Following AMP’s annual general meeting in Sydney last week, Mr Meller told members of the media that the life insurance advice industry is on a “journey” to implement a fee-for-service remuneration model.
“I think in the long term, it is going to be a fee-for-service world,” Mr Meller said.
“I am not giving a prediction of the timing, but I think in 10, 15 years’ time or whatever, I think you’ll look at financial advice and say it is an entirely fee-for-service world.”
Mr Meller’s comments also follow the recent decision by AMP to mandate a hybrid and level commission structure for all advisers within the AMP network and for advisers who recommend AMP life products.
Elaborating on the company’s decisions to mandate changes to its remuneration structures, Mr Meller said the move is part of the plan to transition advisers to to a fee-for-service model by slowly moving away from upfront commission payments.
“If you look at it in the context of what John Trowbridge recommended, we moved to what he called the interim phase,” Mr Meller said.
“The challenge of going ‘cold turkey’ [to fee for service] is the upfront commissions in life insurance have been an important source of liquidity for financial advisers.
“The most important stakeholder for us in coming into the decision around moving was our advisers because we are a significantly vertically integrated business, most of our life insurance business comes to us through our advisers,” he said.
“So getting our advisers across the line and getting them to be comfortable with the path we are going is the most critical thing for us,” Mr Meller added.
I am curious reading the comment from Craig as to how this idealistic fantasy will play out. Brian makes a great point below. In addition this will mean if a client changes bank accounts and wants me to assist with a direct debit I will need to charge them for my time. At application time when we engage, win or lose they will have to pay me. Insurance is unfortunately sold and we are having to encourage clients toward a grudge purchase. Most clients who approach me for cover have an illness or I am often curious about their health. This is not a sort good… charging a fee… we are miles away from this becoming a reality.
Perfect!
I would still like someone to point out to me where charging straight fee for service has worked. In addition the systems required to implement an insurance policy are completely onerous with AMP considered to be the worst of the licensee’s I have worked through in relation to this. Net position is that even if a fee for service model could be implemented, which in my opinion it can’t, the requirements for finalising an insurance policy would need to be reduced by at least 70% in my view to allow a profitable transaction for an adviser not employed by an insurer / bank whilst charging a fee which would be considered suitable by the general mum and dad consumer market. Please note the 70% is based upon a gut feeling and has not been assessed in detail, which is something I would be concerned about but in the spirit of this debate I feel is reasonable given that verifible accurate facts seem to be the one item which has been missing from the original ASIC report last year onwards.
I accept Fee for Service, Of course when this comes in we can drop all the rubbish about BID and SOA’s etc. Our income will be based on straight sales and the fee we charge. This will be welcome relief when we are treated in the same manner as real estate agents, car salesmen and mobile phone floggers. Good idea Craig. Now let’s discuss the AMP return on shareholders funds, executive renumeration and KPI’s.
Clients would be happy with Fee for Service for Risk insurance if the fee could be paid from their Risk premiums.
He’s right! When you own a tied distribution and sell mainly super you can make the rules. That’s why IFAs should be placing business with other carriers.
When are AMP going to wake up to the fact that advisers are a free sales distribution for them, So they expect advisers to set up business and refer clients to them and receive nothing from AMP in return ? No salary/no sales support. How on earth will that work ?Mr Meller I suggest you put forward your business strategy to the Shark Tank.
The insurance companies want fee for service, not the client, without commissions, the insurance companies can reduce their costs (paying commissions) and pass on all the costs of doing business to advisers. Ban all commissions (real estate, doctors, mortgage brokers, general insurance agents) or give the choice to the client.
They tried to remove commissions in the UK about 8 years ago, new business insurance sales plummeted, many left the industry and lapses went up by 300%.
Companies like insurance line, realised that all the ads on TV gave them about 15% market share, but a huge lapse rate after 12 months. Why? because they brought it rather than be sold insurance (benefits of insurances etc)
Craig is right but I hope AMP and others are also prepared for the massive systems investment they will need to make to ensure it’s economic for advisers to charge a fee that the client will accept. Advice costs to much.
Under a Fee for Service model I am fascinated to understand how to sell the client the the transfer of ‘process risk’ across to the client.
Under a commission basis we the Advisers wear the process risk ie we invest our time [and money] into the client. We take them through the process at our cost and our risk [not client cost or risk]. We give them advice, documentation & a structured implementation process. If the client fails to proceed in full, declines to accept the terms offered or is declined in full or part – we the Advisers wear the financial loss.
Under a Fee for Service model the process risk is transferred from us across to the client. We now just charge an appropriate fee and regardless of the outcome we will get paid. The client now wears the process risk. So if they fail to proceed, decline the terms or are declined they pay a fee to us regardless.
Who’s ‘best Interest is this’? I would not want face this in a legal dispute.