Following the federal government’s response to the Financial System Inquiry, FSC chief executive Sally Loane said the decision to move forward with the LIF will ensure consumers are better off.
“When implemented, this package of reforms which includes reduced commissions, extension of clawbacks to three years and the introduction of an industry-wide reporting regime, will substantially benefit consumers,” Ms Loane said.
However, AFA chief executive Brad Fox has rejected this notion and said the association is reminding insurers of the implications the framework will have both for clients and advisers.
“Feedback from our members shows they are concerned that the LIF as it stands does not offer significant consumer benefits,” Mr Fox told Risk Adviser.
“Reduced commissions and an extended clawback period will mean many advisers may have to charge fees in addition to the cost of the insurance – consumers may therefore pay more than they do today.
“This increases the barriers to Australians getting the insurance cover that they need,” he said.
Mr Fox added that it is “not enough” for the community to hope that direct or group insurance will be a suitable replacement for getting insurance through an adviser.
“Both of which have quality and claims issues compared to advised life insurance, and cannot fill the void left if advisers can’t afford to provide advice or consumers can’t afford to pay for it,” he said.
All we ask Sally Sloane is to tell us exactly how the ‘reforms; will benefit the consumers, and how that will be measured. No rhetoric, no make-believe, just the facts. And perhaps she might explain why, contrary to their own Mission Statement, it is OK to not be open, transparent and collaborative, AND to not create “level playing fieldsâ€and competitive markets. Not all insurers agree with the ‘reforms ‘ because they will create a win for the banks and a lose for those that rely on advisers. That’s not a level playing field Sally!
And I hope you have all read the FSC Submission to Trowbridge: go straight to page 6, point 2. regarding the proposed rem model “’should only partially compensate the adviser for the work required to place a policy for a client. It should not reflect full compensation, be overly generous or include a profit margin.â€
That’s not the attitude of those insurers who rely on the IFA, they know commission is a cost of getting their product to market, and that there must be sustainability and profit all along the value chain. Oh, you can’t read it- it’s not on the FSC website like all their other 70 odd submissions in the past 18 months. Open and transparent???
What a spin-doctoring joke! Does Ms Sloane realise most of the life insurers are currently INCREASING premiums across their products because they know once these flawed reforms come in they will be next to impossible to justify?
She also seems to be conveniently ignorant of the fact that most life insurers earn close to half their ‘new business’ from rewriting their competitors policies?
The life insurance industry has been predicated on cannabilising their competitors since time immemorial, but now that their flawed practices are hitting their bottom lines they are looking to penalise the very people, advisers, who have supported them!!
I have absolutely no loyalty to any of them and have been, and will continue to, play them off against each other to get the best terms and conditions that I can for my clients.
Unfortunately for these clients, however, I will be no longer able to provide free claims support due to the reduction in commissions and if their policy lapses in the first three years – they will receive an invoice from me for the clawed back commission.
How does ANY of this benefit consumers?? CHOICE, where are you now??
It is entirely inappropriate and irresponsible for Sally Loane and the FSC to state that the LIF will substantially benefit consumers. Firstly, neither Sally Loane or the FSC has evidence this will occur and have not presented any quantifiable or supporting evidence outlining exactly how the consumer will benefit. It is simply a statement.
We have to remember that Sally Loane is an experienced Journalist who has the task of pushing the agenda of her employer, the FSC, by way of media management and public relations spin. We all know that media spin and perception is very often not underwritten by documented and justifiable evidence.
By Sally Loane quoting that a reduction in commission will substantially benefit consumers, she must be able to produce evidence to this effect and refer to the ASIC Report 413 as the original source of assessment.
The ASIC Report 413 found that there was an increase in the quality of advice a consumer would receive when the commission basis was ” any other form of commission other than upfront was used “.
When either the current Hybrid or Level commission models were assessed ih respect to quality of advice received, the advice success rate was 93% with the fail rate of only 7%.
The ASIC Report 413, did not find that reducing the level of commission further than the current Hybrid model (ie. 80/20) produced a higher quality of advice to the consumer. This report did not find that by reducing Hybrid commission levels to a 60/20 model that the quality of advice received would again increase.
It also did not find that a Level commission basis or alternatively, a Fee for Service basis resulted in an increase in the quality of advice received by the consumer.
So, here is the challenge to the FSC and Sally Loane to produce independent, clear and concise evidence based assessment that illustrates by lowering the basis of commission charged to below the existing Hybrid model , the consumer will in fact benefit from a higher quality of advice.
When all said and done, it is the high quality of the advice the consumer receives at a reasonable cost which is the essence of real consumer benefit.
We need to remember the FSC’s submission to Trowbridge Review of Retail Life Insurance dated 5th Feb, 2015,stated the following:
“Move to a level percentage commission structure so that the upfront commission for life insurance advice is no greater than ongoing commission on an industry wide basis”.
…..” total first year remuneration for an adviser being significantly lower than existing rates for hybrid commissions”.
These recommendations submitted to Trowbridge had no supporting evidence from the ASIC Report 413 on which to justify either an increase in the quality of advice ld received or a resulting reduction in premium cost charged by the insurers in order to provide the consumer with a cost benefit.
So, if the FSC cannot prove the proposed LIF will result in a quality of advice benefit or a cost reduction benefit to the consumer, then it is simply inappropriate to state otherwise.
What a Joke. This Loane is in fairy land. Where does she think the Advisers get the money to assist their clients over the LONG TREM when they have a claim, we don’t charge our clients at this point we give our clients a lifetime commitment and now we are supposed to do it all with so many restrictions especially with the revenue. Once again those that Don’t Know, look after the people that Do Know and Devastate the Consumer by Reduced Service and Lack of Professional Advice and Assistance (everyone on claim needs an advocate short and long term. The commissions all go into a pot and are used to run the business in all area’s just as the theory of insurance is (the many pay a little so the few that really need it have protection in a bad event.)
Reduced commissions at the level the Life Offices choose to pay us, supplemented by Fee For Service payments – how can this possibly represent anything other than a “flawed” proposal.
“Best interest duty” – whose best interests, certainly not the clients and certainly not the “Risk Advisers”.
Modify the LIF to a Hybrid commission basis of 80/20 and maintain the status quo
from a responsibility period (one year).
To quote Michael Caton anything else you can “Tell em their dreaming”.
Really?? So this what the FSC really thinks. Well let me share with you what I believe the broader adviser community and indeed consumers at large really think. You see I was reading an article in the SMH last week which commented on the various banks who have recently increased their interest rates. This is ‘supposedly’ because they have to hold increased capital reserves (I accept they have to hold increased capital reserves) but interestingly the journalist went on to highlight that the return on investment (ROI) for Australian banks is considerably higher than a large number of their counterparts in other parts of the world. In fact high single digit returns are very acceptable overseas but apparently the major four in Australia require returns in excess of 14% and in one case 18%!!
So if you join the dots the LIF has little to do with benefiting consumer and everything to do with increasing profits. Nothing wrong with that, I guess, but at least call it for what it is.
To date there has been no clear demonstration of where and how the consumer will benefit from these reforms, I remain like many others unconvinced.
Lets face it, this whole outcome has always been about increased profits for insurance companies and to hell with the advisers who over many decades helped build the insurance company client bases!
This is a sad time for the risk industry and most of all for the consumer. Insurance advice will be harder to access and the cost of accessing that advice will be higher from 1st July 2016. How consumers will be better off is beyond me!
It just shows that the government has no idea of how this industry operates or the excellent advice and service we provide our clients.
Insurance companies will get to flog their direct policies with little competition and the consumer will lose out when they pay more in premiums and then possibly have their claims denied.
I pity advisers who have just started in this industry and any that were thinking of becoming a risk adviser. For established advisers like myself business will continue to run smoothly but the same cannot be said for new entrants. A three year claw back will make this business way too hard for the reward for the majority of advisers.
What the FSC actually means is, it will substantially benefit its members and no consumer or small business will be better off.
Every Insurance company needs to now offer a wholesale price for life insurance, then if they have a recommended retail price which is what we can charge this could solve the problem, however the amount above wholesale is not refundable so as the adviser does not have any clawbacks after year one responsible period is over. Year two onwards we could have a 10 or 20% trail added in also which would not be refundable if the client cancels there policy.
I think the insurance companies need to come clean on what the real cost of the insurance is before commissions so we know what they make out of it instead of us being the fall guys all the time while we keep them making billions in profit.
At last the AFA get it. The AIOFP was trying to get support for its lone dissenting voice for much of the last year on exactly the same issues.
The LIF reforms are all about wiping out risk “advice” and seeking to generate wider participation based purely on price. There is no actual discussion of the adequacy of the cover to be provided within that cheaper price.
You also have to question exactly how long the cheaper cover will last if there is no one around to genuinely advise clients on what they are paying for and what they might otherwise have if they looked elsewhere.
Liberal or Labor loyalties aside, you have to question exactly who is paying the bills for the FSC and whose interests they are actually acting in the best interests of.
To date successive governments have been influenced by those who have the money and media savvy to spread misinformation. FSC comments to the effect that certain things will lead to consumer benefit without any explanation as to why are just more political spin. FSC & ISN are only two of the prime culprits.
Brad now you are starting to get it well done, none of this ought to be entertained.
The FSC continues to show its true colours. 40 years in the industry I have witnessed time and again the agent/adviser acts of betrayal from life offices, from the crusty old Mutuals through to today’s “give with one hand and take back with the other”. 3 year claw backs are criminal and do NOT benefit the consumer one iota! Having employed hybrid commissions for over 20 years, no problems with 80% [plus GST]. But to dictate 70% and then 60% is draconian and once more will in NO way benefit the consumer. The response from the new Asst. Treasurer has been all words, no action [read “no genuine review”]. The cost to the government going forward will be immense, plus the creation of an oligopoly of vertically integrated [read “bank owned”] insurers will REMOVE competitiveness and real choice from the marketplace.