This process behind the proposed industry framework has been driven by John Trowbridge and some members of the FSC who have no understanding of the challenges facing the average adviser.
An article in the Australian Financial Review suggested that the vast majority of advisers who don’t use a fee-for-service model simply haven’t asked their client to accept a fee. I have, and the response from clients who know what I can do for them (some of them have even claimed on polices I set up for them), is they wouldn’t have proceeded past the line, “this is my fee”.
This article highlights the misinformation and lack of understanding of what average advisers are faced with. The industry average case is about $2,500 per annum which fee-for-advice advocates admit a fee for these clients is not appropriate. Does that mean as we move towards a fee-for-advice model the average client will not be seen by advisers?
Fee-for-service in risk advice will lead to huge numbers of Australians saying ‘no’ to advice and being uninsured, under-insured or see them go to through direct insurance which is inferior cover at a higher cost. The clients who take up the fee-for-advice option will now (without the benefit of rebates and discounts) pay premiums plus a fee. Where is the win for the consumer?
Therefore, my issues with this framework are:
- The commission levels are not ideal but are better than 20/20 and will be manageable for the higher-producing adviser moving forward. Smaller-producing advisers will have major issues and many will need to leave the industry. Some would say this is okay, but I would suggest everyone started somewhere and more than likely they didn’t start at the top of the tree. How many great future risk advisers will we lose?
- What is very concerning is the three-year clawback. I understand that this has been done to stop churning and my understanding from what I’ve read is it is the only reason it has been applied. If I rewrite a case with another insurer in the first of the three-year period, I don’t have an issue with getting a clawback. However, I do have an issue with getting a clawback in year two or three when the client cancels the cover through no fault of my own – such as losing their job, other personal issues or changes in circumstance like selling a business. I also have a problem with getting a clawback if another adviser rewrites a case I’ve written. If stopping churning is the only reason this three-year clawback has been applied then the only time a year two or three clawback should be applied is if the adviser themself has instigated the cancellation. Advisers need certainty in what they will earn, and this policy takes that certainty away.
- Also – and personally this point relates only to my passion for the independent and non-aligned industry – at 80/20, 70/20 and especially 60/20 commission models, new risk advisers cannot start up their own practice. I’ve crunched numbers which show if a new adviser writes $80,000 in their first year (which would be a great effort), they would clear $30,000. I don’t know how many graduates who will find that attractive, but even financial planning firms will not be able to afford to hire (or keep) risk advisers at these levels. Has this been considered? What measures will the industry put in place to entice new people to become risk advisers? If none, we have just begun the end of the non-aligned risk adviser. The only new advisers will be through the banks and will never leave.
The most concerning of this outcome, however, is it will not benefit the average Australian consumer. In fact it will mean that less people will access advice and those who do will pay greater premiums, as well as an advice fee. Premiums will not drop, in fact it is likely they will increase. We have an underinsurance issue in Australia, so to fix this we will make advice more expensive, harder to access (less advisers) and not reduce premiums, but may increase the premiums going forward? There is so many downsides for the average Australian and not one upside.
Ben Day is a specialist life insurance adviser at Fitzpatrick Financial Services and a director of consultancy Risk Sales Tools.
Great outline of the mess that’s going on. This article needs to be forwarded to Mr Abbott ASAP.
Action needs to be taken to quickly stop these unreasonable proposals.
It all comes down to caring for the clients in a sustainable way & making sure that those who are caring for them are paid appropriately.
The powers ought to be considering ways to make the industry attractive for new career advisers. It is already hard enough to attract new people.
I can also envisage the possible need to downsize full time employees at Life Offices if incoming new business does a downturn.
What about the cost to centrelink if underinsurance increases? The public will have to pay. What about the hardship to families who did not get advice due to there being a shortage of advisers or unable to pay the fee for service if this ever comes in.
This really needs to be thought through & analyzed & discussed with advisers, the soldiers on the front line
For some reason every comment I make as CFP 18 is moderated out, hence no right of reply it appears is allowable…
So, ‘To’ scared to give a name (sic) one would think before being critical of others you’d at least get your spelling right of a 3 letter word, unless that is ‘Too’ hard?
And yes, prescience is a skill advisers learn in the Hogwarts DFP course I assume?
When the clients themselves vehemently stated they wouldn’t have a third child back then, I guess I should have completely ignored them and “upsold” them extra cover (assume that is what you do?) – like that is not on ASIC’s radar of conflicts of interest is it?
What this whole saga highlights is the implications of advisers not banding together in a united voice. Bickering over fee models and ownership models is all we hear. Why are advisers so intent on forcing their business model or ownership model on others. There are pros and cons with them all. What is clear is that clients value the quality of advice and the quality of care provided to them far more than the fee model or the business model. We have lost the plot and allowed the institutions to speak ‘for us’ despite their vested interests. Everyone loses by these changes. Even if you support fee for service you lose – as your benchmark cost comparison will be lower ( ie rather than receive a commission of x we charge y ) and also the drop in policies being written will reduce economies of scale so you will get less support and clients will end up paying more. There is a desperation amongst the new breed of advisers to be seen to be professional. Give good advice and care for your clients. That’s it. Do that an shut the f?$ up.
I see your point, however, what if we had taken into account the future and assumed 2 kids, bigger house (mortgage) etc and therefore recommended more cover.
If ASIC happened to review this BEFORE the clients have bought a bigger house and had kids, the planner would then be accused of up-scaling for more upfront commission!
Lose Lose.
Regarding the 3 year claw back – what happens if the dropping/changing of the policy is due to actions of the insurer?
Ie, recently an insurance provider decided to increase their premiums by 85% at once. An increase of 85% to insurance premiums naturally facilitates an urgent review of the client’s insurance, and a likely switch, because of the drastic increase in cost. Every client would be alarmed and disappointed with this increase, and every adviser should be hunting for a better deal due to the actions of the insurer.
But apparently, it is 100% the adviser’s fault, and they would be forced to pay the provider back for what the provider does…
Well done Ben you have fought a good fight through the entire process. Its just a shame the FPA and AFA did not see fit to do something similar.
A well written article. It is unfortunate action is not being taken to address the the number of people who do not have insurance, which is a much more important issue.
Some could argue that the client was most likely planning on having kids and buying a house and as their financial ‘planner’ this should have been factored into the original protection plan. Unless it has been common practice to churn, oh i mean ‘re-assess’ the clients situation 2 years late?
In fact, I would suggest that the underlying premise of the purpose for the 3 year claw back provision is not in an effort to stop “churning” at all Ben.
The change to hybrid model commission can be argued, although a 70/20 is preferable to enable some form of income to the adviser after expenses, and can be sustainable for larger practice’s who have HNW clients an can charge fee for service, or bundle their “advice” with other forms of advice. (problem in itself)
This change not only affects the income of the advisers income, FOR 3 YEARS, but the very nest egg built up for retirement, as what’s a policy less than 3 years old going to be worth to a purchaser form January 2016?
Being sold out by those who are on salaries and packages that are not refundable for UP TO 3 YEARS if they don’t do their job well, or are assessed by another peer to have set up something that can be improved (or not) or if they lose their job through no fault of their own, is abhorrent and amounts to sabotage of a decent socially necessary industry.
This does not make insurance more affordable to the population in any way shape or form.
If this gets up as proposed, an exist of long standing advisers will occur in the industry and no person in their right mind will join it.
So perhaps the ultimate aim to allow the banks control over another industry and stuff it up with corruption will have been met after all.
Good job Industry leaders. Good job protecting your own jobs.
I have some faith – perhaps misguided – that in a few years time the insurers themselves will see the error of their ways – when no more business is being written because no one can afford to do the work and when all the sales from their direct sales drop off after 13 months. We only have to look at the UK and South Africa for the precedents.
What saddens me is that a large number of good risk advisers will leave the system before we return to a financially viable (for everyone – not just the insurers) system.
terrific expression Ben. It represents my views well
Here here Ben!
Peoples, I engaged the brilliant business coaching services of Ben and his brother Michael around 2 years and would put my family’s lives on the line when I state he knows exactly what he’s talking about here.
These reforms have been driven by ill-informed self-motivated people with their own agendas and conflicts of interest, who ironically themselves, have very little care or regard for consumers out there that need good quality advice. This is all about personal gain and nothing else – make no mistake.
Josh Frydenberg should have referred back to the Federal Government’s 2010 NATSem LifeWise Underinsurance Report before ever supporting these backward reforms. Had he done so, he might have got a sense of the additional compound impact these reforms are going to have on that problem and the massive additional cost they will add to the health system that all future governments will now be laden with if they proceed in their current format.
Speak to any PAYG person in this industry and yep, you’ll hear them all supporting the reforms under the guise of ‘the industry needed it’ and ‘it’s good for consumer confidence’. What most of them fail to realise or understand though is that their income essentially came from the hard work that a ‘commission-based’ adviser had the courage to go out and do. Now those people want to kill off the goose that laid the golden egg. I find it laughable and highly insulting.
The 3-year clawback period is a deplorable Band-Aid solution that affects the majority of advisers in the industry when it shouldn’t have. Any reforms should have been focused on a very small minority of advisers who did the wrong thing – not us honest advisers. I may as well have been a dishonest adviser who focused on himself and not his clients with the way these reforms prevent me from earning an honest income. This is what primarily angers me most.
I can only imagine what the incentive programs will look like in the future though when the life insurance companies finally see the damage they’ve caused to the industry – and their premium inflows by pushing these reforms. It should make for very interesting viewing….
Brilliant article Ben Day that finally SPEAKS THE TRUTHS & the REALITY of the Bank-driven mission to control all aspects of the Financial Services Industry. Ben hit the nail on the head – ‘we have just begun THE END OF THE NON-ALIGNED RISK ADVISER’. That is the truth Mr.Trowbridge & tell that to the thousands of people & their families around Australia that will be claiming into the future & they will be finding out how much ‘under-insured’ they really are, because they never had the advice from a true Risk Advisor Professional, because you forced them out of what was a great Industry & a huge financial benefit to the Australian Public for the 34 years that I have been involved. I hope your Professional Indemnity policy is paid up Mr. Trowbridge. Vale Non-Aligned Risk Advisers !!
Well said Ben! You have beautifully articulated what every risk adviser in our wonderful industry is thinking. I truly hope that the industry representative bodies read your article and finally understand the perspective of the advisers they are meant to represent.
Well said, but is anyone listening? We have ben sold out by those we pay the salaries of! AFA, FPA, Licensees, Insurers and politicians.
Well said Ben, the most obvious thing out of this saga is the attempted destruction of the IFA market to benefit the insto’s. Consumers will never be better off, but then lets be honest when did an institution give a flying fig about one of their customers.
Ben what a great article, and it points out so many floors in the proposals and the consumer will pay dearly!