In a statement issued last night, AFA chief operating officer Phil Anderson said that while the association is “conscious of the concerns expressed” around upfront risk commissions and the incentives for product churning, that business realities need to be considered.
“The outcome needs to address the significant time and cost involved in giving initial strategic advice on life insurance and implementing life insurance business,” he said.
“This is a matter that is currently being considered by the joint AFA/FSC Life Insurance and Advice Working Group.
“The AFA is of the view that financial advisers should be able to be appropriately remunerated for the work they do.”
More broadly, Mr Anderson said the AFA welcomes the government’s commitment to consult widely before implementing any findings of the report.
“This is a critical report that is likely to have significant implications for both consumers and participants in the industry,” he said.
“We particularly note the measures focused upon competition and consumer outcomes.”
I agree with John. Our associations should be lobbying towards making advice easier and less costly to provide, then commission could be reduced. This needs to be looked at immediately especially since FDS and Optwhatever is back in. More regulatory overload means less time with clients. Now if they cut commission but keep increasing regulatory requirements….well, it’s goodnight and last adviser please turn off the lights.
I am a new practice who bought a book of clients (3 months). I use Hybrid when I believe there will be a long term relationship and upfront when slightly dubious they will be around in a few years (ie they just changed planners). I recently replaced a clients insurance with a cheaper product at their request with a company that only offered level commission. The fact that this doubled or tripled the trail identifies that those who ‘churn’ will also replace all their risk products to increase their income.
It is very unfair for advisers, who have moved to level commissions (like myself) to come out and slam upfront commissions. Level commissions are more lucrative over the long-term. But we all had to start somewhere.
…and getting cover issued is only half the job, addressing claims, arranging medical information, dealing with grief stricken families, negotiating terms, etc. make up the rest of the time and effort spent with providing a caring and humanistic service to our clients. This is simply why an impersonal direct relationship or dealing with a call centre will never compete. This is what we do. We are there for clients in their time of need. Sometimes I think that there are those out there who would rather we failed as a business so that the client can struggle through the claims process on their own unsupported on every front. We are an honourable and proud profession providing hope when there is despair.
John, really!! If you have to ask those questions, this is perhaps the wrong forum for you. While this publication is open to all, it would be good if you could have at least a basic understanding of the differences between general insurance and life insurance and the time it can take to get in place. People are just a tinsy bit more varied than cars and there’s no certainty that cover will be offered unlike cars unless extremes of circumstances. Sometimes $11,000 may not cover costs depending on how difficult it is to get cover in place. If you don’t understand you just don’t understand. Generalisation!!
Do you really think you should be getting paid $11,000 on a $10,000 premium? Does the work justify the cost there? As far as I am aware the Life Insurance industry is the only one that works in this manner. General Insurers pay 15%. The obvious difference in Life Insurance is the onerous paperwork required for even the most simple advice. If I am getting some Car insurance or Life Insurance why should the paperwork be so different? This is what the AFA/FSC should be lobbying for, reduce the cost of providing Risk insurance and accept a fairer payment structure.
GS – It’s very clear and obvious that you are a union Jack and have never operated a risk based business. Why should a business who specialize in risk advice be penalized because some incompetent government bureaucrat wants to change the law every 2 years? These risk advisers have devoted their entire life to building a specialized service for clients who depend on these products when they need them most and it’s only fair that they be paid for doing so. The alternative is to have the client pay for the insurance premium then pay again for the equivalent of what the adviser would have received in upfront or level commission which is NOT going to happen so that means the underinsurance gap in Australia is going to just get wider and wider then it will be back to the drawing board when the next government gets elected because of people like YOU!
Les, I’m neither a Bank Planner or Industry fund or union muppet as you suggest. I am a very succesful Self Employed Risk Specialist with 35 years in the Industry. Unfortunately its people such as yourself who are wedded in old practices that refuse to move with the times. I agree there is a mountain of work involved in putting to bed a complex Risk case usually involving Business Insurance strategies, but I can assure you, high upfront commissions is not the only way to get remunerated.
The AFA are totally about more advice for more Australians, and they are being realistic in acknowledging the risk involved in changing remuneration options without understanding of the issues involved.
I support hybrid, but not level only, as it will remove advisers from the industry and worsen the under-insurance problem.
[quote name=”GS”]It’s about time the issue of high upfront commissions were addressed.” What a load of rubbish GS you are either a bank planner or union or industry fund muppet, the practical realities are for proper advice to be given commission need to stay you have obviously never provided complex risk advice to a business with several directors that can takes many months and many visits to arrange with several cases to mange trough underwriting meetings with accountants and lawyers, charging fees for something like this would be impossible. You obviously don’t understand that the reals reason for providing insurance is to protext families from pain and suffering at the worst time in their lives. How advisers get paid is irrelevant to the client in their time of need
It’s about time the issue of high upfront commissions were addressed. There is a direct correlation between the issue of churning and high upfront commissions. The old habits of Risk writers need to be changed if the Industry is to move forward with some credibility. The comment from the AFA sounds to me like it is in protection mode. Not sure why, it should be about supporting the provision of sound professional financial advice that is in the clients best interest. If Risk Advisers can’t restructure their Business model to lessen the dependency on upfront commissions, then maybe it’s time they chose another profession.