Yesterday, Mr Trowbridge handed down a report recommending a flat commission not exceeding 20 per cent be introduced for advisers providing life insurance advice, amid a range of proposals.
The report sparked outrage from many in the advice community, with the AFA – despite being instrumental in the LIAWG’s establishment – issuing a thinly-veiled criticism of the report’s recommendation regarding flat commissions.
Speaking to ifa, Madison Financial Group general manager Giulio Russo said he anticipates a number of risk-focused advisers to exit the industry, while former AFA president Michael Nowak forecast that fewer independent advisers and licensees would remain in operation.
However, while Mr Trowbridge made clear at a press conference yesterday that he stands by his recommendations, including those around adviser remuneration, he also said he feels for advisers as the victims of a conflicted system.
“Advisers have a right to feel persecuted in a way because they have been criticised up and down the country, across the political spectrum, by consumer groups, by regulators and yet they are probably one part of the chain here and they individually can’t do a lot about this without licensees and the insurers playing a big part,” he said.
“Most of the advisers are ethical people, they are conscientious people, they believe in the noble cause…but they are in an environment that is not of their own making.
“They have made the best of it as it is and they now have to make the best of a different environment in the future and I want to see the licensees and the insurers take a lead in dealing with these issues,” Mr Trowbridge said.
I assume that the “upfront” commission ban by AMP today is step one of AMP’s Managed Transition with more bad news to follow. What was AMP’s submission to LIAWG? What happened to their motto AMICUS CERTUS IN RE INCERTA” (a sure friend in uncertain times)? I see nothing friendly to Advisers in AMP’s knee jerk reaction. The solution to the current problem requires ALL PARTIES to pay a price NOT JUST ADVISERS. Effective immediately L/O’s should increase ALL IN FORCE RENEWALS from 11% to 30%. This will protect this “in force” business. There will be a cost but it’s the L/O’s that want change also. In exchange Advisers with 5+ years service will accept Hybrid commission only (say 80/30) for 12 months then all future business income would be Level at 30%/30%. Advisers of less than 5 years need a 3-5 year Hybrid transition period. I have seen many changes in my 47 years in the Industry. The proposed changes are the most far reaching and will decimate our Industry.
There is a common thread amongst all of the comments. There are many very unhappy advisers as a consequence of the proposed changes outlined in the Trowbridge Report and rightly so. Whatever the changes end up being it is important to remember that the client’s best interests are paramount and alienating advisers is not the way to look after clients best interests.
If it wasn’t for the advisers, Life Offices wouldn’t have the business they have today!
My concern with the Trowbridge recommendations are that regardless of the initial remuneration structure to get clients insured, I cannot see how any adviser can provide claims support without charging a fee for it.
If advisers are, at best, covering the cost of writing new business under the proposed flat comm plus $1,200 (where is the modelling justifying that?), then they will not be able to offer free claims support.
As those in the industry would know – claims support is probably the most crucial aspect of the total exercise. Leaving clients to sort through up to 10 different forms, ensuring they are all completed correctly, then lodging and following up with the insurer is a daunting task even for us!
Until someone can explain to me how that benefits clients I will ask that we give FOFA and the legislated Best Interest’s Duty at least a few years to run to see if that solves many of the issues highlighted in the ASIC insurance report.
Alright ken, there are certainly some valid reasons there as to why some people won’t buy insurance. What about solutions though?
Good advice on the importance of getting the right cover in place, trust in the industry, proper underwriting and cheaper premiums would go a long way to solving the problem. It’s a steep hill to climb to be sure, but I absolutely view the removal of commissions as a way to achieve most of this. They do so little to build trust from the buyers of insurance, and are causing so much harm to our industry’s reputation. Advisers and insurers will need to be able to set their own price which I see as opportunity rather than a threat.
All the best to you in you endeavours. Thanks for sharing your thoughts
Bento.. from Mark in another thread. I felt this was a valid succinct view.
“Auastralian aren’t under insured because advisers receive commission; Australians are under insured because they cannot keep up with mortgage repayments, the cost of gas, water and electicity, the cost of education. Then there is the lie about employment. Part tim work doesn’ pay much. Are you going to see your kids go hungry in preference to paying an insurance premium?”
ken you may fail to draw relevance because you don’t think the system is broken, and I do. I’m asking because the under insurance problem is always used to defend commissions, but the experts never offer to solve it, it’s either the insurance companies or the consumers or the government (or anyone else!) that are to blame, but not the insurance sellers. I am really, genuinely interested to know what someone, who has helped loads of people with their insurance, believes can be done to help with the under-insurance problem.
Bento, I fail to draw a relevance to your comment.
“I just think it’s logical to conclude that under-insurance has to be something to do with the way the system operated for decades.
High commissions certainly didn’t fix under-insurance , and I ask all of the experts to please share their thoughts on why we are under-insured?”
How could you consider that by paying less than cost of delivery would improve the situation? It would only make it worse. My sales now are much higher premiums but much less in number (thanks to the preparation to delivery) than they were in the 90’s. I cant draw a conclusion that reductions to renumeration will increase the populations issue of under-insurance. I just cant.
Lets not make this a face book type thread, but Herminator? Relying on what your GI friends say if neither of you are in both fields makes it a touch hard to be real in comparing. I work in both and one is much more cumbersome than the other. Your comment about a “beacon of light” has no relevance. Rather that is how individuals in any field can harm an industry. It says nothing so much of the existing compliance.
Herminator, have you tried to enter the GI market, it is a closed shop to ensure that they can stay on level commissions.
Mosty consumers have no idea they receive a commission on top of their broker fee that most charge.
My PI guy does not understand why I get cranky at him!
ken, maybe compliance “was” a differential in the past, but my GI colleagues have said otherwise. Either way the same regulation applies. As for lenient compliance, the Financial planning hasn’t exactly been a beacon of light.
Herminator. Not sure I would agree that there is anything to compare with general insurance. Compliance has been much more lenient in the past for general. People perceive is need greater. Thy will insure their car but not their own life. You dont need to do the same research, record keeping or soa’s. many u done under no advice etc. Please don’t infer the same remuneration could apply.
Gee whiz, if you didn’t see these recommendations coming you really have been living in a cave. GI brokers operate on level commission/brokerage and the bread and butter clients are small revenue earners, yet they managed to exist.
In response to Susie Munro’s question about what advisers will do differently under the Trowbridge (FSC) remuneration model…
I think many will pre assess their clients much more rigorously, and charge an additional up front service fee for anyone that looks like they may require complex underwriting or be at risk of insurer decline.
One would hope that if these recommendations actually go through and the alleged churning ceases, then the regulator will relax the requirements for SOAs on alternate and replacement products? Commission disclosures will be a thing of the past as we’ll all be getting paid the same….yes?
(In jest!)”Sell it”, Damian !!…… I didn’t think we were allowed to use that word anymore……don’t we just ADVISE these days!…. to the masses of people who line up at our door every Monday morning or who are placed into our weekly appointment diary by our Telemarketing department?
I wonder what terminology we will have to replace PROPECTING for clients??…….the Client Availability Assessment Program.
I hope Christopher Zinn, David Whiteley, Robbie Campo don’t see the word “sell”.
That’s why we are called ADVISERS…..otherwise we would be called SELLERS!
The client could be called a BUYER.
Imagine that…..a world of Buyers and Sellers….a world of simplicity!
We all know that despite the remuneration model utilised, no-one ever buys if they don’t see value for money. Whether it is Fee for Service or appropriate and reasonable commission based models, the acceptance of value and trust in the transaction will always determine the outcome.
I think you guys should try to see what this industry will look like in 3 or 4 years. To survive you will have to change because what ever the model they come up with, upfront is gone. Fee for Service can work if you have an advice model where clients see value for money. Most will be able to adapt and some will not. Banks and Industry Super funds can’t and don’t want to offer advice and service, we can. Guys there are 26m people in this country and alot need and want advice and are prepared to pay for it. Build your model,package it,price it, and go and sell it
Cheers ken. I just think it’s logical to conclude that under-insurance has to be something to do with the way the system operated for decades.
High commissions certainly didn’t fix under-insurance, and I ask all of the experts to please share their thoughts on why we are under-insured?
Anonymity ok when someone agrees but not when they don’t? That ain’t the real world mates, that’s just bloody rude.
Mine is one opinion of many, and I’d change it if you made sense to me. But you don’t. So I won’t. I advise on risk, and I make a comfortable living from it.
Bento, congratulations to you! Many others have different skill sets and are worth their salt. But any industry who charges fees, then spends much time in getting payments and managing this. Over the fence, many would see our current system of remuneration from product provider as awesome. i don’t have to argue or justify accounts. In the real world i would suggest you do need to spend time on this as would the car repair shop on many of his jobs. Fanciful to think people want to pay for advice on risk. Strange we have a nation of under insureds. I guess there waiting for fees to come and then jump in to insure?
Bento! Interesting comments from an anonymous individual. Put your cards on the table if you have any substance and tell us how much Risk business you write a year or are you too ashamed to do so. Get into the “real world” – people will not pay “fee for service” for Risk Insurance.
……and what do you do Bento?
Just so I can get a perspective on your commentary.
Yes Roger, we wouldn’t want anyone who is going to disagree with your point of view in a debate about the rubbish that has led us all to this point would we?
Anyone worth their salt can charge a fee if they can prove their value to a client. If a client doesn’t see value they can take their chances and go direct.
I would have thought financial and risk advisers, experts about money no less, wouldn’t need the government and insurers to owe them such a living. Where’s your pride folks? If you’re that good, the clients will pay you. Surely??
Joe, great stuff mate but you did forget one:
[b]AFA =[/b] good intentions and good blokes but led astray by viscious product manufacturers who dont give a shit whether advice lives or dies.
Spot on Roger. Set the level at 85% of gross remuneration
Message to Trolls-bugger off !
Let’s get some fairness into this debate!
I do not believe that it is appropriate for anyone who does not derive the bulk of their income from the sale of Risk Insurances to be making any comments whatsoever about “someone else’s” future basis of remuneration being their livelihood.
Reading the identical wall of messages that the insurance companies have released, (aiming at convincing us this change is inevitable, so don’t fight it), it points to nothing short of collusion.
As pointed out below, where is the FPA in all this, and more poignantly, how do we get the ACCC to do an investigation into the market manipulation, which this so clearly is?
Phil Burke or Don from Synchron, if you were to organise this or at least a petition on change.org I am sure the (unfortunately) silent majority of planners would take time to back it.
[i][b]Glossary of terms for those who just joined in:[/b][/i]
[b]FSC[/b] = self interested conflicted institutions providing products, concerned solely with their profit levels.
[b]Trowbridge[/b] = Author of flawed report paid for by the FSC based on incomplete data/figures concluding payments to advisers need reducing (akin to the “medical” reports commissioned by tobacco companies).
[b]FPA[/b] = phantom-like entity, meant to be for the betterment of FP members but observed only when own interests are at stake, or someone utters ‘enshrinement’.
[b]Financial Planner/Risk Writer[/b] = person or business that takes on all administration, client health query follow up, implementation, marketing, sales, advice process, servicing and associated costs and risks for inversely proportionate diminishing returns vs increasing compliance. (Also refer to the ‘bunny’).
Have I missed anything?
John Trowbridge will be paid $1,200 for producing this report. This should be sufficient to cover part of his costs. Not sure he could argue with the logic?
This is a report commissioned by the self interested FSC, who have a mandate, ‘oh behalf of the industry’.
[b][b]Where are our professional bodies like the FPA [/b]in all this championing our views, and initiating our own report on actual costs and risks in a planning office?[/b]
Or have they already sold out as well?
loosing sleep………..I trust this report falls into the stupidity bin.
The banks will gain from this and the small business provider will fall away.
Its hard to see how quality advice can occur without the time spent being renumerated.
So $1,200 for a large buy/sell agreement, perhaps complex risk work.
Hmmm – I wonder where the $1,200 came from ?
I’d love to see the calculations.
Maybe other business people should be asked the question: would they do the work today, pay their staff, rent etc today, in the hope they will recover their cost in the next 5 years? And what about if the client changes their adviser after year 1 or stops the policy? No chance of recovering the costs incurred for the work done. No sane business person would bother with risk advice unless the client pays for the advice(small clients who need the advice do not want to pay) or the premium is big enough. Clients will be paying more – to the adviser and to the insurer (who have no obligation to reduce premiums).
The Author of the Trowbridge report has not worked as a risk adviser… just to point out a few things:
(1)Where did the magic $1,200 figure come from…??
(2)the higher up-fronts are to compensate the high lead losses
(3)conflicted numeration, What about all the high costs lawyers charge to get TPD payouts for clients etc, up to 40% of payout I’m lead to believe. What is more conflicted than that./ Aren’t they a profession?? i’m not criticising them, they study hard are smart and people need their services…HEY that’s familiar, sounds like us,
… but no, Trowbridge says I’m conflicted, I should be capped, who cares if your independent honourable business goes under, go and work for a bank for wages…hey yeah, this will certainly solve all our industry issues and make us a “profession”
..Sorry but I think a little cynicism is warranted!!!
Thanks Ken. Appreciate the response.
[quote]Gee Susie, it’s a bit early to start a recruitment drive for membership of the IFAAA just yet isn’t it?[/quote]
I’m not a member of the IFAAA Craig. I’m also not sure what your problem is with me.
I’m asking a legitimate question about what advisers think they might do, because I’m putting together an adviser interview series about pricing, so that other advisers can learn what others are doing, what has worked and what hasn’t. The more I understand, the more relevant and helpful I can make it.
To Roger Smith….very well said.
I have just read an email from one of the big ones regarding an update on the Trowbridge report and the specific language used absolutely smacks of underlying agreement covered with a very thin layer of “we are in this together, and we will assist you to adapt”
I reckon the wording went through Legal a hundred times before being released.
It would be appropriate for all advisers to have access to the specific submissions put forward to the LIAWG by every company.
Susie, i will exit the industry if this is implemented. I put too much work into risk placement to be able to work for 20%.
I will be rewarded properly and again in ones own business.
This Towbridge report demonstrates a severe lack of practical knowledge and ability to deal with the solution. below are some great examples and comments. Few advisers are the churners, I may be guilty of not updating enough? I walk away from clients with relationships and in the believe that there are many out there that need assistance, rather than tear down other adviser relationships. Simpler solutions could be to identify those that make an industry out of it or do it regularly. This they could then be moved to a new model commission based on the costs to the insurer also and level commissions. There are far to many people needing help than to prey and churn.
Was it a good move to ask an actuary to perform this (noting also his experience with APRA)?
Gee Susie, it’s a bit early to start a recruitment drive for membership of the IFAAA just yet isn’t it?
For all those of you who are unhappy, what are you planning on doing to adapt your business if the recommendations, or something similar, are implemented?
I have been reading each of the comments from the MD’s (CEO’s) of the respective Life Offices and there is certainly a lot of common content.One can’t help but feel that each of these individuals thinks that this issue is basically done and dusted. e.g. “We are currently reviewing the details of the proposed Trowbridge Report recommendations and will participate in industry discussion with an aim to arrive at a reasonable and sensible transition. This is important to ensure that advisers have sufficient time to adjust to any new remuneration arrangements.” Have these L/O individuals considered that their staff and BDM’s (all decent hard working people)and themselves will be significantly effected if this report is accepted and implemented as proposed. Remember that many of you look good because of our efforts over many years.
Let’s use an analogy to make the point.
John Trowbridge’s comment that “advisers are not to blame” equates to saying to your child “it’s not your fault” and then smashing them over the head with a sledge hammer. Let’s get some common sense into this discussion for the benefit of all parties.
Neil Salkow
What a disingenuous comment from someone purporting to be a professional.
The only thing missing from your submission is a promotional video for your business.
United we stand divided we fall!
If these recommendations are put into practice – can I then expect that ALL commissions paid in the commercial world (e.g. real estate agent selling fees, retail salespeople’s bonuses, lawyers working on compensation claims, etc.) will be deemed ‘conflicted remuneration’ and outlawed??
I think not – as it’s only financial advisers that are crooks, apparently.
All these proposals will do is ensure claims support will be on a fee-for-service basis – hardly what clients need when already facing medical and other costs associated with a accident or illness.
There’s an old political saying – never set up an inquiry that you don’t already know the outcome too.
I’m sorry, but the AFA has made a significant error in judgement here that is only going to hurt the industry they are supposed to be supporting.
No mention of the life companies offering a reliable level premium product to clients with automatic upgrades
Would have fixed the churn issues and affordability in older lives
I think the ACCC will be busy with the price fixing component of this
As always the self employed adviser takes the rap for the greed of Life Company Executives
Neil, I suggest you are being less than genuine here and suggest that you are cross subsidising your risk advice, if indeed yiou give any at all.
What a completely ridiculous situation we have here with John Trowbridge in one day delivering a misguided and diabolical opinion and recommendation that entirely compromises the future of the Life Insurance industry and in the same breath he states he feels for ethical and conscientious advisers for being persecuted!
It’s akin to him shooting you first and then telling you he is sorry that it hurts.
You must be working with the Salvation Army since your sitting on your high horse & telling everyone how good you are for charging fees to clients and not taking any commissions. From where I see it, your actually disadvantaging the client by having the client pay more for their insurance cover than a practice that is remunerated by commissions & therefore not costing the client more for their cover! You either do charity work,work for one of the Industry Funds or work for one of the banks!
Every piece of advice has to be justified. Why on earth doesn’t a high, documented hurdle or standard exist for replacing policies that is enforced.
Obvious repeated churn should get prosecuted. Good advisers are caught in the cross fire again. The recommendations of this report will help the large integrated insurers on the back of the sins of so few.
How silent have some of the integrated insurers been! This is telling and the silence is deafening as they rub their hands together. Hello NAB/MLC, anyone out their CBA/Colonial, cooeee to AMP….no one home on this topic??
This is a stitch up as well as a stuff up. Bad for consumers, great for integrated multinational insurers.
I challenge all the insurers to publish their submissions so we know which ones actually value the advice we give and which don’t. Could make for interesting reading.
Mr Trowbridge if you can operate for one month without an income and service all those clients waiting outside your office WANTING to buy risk insurance and have all those cases, with and without health risks process in a month and live off the $1200 each then I might consider your comments. Let’s not forget about the clients you have on claim and assisting them through the process and red tape. On one hand we’re supposed to be true professionals, along the lines of lawyers and accountants and on the other hand you’re treating us like crooks who simply want to churn business. A crook is a crook, educated or uneducated and they drift among all industries and in government. Your report has tarnished us all with the same brush. It took my case 3 months to process, with numerous calls to underwriters etc and did not receive a cent until 14 weeks later. All this for $1200 – you must be kidding.
How bloody naive is this man
Firstly, most small licencees will fold
Secondly insurers will only act if there is a dollar involved or their Number One funds are threatened by a lack of new underwritten business.
I reckon this is an ambit claim by the FSC, and, apre le deluge, we will all be grateful for 85/25 hybrid.
And is the FSC not acting as a cartel ?
Talk about throwing the baby out with the bath water. These recommendations have been driven by parties who have little understanding of how our industry works or by vested interest groups. The current system is in need of reform but not in the manner proposed. The existing remuneration model is designed to “compensate” advisers for their efforts when results are achieved and allows for time spent on claims and unsuccessful applications. Under the proposed Trowbridge Report the “new model” focuses on retention and offers little if any incentive for the procurement of “new business”. I thought we were trying to address the underinsurance problem! One could be sceptical in thinking that this report is a conspiracy. After 48 years in the industry and with No intention of going anywhere, could I suggest that two things must occur. Firstly, Advisers must stand up and be counted and secondly the parties charged with coming up with a viable “new model” need to go back to the drawing board.
Talk about throwing the baby out with the bath water. These recommendations have been driven by parties with little understanding of how our industry works. Yes the current system is in need of reform but not in the manner proposed. The existing remuneration model is designed to “compensate” advisers for their efforts when results are achieved and makes provision for time spent on claims and unsuccessful applications. Under the proposed Trowbridge system the “new business model” focuses on retention and offers little if any incentive for the procurement of “new business”. I thought we were trying to address the underinsurance problem! One could be sceptical in thinking that this report is a conspiracy. After 48 years in the industry and with No intention of going anywhere, could I suggest that two things must occur. Firstly, Advisers must stand up and be counted and secondly the parties charged with coming up with a viable “new business model” need to go back to the drawing board.
I believe that I can comment freely as like many others (although sadly not enough) I made a submission to Mr Trowbridge.. I guarantee that not one of the submissions from any of us recommended the course which has been suggested by Mr Trowbridge. The comments made by him now acknowledge it’s not the ‘advisers’ fault, yet wasn’t that the very premise which prompted the report? now we’re hearing it’s not our fault, yet it’s our businesses and their value have just been put in limbo until some common sense is established. In some respects the report makes sense but seriously we need a measured approach to achieve the best outcome.
The insurance companies ie (Banks) can reduce their premiums by 80% to match the commission reductions then i think the adviser network could survive as it would be much cheaper for the consumer to have insurance,All these reports by so called experts that do not have a understanding of the process us advisers go through to obtain the clients for the insurance we sell or the real costs of operating and it all has to filter down from the top and i know the insurance companies will not discount their products by 80% will they.
If he was serious, he would have recommended that all insurers pass back policy enhancements to existing policy holders, as that would vastly reduce the ‘churn’ problem.
The recommendation about APLs is crazy – they should all be on. You can imagine the glee at AMP today: they can reduce the number of insurers on their APL from 13 – 6 (or 7), but then two of these will be AMP products.
With remuneration capped and deliberately set below cost, the only logical result of Mr Trowbridge’s recommendations is that life insurance advice will only be viable for the vertically integrated banks and life insurance companies. Is Mr Trowbridge stupid or did he deliberately set out to destroy the independent advice sector? Statements like… we ‘have a right to feel persecuted’ and ‘most advisers are ethical people’ does nothing to soften the blow of his outrageous attack on independent advisers.
The last two paragraphs of this article are the most sensible/sane statements I have seen in years, how unfortunate it will be when as previously the end result will be more compliance/paperwork more confusion for the consumer and lower reward for all advisers.
While all talk about more education higher standards – why would anyone with a university degree,ethical standards and some brains want to enter this industry? You could be a lawyer or say an accountant, get same or better pay – half the paperwork, quarter the responsibility, one tenth the liability. While I will leave it to others to highlight the issues with the overall report, this will end up being just another addition to the death by a thousand cuts.
Has Mr Trowbridge done the maths on this proposal? Does he know anything about cost to serve? The AFA & FSC should hang their collective heads in shame. They have clearly sold out advisers in this report.
This guy is an Actuary! What modelling did he do? This model will more than half the income of all Risk Advisers. Not only will they go out of business but all the staff will be out of a job. The only winners are Industry Funds and Banks who will employ salaried people who have no interest in the client and will be forced to just sell more and more product, advice will go out the window.
Wow!
Advisers not to blame but your solution is to send independent life advisers out of business Mt Trowbridge? This does not make sense. Can Mr Trowbridge please explain how this proposal will lead to the consumer being better off…. I cannot see there being better quality non-conflicted advice or lower premiums as a result of his recommendations
“fewer independent advisers and licensees would remain in operation”.
I challenge this statement. Independent advisers do not accept conflicted forms of remuneration including insurance commissions, so they are not relying on this as a source of passive income to continue operating and providing valuable services to their clients.
We charge our clients a fee for service, a service that clients value and advisers are rewarded for.
Cutting commissions to 0% as we’ve been doing has not sent independent advisers out of business.
If instead you are referring to non-aligned practices who accept commission as a form of payment and rely on it to keep the doors open; if they are not willing or able to change then yes, perhaps they will no longer remain in operation.