GPS Wealth managing director Grahame Evans told ifa that the wholesale commission structure outlined in Asteron’s confidential submission to the Life Insurance and Advice Working Group did not focus on the most important issue – supporting advisers in offering good advice to their clients.
“I am not against change,” Mr Evans said. “Evolution happens and if you don’t have the view that things must change then you’ll become redundant, but there are more parties that need to feel pain rather than the adviser and their remuneration.
“Quality of advice is what we need to fix. Maybe that’s where you should start the road back. The first thing the industry can do is acknowledge this is not just an adviser problem.”
Mr Evans said efforts also need to be made to improve financial literacy so that people look to take up insurance policies.
“People are not queuing up at advisers’ doors saying they need insurance and there has been no real effort to educate people on insurance,” he said.
Jeff Suggars, principal of Synchron-aligned Suggars & Associates, agreed, adding that “advisers are the ones carrying the can”.
“Just about everything I’ve seen is about what the adviser needs to do and the way in which we get remunerated. I’m yet to see any proposals from insurers, unless I have missed them, as to how the insurers are going to change their ways and how the clients will benefit,” he said.
Earlier this week, Asteron Life executive manager Mark Vilo outlined the main points of the firm’s confidential submission to the LIAWG at a Sydney adviser roadshow.
Rather than a 20 per cent level commission structure, there should be “naked or wholesale pricing” similar to the funds management industry, he said.
“The adviser acts as a wholesaler. If the client comes to Asteron Life, they pay the full rack rate. But if they go via the adviser they get the wholesale rate and the advisers can dial up the fee,” Mr Vilo told ifa.
This model may serve to expose structural problems within the life industry, according to Mr Evans.
“I don’t agree with a mandated commission rate whether it be level or otherwise, because its just a free kick to the inefficient life companies,’ he said.
“If an efficient life company can pay a 20 per cent or 30 per cent level with premiums which are very competitive and to the benefit of the consumer, why can they actually pay that? Why can’t they actually have a different commission rate because they are running a more effective business?”
The adviser, and their behaviour, is an outcome of actions / strategies of firstly the manufacturer and then the licensee. The risk advice industry needs to evolve. The client should pay according to complexity of advice not size of policy. The complicated and the excessive up-front commission has to change. But it is unfair to expect advisers to adopt in a short-term a new system. Advisers are small businesses who have set their advice and service models up based on an existing, if flawed, remuneration system and any sudden change could realistically lead to increased unemployment as some advisers lay off support staff because of falling revenue. The manufacturers who created the current remuneration environment must lead and should work with advisers, and the government, to develop a transitional remuneration model that does not adversely affect professiosnal advisers who want to fit the reality and perception of the industry.
OK so what is basically happening is that there is downward pressure on our remuneration and upward cost pressures mainly due to compliance. At the end of it all, if there is an end in sight, we have to be viable otherwise we all go away and people go online and do it. I can just imagine the shambles and underinsurance problem blowing out with that scenario.
Let’s do away with the high upfront commission remuneration and look at a balanced position of a choice of moderate hybrid or level with reasonable ongoing to cover our costs.
The essence of this whole process of scrutiny and surveillance of the risk insurance industry was to enhance the consumer experience in regard to the receipt of quality advice and to then assist in solving the underinsurance problem this country has.
The whole process from start to finish has been a complete farce, has been tainted with suspicion of conflict of interest,has not addressed the benefit to the consumer, has focussed heavily on how advisers remuneration models should change and has been hijacked by corporate greed and strategy and shareholder value protection.
Statements by insurers that openly promote strong support for the independent financial adviser, whilst not having the courage and conviction to test their corporate trust by fully disclosing their full LIAWG submissions are creating mistrust.
Advisers are not afraid of change…how could we…we have experienced significant change for the last decade, however, it must be for all the right reasons.
The client has not gained from this, the adviser is being paid less, the insurer has a free ride all the way to the bank, for this to work everyone has to loose.
Then we will know the insurers/banks slash FSC Cartel are serious about this whole lot of bullshit.
ACCC and ICAC are watching
Well said Grahame. To my knowledge Asteron has one of the most inefficient and costly new business underwriting in the market. Up to 2x the cost to put business in place.
Fix your own business Asteron or get out of the market.
You certainly won’t be getting a single recommendation from my business from now on.
In fairness To Mark Vilo, what he actually said (yesterday in Brisbane) was that naked Pricing was one way of looking at the remuneration issue, rather than the only solution.
Bear in mind the current compliance arrangements have been developed around an upfront remuneration model, to change remuneration (downwards) and not modify and simplify the compliance model is out right silliness. moreover I believe there needs to be a standard industry model rather than the multitude of interpretative models we currently have