Philip Anderson, general manager of policy and professionalism at the AFA, has made the observation on a new episode of the wish you’d known podcast, referring to the upcoming ASIC review into the Life Insurance Framework (LIF) reforms.
The regulator is set to collect a random sample of personal life insurance advice files later this year to compare advice after the implementation of LIF, against files it is currently reviewing from 2017. The results will be handed down next year.
According to Mr Anderson, ASIC had collected roughly one to three files from around 120-150 advisers for the 2017 benchmark.
But the outcome of the inquiry and the future of life commissions for advisers could intersect with the next federal election, depending on when the government calls it and the result.
“The opposition has said that they have a predisposition to the removal of conflicts, but they haven’t made up their mind when it comes to life insurance commissions and that they’re not going to make up their mind until the ASIC review is released at the end of next year,” Mr Anderson stated.
“The government is more balanced and say well, they do not see a reason or justification for the removal of life insurance commissions – I think we’ll wait and see this process play out.
“I think another interesting part of this whole debate is the timing of the next election and who might be the government that receives that report from ASIC at the end of the next year.”
Like others in the advice landscape, Mr Anderson has argued there is a compelling case for the retention of life commissions, commenting clients are not prepared to cover the cost of the advice.
He added Australia could look to overseas markets to see the results of limiting commissions: a decimation of the policy volumes through advice channels.
“There’s no international basis to argue that life insurance commissions should be banned, which is interesting, because one of the terms of reference for the royal commission was to consider international jurisdictions to see what they were doing,” Mr Anderson said.
“Now I don’t think the Hayne royal commission did that. I don’t think they looked at whether annual renewal was a requirement in the US or the UK. And they certainly didn’t look at what the situation was with commissions in other jurisdictions.”
The AFA is one of a number of advice industry bodies involved in the Choice and Access to Life Insurance (CALI) campaign, which also has major life insurers sitting at the table.
The organisations united in July last year to call for a reset of policy settings around insurance advice, arguing that consumers should be able to choose if they pay via commission or fees.
The royal commission skipped making a recommendation on life insurance commissions, leaving its fate to the ASIC review.
Mr Anderson stated the first goal for advisers is to make sure the advice provided this year is of “high quality”.
“That goes out to everyone – everyone in risk advice space has a role to play. When files are called for, we want them to be good quality files,” Mr Anderson said.
“And we want to make sure therefore, we get through this review and ASIC, when they send their report to government, the results are good. If we get that, nothing will happen to make it worse.”
Advisers will have stronger leverage if they’re able to prove they have confronted and solved inappropriate incentives and churn, he added.
“Now we have to look at the combination of two issues, the cost of providing financial advice and the remuneration that’s available to provide life insurance advice,” Mr Anderson said.
“And if we can take back to the government, after we’ve got through the LIF review, that the cost is too high and remuneration is too low, the government thus needs to do something to either reduce the cost or increase the commission.”
BT head of financial literacy and advocacy, Bryan Ashenden recently told ifa that the industry has little reason to be pessimistic heading into the review.
A podcast for risk advisers, wish you’d known is cohosted by My Millenial Money podcast host Glen James, alongside Zurich Insurance risk strategy specialist Danielle Visser.
I am now 100% fee for service on risk. Initial Statement of Advice is $4,900 (including GST).
I’m NOT calling you a liar but I find that ‘hard’ to believe. I would challenge you on this if you are in the mum’s and dad’s market and call foul. I can only assume you are cross subsidising that fee with work for HNW clients and investment work. No way on God’s green and blue earth would a family risk client pay that for pure risk advice – I know, as I tried exactly that with a group of colleagues for over a year and not one single client elected fee when faced with the choice of fee or commission. So, more detail please as I am sure I’m not the only one who wants some detail on this Holy graiul you’ve pulled off. Please . . .
S(he) didn’t say all clients were paying it, just what the price is.
I suspect the point is that $4,900 is what good insurance advice and implementation assistance costs their practice to provide. Those clients prepared to pay that amount upfront will do so. Those that don’t (which would include most mid market families) will be poorly insured.
Last one out turn off the lights.
If you consider government policy, spending on discretionary travel, inflating house prices (lifestyle assets) more an agenda item than addressing this cost of insurance, by implication financial advice.
It seems it has nothing to do with commissions and more to do with what decision will get more votes!!! Sad reflection of our current politicians.
While I generally support what Phil has to say, the ASIC review to LIF is a double edged sword. If all advice files reviewed from this year are “high quality” ASIC will say it is justification to keep reducing commission because quality will become higher again. If not high quality, they will say LIF (commission reduction) hasn’t gone far enough. So commission is in the gun either way. To go on and say advisers will have greater leverage ” if they’re able to prove they have confronted and solved inappropriate incentives and churn” is also wishful thinking as “inappropriate incentives and churn” have been shown to never have been there in the first place or at worst extremely exaggerated by ASIC, Trowbridge and the FSC.
I love how the BT guy says he sees no reason to be pessimistic, straight after his firm switched off life insurance commissions on all pre-2013 fully underwritten retail life insurance policies, giving advisers only 5 weeks notice. I’m glad he isn’t pessimistic. As one of the affected advisers I’m feeling pretty sh#t about the future of life insurance commissions. In fact, I refuse to take on any more clients on a commission basis. It’s fees only now, and the full cost of the advice must be paid upfront. If clients complain the cost is too high (they all do), I rant about ASIC, the Coalition and the flawed Royal Commission and then move on to the next phone call, which is typically a boomer planning their retirement, with no need for life insurance and with enough funds to justify the high fees I am forced to charge to stay in business.
Love it – doing the same.
Quite the pitch there. You must be really successful.
It doesn’t matter what ASIC says in their report. Most riskies will be gone by then. Those remaining will have dropped life insurance advice or moved to a fee model, which is basically the same thing. Life insurance is dead in this country. Just ask BDM’s.
The opinions of spectators never ceases to amaze me. Little more than a bunch of drunks watching the footy. “Where’s your boots”, would seem justified.
lol Phil prob does more than you’d ever do.
It’s called too little too late. The Insurance industry is on its knees thanks to the stupidity and greed of the FSC. Read what you sow cones to mind.
Reap what you sow comes to mind.
Given the track record of industry associations I’d say probably more harm but, than good.