidate application forms and then wait for the outcomes of medicals and blood tests before they received any payments for their efforts. Doesn’t anybody have the balls to stand up to this innuendo and constant abrasion against small business professionals doing what they should be doing and getting paid well because who else has the ability to complete such a thankless exercise?
Great point Anton. The only thing we keep hearing from our AFSL and product providers is ‘Now is not the right time to stick our heads up!” They are all running scared and jumping at shadows and we as Advisers are bearing the brunt of it all!!
Australia is under insured. We should be aiming for 60 billion in commissions over the next 6 years!
Of course it’s always the Financial Advisers fault.
ASIC / ODwyer / RC it’s always the Financial Advisers Fault, let’s try anyway possible to smear them.
DO NOT LET THE FACT THAT THESE DODGY DIRECT INSURANCE COMPANIES CEO’S AND MANAGERS HAVE BROKEN THE LAW COUNTLESS TIMES. LET’S DIVERT IN SOME WAY BACK TO THE BAD FINANCIAL ADVISERS GETTING PAID FOR SELLING NEEDED LIFE COVER TO CLIENTS TO PROTECT THEMSELVES AND FAMILY’S.
And wait for the shock and horror – advisers actually need to be paid for their job to feed their own family’s.
IFA – give us some real stories.
IFA – Aleks we miss you.
Don’t these people understand that any small business has costs for employees and a multitude of other expenses? These fools are breaking their own rules by telling half-truths. Have they done any research on the associated costs of running a financial planning business? surely they don’t consider 6bil as being total profit. Maybe they should go into the FP industry and try and run a business with low or little income. Oh no, it’s safer to sit on the bench and get paid $150,000 per annum by the public purse.
I wonder what the cost over 5 years has been for our state and federal politicians , not including all of there allowances for staffing , travel etc? could make interesting reading
Don’t you just love emotive headlines with little regard to the real facts?
I wonder how industrious the reporter of this little gem was when further investigation what happened to that $6 Billion? Did all of these advisers pocket the $6 Billion without paying PI, Dealer fees, rent, electricity, postage and internet, wages and superannuation, last biut not least TAX? i know what my bottom line is and as I have for many years said, the whole commission disclosure process is flawed and misleading, talk about the slings and arrows of outrageous fortune, sheesh, these jurno’s need a lesson in honest reporting .
So?? ……………….it’s still legal isn’t it? By comparison, what was the public service payroll last 5 years? I’m sick of this crap.
Those arguing they earn the commission are missing the point. It is clear the RC and Gov’t want to ban commissions as a payment mechanism and move to Pay for service. If you recommend insurance then the client pays you. I know that isn’t how we want it to work but that is what the recommendation out of the RC will be. I wonder how much lower that $6BN would be if a client had to pay out of their own pocket? And the flow on effects of under insurance?
Wow, wonder if you quantified how much ISA funds got in rebates and secret commissions over that same period how much it would be after their policies were written down to lessen member entitlements and policy conditions? Anyone?
Yeah heard ISA exec’s got huge bonuses after negotiating a deal with insurers to pay higher commissions to ISA not included in the fund’s recorded transactions so that the members wouldn’t get any of that ‘profit’ but instead they got to pocket fatter pay checks while members got shittier conditions. Is that being looked at by royal comm I wonder?
A lot of work goes into advising on life insurance, including researching existing cover, comparing and choosing new cover, completing lengthy application forms, lots of back and forth with client, insurer and doctors during application and underwriting stages. If a claim occurs, there is usually a huge amount of work involved in providing the information and dealing with the insurer to get the claim paid. Most clients would be unwilling to pay the true cost of this work as a direct fee, and hence commissions are how advisers are remunerated for this work. I don’t see anything wrong with the payment of commissions, which continue to be legal under the grandfathering rules. The size of commission payments does not alone indicate a problem?
this does not justify commissions. When will advisers realise that the higher the commission the better it is for the insurer. True commission free policies should be available for advisers that want to charge a fee especially to discerning clients. Insurers make full cost recovery on initial commission after 3 years, after this time the commission amount stays with the insurer as profit.
The last time I saw a client who requested no commission on their policy and opted instead for fee for service in the event that something happened unfortunately passed away unexpectedly in his early 40’s. His wife was absolutely fuming (with him) that she now had to pay in order to have the claim paperwork processed by our office – work which we knew based on past claims would equate to 20-30 hours of work (possibly more) given the hoops that the big 4 insurer wanted us to jump through. Although we did a LOT of pro-bono work, we are still a business at the end of the day and he agreed to this. We spent several hours of our own time, at our own cost obtaining the requirements and passing on the paperwork to her.
She declined our help as was her right, and three years on we were still receiving policy statements indicating that the policy was in force and she hadn’t claimed on the policy. It was all too hard.
The next claim I processed for TPD we had been paid a commission, a lowly $2,000 over 9 years of the policy. The client was declined multiple times for her claim despite meeting ALL of the definitions and we launched a fight with the insurer on her behalf to get the payout (I won’t mention names, but let’s just say the insurer was the worst performer in the R/C and is an acronym). After 300+ hours of work, with her, with the underwriters, with the multiple doctors and specialists (they made her travel hours from the country to see), with the Ombudsman her claim for less than $300k was paid out. She sent me a card, confessed that her time fighting the insurer had left her with depression and considered taking her own life because at least there would be a death claim for her family, and finally she thanked us profusely for taking up the fight for her knowing because she would have given up months before.
It cost the business 5-7 times what was received in revenue. But we did our jobs because that’s what the commission paid for. Just as our politicians, judges and the QC’s representing ASIC are paid to perform the role they are in the royal commission, we too are paid. [b]Will ASIC process the claims when insurers won’t? When families are too traumatised? Will the QC’S launch action against insurers when they decline a valid claim? I don’t think so,.[/b]
If there was a reasonable cap on commissions I think this argument would be stronger. It is hard to justify a $20k commission just because the person being insured was old and unhealthy. A cap of say $5k would remove much of this ‘excess’, and allow advisers to charge a fee for advice if the true cost of delivering this cover was more than $5k.
Exactly. Should have been out in place many years ago. Trowbridge did suggest a certain upfront fixed remuneration paid by the the insurance company, but it was too low so everyone just ditched the idea. Perhaps it should be revisited.
Wrote some insurance for a client the other week… 50k premiums, charged 11k fee.
Winding the commission down to zero saves the client $21,000 p.a. excluding the value of the advice itself (premiums $71k p.a. with commission built in).
Naturally, this client has since referred others and is likely to become a great investment client in future. What goes around, comes around.
Yeah cos there are so many ordinary Australian who are willing or need to pay a $50k premium. Great if that’s your niche, but better to not screw over the people who really need advice. They are the ones who can only afford advice via a commission model.
Shall I channel Mel Gibson in the 1995 masterpiece ‘Braveheart’ and lead the chorus of screams from triggered advisers claiming they’ve somehow been unfairly targeted by the facts presented in this article?
I don’t have any face paint at the moment & I seem to have misplaced my kilt.. but I’ve got some lead-based paint in the shed and I think my wife has a tartan skirt in her closet – give me 5 minutes! Chaaarrggee!
What facts? The $6B in commissions? Is that what you are referring to? That works out to approximately $46K per year, per adviser. Not much more than half the average wage. Whoopee do!
Adviser are paid upfront and ongoing commission on life products to be remunerated for the advice and assistance they provide to clients in helping obtain Life, TPD, Trauma, Income Protection and Business Expenses insurance. This whole process can take many hours to complete from initial interview and fact finding to SOA preparation and presentation to implementation. There will also be assistance given to clients if the need for a claim arises. Research has consistently shown that claims made where an adviser is assisting the client are handled more promptly and efficiently than where the life insured has to deal directly with a life company themselves. The comments from the RC are almost implying that we as advisers are getting paid for doing nothing. How about making some positive comment on the outcomes we help our clients to achieve to protect themselves and their families. This is nothing more than a witch hunt without taking a balanced view of all of this. How about an RC on politicians as more public money is wasted by these hypocrites due to their self serving interests than much of what has been exposed by the current RC.
Could we get some facts & objective reporting from the IFA???
$6B in comms paid working to get Australian families appropriately insured to stave off financial destitution. Looking at The Risk Store numbers for claims paid for 5 years to 2016 (last numbers available) there was something like $30+ Billion in claims paid by retail insurers. Given the upward trajectory of the level of claims paid, I’d suggest that we’d be looking at payouts in excess of $40B if 2017 & 2018 were included.
How about comparing the outcomes that these clients experienced compared to the people in Union Super with their 2 units of cover…..
Good on us for making a living, hey?
What a first class twat throwing that into the mix when there are clearly other issues of malfeasance at play at the direct, and group life and institution and super fund levels (including ISA but betting they go easy on them again).
So what? Aside from an attempt to yet again demonise planners and somehow associate them with the other totally unrelated issues via a press release.
Simple fix. Don’t allow products to be sold under general advice for a commission.
These products don’t get sold under personal advice as they are so bad nobody wants their name to them.
What did the Law Fraternity earn over the last 5 year period – particularly compensation lawyers taking huge sums of their clients’ settlements? What did Real Estate Agents or Mortgage Brokers, Car Salesmen earn in commissions over the past 5 years? Pretty irrelevant statement.
So between say 25,000 advisers writing some risk the $6 billion equates to an average of $48,000 per year, per adviser over that 5 years. Not a particularly big number but of course $6 billion sounds far worse against those greedy advisers who have NOT caused the horrendous scandals we are seeing from direct life insurance. No the greedy adviser for $48,000 a year has generally sold good products, well underwritten and unlike direct life have a staggeringly good percentage of claims paid.
The life insurers get half their business through financial advisers but they didn’t want this. With the dodgy FSC misleading government over the LIF, they wanted advisers out of the way so that they could sell more junk direct life insurance in the manor we are seeing at the Royal Commission. Junk products less chance of claims.
So $6 billion was paid out, how much was clawed back due to clients cancelling/lapsing their policies? The $48,000 per adviser would be far less. We then take into account the AMP case brought before the court where the estranged wife expected a payment after the policy had lapsed 9 months earlier, and this is what you get. People who are not wanting to take responsibility for their actions, are apathetic until it affects them, and run to the lawyers circling to sue when they don’t get the answer they want…. Welcome to the new world order.
How much did the $6B paid to advisers save those insurers in costs they would otherwise incur internally? Between $10B-$20B I suspect. That’s why they do it.
Consumer groups need to stop their misguided campaign about insurance commissions being an [i]additional[/i] cost. Commissions are an[i] outsourced [/i]cost, which is often cheaper. Surely the recent RC hearings have shown that when insurers use direct products which internalise costs rather than paying adviser commission, consumers end up with products which are more expensive and/or lower quality.