John Trowbridge, the former independent chair of the life insurance and advice working group, warned that falling adviser numbers were creating a “crisis in the distribution of retail insurance”.
“What we’ve seen is a large decrease in the number of advisers in life insurance in the last couple of years,” Mr Trowbridge told the FSC’s life insurance summit. “…If life insurance is to be accessed properly by consumers it does need advice.”
Mr Trowbridge said that decreased commissions, along with rising compliance costs due to regulatory requirements, had “limited the ability of advisers to deal with their customers”.
“Advisers find that it costs them two to three thousand dollars, typically, to be able to prepare advice and get a customer on the books,” Mr Trowbridge said. “That’s OK if the commissions are high enough.
“What we recommended in the review of 2015 was that commissions come down but that there be an advice fee, which will give a lot more income to the adviser for the smaller premiums but limit it for the higher premiums.”
Advisers today do not get paid enough to advise smaller clients, which Mr Trowbridge said is “contrary to what we recommended”, and are now gravitating to the upper end of the market.
“(The government) simply halved the front-end commissions and increased the renewal commissions,” Mr Trowbridge said. “…The outcome of the government going halfway on these commission reforms has created a big part of the problem with advice. The other big part is the huge obligations on advisers.
“This is a big problem for community access to the types of cover the life insurance industry is designed to offer and which, in my opinion, the community really needs and values of it’s done properly.”
This bloke is mental.
and this so called fee would help how? Who was going to pay it? I recollect it being in the order of $1200. That plus a policy at say $2000 (commission of $600 on level commission) and you have $1800 – not much more than half of the number Trowbridge himself quotes as the cost of advice. Doesn’t add up, what a mess. Are we so much better than every other jurisdiction globally that we can confidently can commissions and watch underinsurance sky rocket? Idiotic policy.
To little to late Trowbridge! Way to late. Bandaids won’t fix decapitation! You played your part to kill the industry. Stop trying to deflect the blame!
Trowbridge obviously can’t stand being held responsible for this disaster of his making. He shouldn’t be blaming others for his lack of foresight in anticipating the end result. The man was past his use by date, similar to Hayne, both should have been left in the pasture.
I think Trollbridge is just looking for some extra work to write another report to conflict with his previous one and get paid squillions for it. Why else is he coming out now?
The biggest issue has been people like Trowbridge, ASIC, O’Dwyer, the FSC and the weak and conflicting leadership of the AFA and FPA getting involved in policy change when they have no real experience.
Some of them have been responsible through lack of understanding and inadequate research and others (such as the FSC though corruption and greed).
The result is the same. The LIF and current policies on increasing red tape and education have been an abject failure.
There is no point in Trowbridge trying to shift the blame or any of the other parties doing so. They are all guilty and the result is still the same. Saying there is a “crisis in the distribution of Life insurance” doesn’t come close, its a disaster!
To be blunt Mr Trowbridge. The previous system may not have been perfect but it worked. As a whole customers do not want to pay fees for risk advice, advisers cannot afford to give risk advice under the new LIF rates and are ludicrously told to go off and complete another degree to stay in an industry where they cannot make a living anymore.
For risk advice adequate commissions work for both the customer and adviser. Every other country in the world seems to be able to get this except Australia. Just admit you got it wrong.
We have completely removed risk insurance from our advice business and exclude it from the Fact Finder/SoA, not going to sign up for more risk with less pay, period!
what if a client requires risk advice?
Refer it to a specialist. Satisfy the BID by referring to someone competent in the area or do you think that you should have a “crack” at everything – just because your licence allows?
They need to go somewhere else.
Yeah buy direct from the insurer as per Towbridges recommendations
no, just remain uninsured. govt will pick up the bill or there is always crowdfunding, maybe organ harvesting at a stretch.
This a free market economy that is being controlled by a Socialist forces.
The level of controls are out of control !
Totally agree. More government is [b]never[/b][b][/b] the answer.
If a large premium case takes 6 months to conclude across a number of directors or business partners including legal agreements to support the insurance strategy, liaison with Accounting professionals and multiple medical requirements across multiple providers, what on earth should be a limiting factor to the remuneration the professional adviser should be able to earn if the client’s best interest is met, the advice and strategy is appropriate and meets and satisfies the client’s needs and the client accepts and receives value for the advice and strategy provided ??
Part of the value in these larger cases is unable to be measured because financial protection will only ever be triggered in the event of a claim arising and the insurance proceeds received.
Until then, it is an intangible benefit providing the access to financial security when or if needed.
This is part of the problem that people just don’t get or do not want to accept.
The value in professional, high quality risk advice and strategy is about the creation of an appropriate safety net and protection strategy of which a large component can include multiple layers of advice and work to achieve the correct outcome. As such, the adviser who project manages this whole process should be remunerated at a high level as would the Lawyer, Accountant and Medical professionals who will charge the client accordingly.
The problem is that the people negotiating the legislation do not like advisers being remunerated above any level their own ideology would limit as being acceptable to them.
As nearly all of these people have never been in commercial enterprise or been remunerated based on performance, they are removed from reality.
I’ve said it once and I’ll say it again if there is no financial reward for the effort to outweigh the risk involved guess what? People stop the effort. I wonder if Mr Towbridge would work for significantly less coupled with a never-ending risk………….
What about a flat amount from the insurer, plus a percentage above a certain level? Would that work better. Say $2,200, which is the same as a $3,333 premium now plus 33% on anything above?
Assures advisers make enough to cover the application plus a bit more on higher sums insured?
Why is it advisers responsibility to work for little / no profit so people can have cover? Every person should be paid fairly for the work they do. I like my clients but am not working for free.I may as well go and pull beers for more money and less risk.
Since the start, us advisers have been concerned at looking out for / after people without the means to pay for advice. Why do we do it? It’s not our responsibility, especially when we are treated so poorly but everyone. Perhaps we just completely stop advising these clients for less than the appropriate fee and they can complain to the government. Maybe that would make us a profession.
because we are all mugs according to ASIC / Trowbridge
When you live in a market driven economy, why are we setting rules as to what the price should be? Why not let the market decide? -The market is deciding anyway as Adviser are simply not writing new business. Controlled pricing and command economies never work very well in the end.
People will still use the same argument that an Adviser is simply writing new business to get the $2,200. Whilst the people pushing this argument still exist and are given a voice, we still have a problem.
What? You didnt think that through did you. Under your ideal, I’ll write load of policies for say $750 in premium and get paid $2200. In the end, the insurers would simply not accept policies below a commercial rate in which they can afford to pay the $2200. Well done?
There would obviously be more to be figured out I was using this as a starting point. Maybe there would be a clawback system where if they don’t get X amount above the premium over the life of the policy they take a certain amount back?
What is certain is the cost of providing the upfront advice is a lot more than the cost of maintaining. At the moment it is seen by the commissions as only three times more.
Upfront comms need to be at least 80% to property compensate the adviser, and probably more like 100% for those smaller premium clients. Given falling adviser numbers, and much higher education & CPD requirements, AND 2-year clawback, surely we can ‘trust’ the industry to operate ethically with higher comms again.
I’ll do something a little controversial here and say he is kind of right.
His original recommendation was, yes, to cut commissions, but also to introduce a floor on the revenue per case of $1,200 – which was to be paid by the insurers, I believe.
The rationale here was to protect exactly those clients that we can no longer help due to the ballooning costs involved to try and maintain some level of affordability.
The inane part was that he deliberately set that fee below the cost to provide the service, which made absolutely no sense.
Yes, his carriage was a key part of the trainwreck that is insurance in this country, but was it the locomotive that dragged it all off the tracks?
I’m not sure.
He also recommended making it easier to give advice. He failed in that this statement was general only and had no details and was never going to happen. He is partially responsible for the fiasco but not 100%.
Agreed – well put.
Rather than pointing the finger at others, I think people within the industry would have more respect for Trowbridge if he admitted his failures and worked hard to turn this ship around. There is still a small window of opportunity, but it is closing fast. Unless someone of his clout comes out and admits they got it wrong and then works hard to win the necessary changes to regulation and remuneration, the implosion will continue and this blokes lasting legacy will be the destruction of an entire industry with substantial and long-term detriment to the community.
So Trowbridge’s report was used incorrectly or was just plain wrong.
Churn was also used as the big reason for LIF, then once ASIC actually got the numbers and LIF was conveniently already in place, Churn wasn’t a real problem at all, as per ASIC admitting it.
[b]Clowns to Left of me, Jokers to the Right – Stuck in the middle is Advice[/b][b][/b]
An Adviser getting their research and recommendations soooooooooooooo dam wrong would be banned for Life.
Trowbridge should be banned for Life from anything to do with Advice.
ASIC deserves the same red card, ban them for Life, all involved.
Wow, he still has no idea! I wonder where John Trowbridge decided to store the millions he was paid by the banks to let them off with the hook with the lowest penalties he could come up with? Cayman Islands? Panama?
He said advisers should get paid $1,200 to set up a policy as an adviser fee (but admits it costs over $2,000). So under his scheme a client with a $50 per month premium is forced to pay $1,200 on top of that? Which client would ever do this? Then to manage the policy lets say $300 pay on top of premiums. Which client will ever do this?
Him and all his lawyer buddies would be likeing their greedy fingers thinking of all the money they can now charge clients to handle simple insurance claims now that he sucessfully got rid of the pesky advisers who are obligated to act in the client’s best interests.
We need to have a royal commission into John (bank owned) Trowbridge.
Trowbridge is an actuary and this is well outside his area of competence (it might have been one of the selection criteria for the chairman). These comments of his confirm that he is out of his depth.
Back tracking much??
I have simply run out of adjectives to describe the utter absurdity going on in this industry. So here are a few of my best and last: These rambling comments from Trowbridge make absolutely no sense. It’s amazing how one completely incompetent ill informed fool can bring down an entire functioning industry. Great to see him backtracking now and blaming the government, who were only following his ill informed advice to reduce commissions to begin with. Thank god they only followed half of your advice John and dropped it down to 60:20. You could only see the current damage amplified had they followed ‘YOUR’ recommendations to drop commission’s to 20:20. And just a heads up Johnny, a few insurance companies did come up with a fee model for advisers to incorporate into risk only advice. Those same insurance companies recently posted multi billion dollar risk losses and it wouldn’t surprise me if you see some very high profile bankruptcies in the next 12 months at best/ Australia descending into something that resembles the film mad max at worst.
Meanwhile, the UK has increased their commissions back up to 240% of the first years premium. They are writing business again. Amazing how these report writing geniuses seem to think that advisers will work for free. We can’t even get people on jobseeker to pick fruit on farms, so paying fully trained life agents peanuts, is insanity.
Ha! Who’d have thunk? It is what advisers said all the way along – that it was a bad move. But hey, what do we know? . . . and they STILL won’t listen to us!
Insanely flawed idea either way…
Agree
Really. I think Mr Trowbridge is having a bit each way.