AFA chief executive Brad Fox said while the three-year retention period is a “blunt instrument”, it does have strong government support as a measure to deal with inappropriate product replacement.
As a result, Mr Fox said the association is working on “influencing” the details of the clawback policy so that they are fair and do not adversely affect good advisers.
“Shifting the burden of responsibility to the adviser where policies lapse outside of their control is unfair,” Mr Fox said.
“Over the coming weeks we will continue to apply pressure for clawback to apply only with replacement product advice and not situations that sit outside the advisers’ control, like a client-directed lapse because of unaffordability.”
Mr Fox also said the AFA is seeking confirmation from insurers that they won’t apply clawback where the policy lapses because of a successful claim, for example of a life, TPD or trauma policy.
“We are concerned that the three-year clawback not be used to shift an unreasonable burden from the institutions onto small business financial advisers that do the right thing,” Mr Fox said.
Having to work to a “tight deadline” to reach a compromise on the reforms meant a lot of detail has been left out when the proposals were first announced, he said.
“Advisers, especially business owners, deserve clarity and reasonable lead times to adjust to a change in the rules, especially of this magnitude.
“The pressure is very much on the insurers to consult early and thoroughly with the advice associations. We certainly want to see fairness in the detail.”
Simple Maths
A 50% reduction in Adviser remuneration PLUS a 200% increase in the Adviser responsibility period = 100% Life Office gain, 0% Client gain, 0% Future for Risk Advisers and 0% FOFA outcome.
Congratulations to all those involved in this ludicrous outcome – you must all be very proud of yourselves.
AFA continues its pathetic kowtowing to life offices/banks. These inept puppets are not representative of the advisers regardless of their marketing story.
Three years is too high a risk for a business to carry. I agree that as James S says below dealerships will also be at risk, but, the advisers exit strategy has just gone to hell in handcart. What will your business be worth now? Can you even afford to continue risk advice at 54% (60 – dealer fee) of annualised premium – 8% etc. And for those who keep talking about fees, I can only imagine you work in the capital cities & have full advice practices. Good luck to you, however, many of us work in areas of less affluence where people don’t have the funds to pay for your advice models.
How many FFS insurance only clients have you had? And how much have you charged?
Let’s be fair about this the AFA and others have demonstrated an amazing capacity to NOT BE ABLE TO NEGOTIATE. Following this round (current) of discussions Risk Advisers are likely to end up with a 6 year responsibility period. How can anyone believe that in the event of a claim that the “Clawback Period” could apply. My advice is that the AFA are playing in the seconds and the only point of discussion should be that a 3 year retention period is TOTALLY UNACCEPTABLE if anyone wants our Industry to survive. The commission reduction is quite enough thankyou – one year retention should still be in the mix. Remember John Trowbridge DID NOT THINK THE 1 YEAR RETENTION WAS AN ISSUE. The AFA and the L/O’s really did a good job on us.
Those people who know me know I’m more than happy with reform but the way I see it there is reform and there is expediency. From what I have read and listened to there seems to be a lot of expediency in what has been proposed and not much reform.
As it stands it won’t be just the adviser that could be left with the burden of lapses within a three-year period. This three-year responsibility period will also affect advice firms and dealerships particularly when an adviser who has originally been paid for the business. Leaves, goes elsewhere and or exits the industry altogether and the business that adviser has written starts to lapse or mysteriously starts to yet again get churned.
In this situation either the advice firm the adviser was working for or the dealership he was licensed under would be left with a debt from this business and the issue of trying to recover the money from the adviser who is no longer in their control.
So is going to be a burden on the adviser, the advice firm the adviser worked for, and more than likely the dealership who the adviser was licensed under….and the life office has been left with not a care in the world.
Yep, definitely we are heading towards reform….NOT
AFA is the reactive not proactive association, now making a move because industry pressure is being put on you from outside the FSC and you would of just said IT COULD OF BEEN WORSE if all the advisers did nothing, shame shame shame
Who pays for the advice?
If the policy sticks around long term, it’s the customer via commissions.
If the policy cancels after <1 month, it’s the adviser.
If the policy cancels after 6 months, it’s about 50% adviser, 10% customer, 40% life office.
If the policy cancels after 12 months, it’s about 20% customer and 80% life office.
(I’m assuming about 20% of the premium is used to pay commissions, I’m not sure if that’s right but it illustrates the example)
Who *should* be paying for the advice in each of these scenarios? I suggest it should be the customer, which indicates moving to FFS is the way to go.
What are we now endorsing restriction of trade? How about trade fixing? Even better why not tell us we have no freedom of choice?