The FSC’s confidential submission to the Life Insurance and Advice Working Group – a copy of which was leaked to ifa – reveals the product manufacturers’ lobby group was pushing for a number of reforms that ultimately found their way into John Trowbridge’s final report.
The submission recommends the removal of “high upfront commissions from inception” and that the industry move to a “level percentage commission structure so that the upfront commission for life insurance advice is no greater than ongoing commission on an ongoing basis”.
Like Mr Trowbridge’s “reform model”, the FSC’s “proposed model” argues that the level should be lower than current market rates, offering 20 per cent as an appropriate level.
The total first year remuneration for an adviser should be “significantly lower than existing rates for hybrid commissions”, the FSC argued.
“A level commission structure will result in a meaningful change across the advice industry that will assist in cultivating an environment conducive to behavioural change,” the submission said.
It also called for consultation on “how statements of advice could be streamlined to better meet the spirit of the law” and suggested ASIC provide guidance on “how the best interest duty can be met in the provision of life insurance advice”.
The comments come despite a number of FSC members investing heavily in hybrid commission programs in recent years.
For example, in Feburary 2014, AIA chief executive Damien Mu – a member of the FSC board – said hybrid commissions can increase the long-term value of advice businesses looking to wean themselves off upfront commissions.
An anonymous stakeholder who forwarded the document to ifa described the submission as evidence that the LIAWG was “hijacked by the FSC”.
Brad, I ran some numbers (assumed $200K of premium every year for 5 yrs, 110% & 11% for upfront comms and 30% for level) and over 5 years you are still in front under an upfront comms basis (to the tune of $400K or so. Even if you factored in higher business value (3x multiple) you were still in front with upfronts. Strectch it out longer and the metrics change and level comms is better, especially as the business value increases exponentially.
Its nice to be able to subsidise your risk advice with an holistic fee that covers everything, but not everyone wants that. In fact the market for that type of advice is limited.
When we sent out our first FDS notices, I had a number of clients who wanted the fees switched off but who were happy to pay comms….people are happy for us to get paid via the product if we can show them the solution to their problems, and keep in regular (at least annual contact) with them.
Brad
My letter to the ACCC went yesterday
Dave-I’ll bite. We all agree Trowbridge is bad for new risk entrants. Remember these are the folks will buy your business when you retire. If you are a new risk writer with a family and your HECS debt, its horrible! And don’t think risk writers will go just to allow your style of advice to step in.
I am curious-you don’t take risk comm, but you chastise those who want hybrid.
Your business model obviously targets those with $500k or more to invest, and the cost of doing risk is cross subsidized in your investment fees . Are any of those fees sold on a tax deduction?
Good on you, you have a formula that works. You probably took years to find your market and that’s good, although I suspect you have had few long-term IP claims, or taken a complaint to FOS.
Your model will work for some, but risk writers, and newbies in particular, will die waiting to build up their trails
Lets take the commissions out of all industries and see if they survive. I personally will be approaching the ACCC on this one.
This is nothing short of collusion by the corporates, and the government don’t care. Wait until the big boys offshore all the jobs and don’t pay any tax. How will they balance the budget then. Again they forget small business employs more people and pays more taxes than any of these corporates.
Absolute fools are running our industry
5 ‘thumbs down’ to my comment (so far), but still no-one has answered my question or provided any opposing view…
Apologies if I offended anyone with my off the cuff ‘risky’ comment.
I thought this was a forum to share and discuss and learn, yet everyone just seems to bang their own drum without contributing anything useful to the discussion.
I thought I raised a valid point regarding valuations?
Lots of whining about the proposed comm structure changes, but not a single comment as to why this would present an issue for the client or a FP business?
Think I’ll stop wasting my time here hoping to gain some insight into other businesses and just assume most on here are closed minded, set in their ways and unlikely to have anything valuable for me to learn and implement in my own business…
As an adviser whom just started a business with a non-aligned licensee, I feel that it’s time to look elsewhere. I wanted to help everyday clients, mums and dads.
Between the ISA telling the world that advisers are evil, fee disclosure statements, opt-in, a world where clients want advice as long as they don’t pay more than $400-$1000, the 7th step catch-all provision, and now wanting us to move to level commissions as a partial cost-recovery exercise, why bother?
I want to help people, but I also don’t want to go bankrupt doing it.
I realize for a lot of advisers whom work with HNW or mass-affluent client bases, they can absorb some of the cost. I also believe no commissions may be justified if the premium is over $6k, but every time I ask an independent planner if they do risk only on fee basis for the average tradie, they laugh at the idea.
How is any of this making Australians better off?
The greater difficulty with regard to level commission is not for established businesses, but rather new businesses who have not yet established a sustainable ongoing revenue without some lumpy business to offset expenses.
This will potentially great a barrier to entry, and allow the larger planning business to gain market share.
Ignoring the benefits of larger businesses with regards to economies of scale and efficiency, I think the smaller local businesses have the potential to provide a stronger relationship with clients, as the planners don’t tend to change in one man bands. In the new age of robo advice, this may be all that is left as a differentiator.
I’m a holistic advice planner, and don’t take risk commissions at all, and my business is valued at a multiple of recurring, sustainable, reliable income and thus my annual retainer fees ($ based) drive this valuation.
I don’t understand why all the crying about level commissions instead of hybrid/upfront?
$1m in premium written over the last 5 years on level comm would now generate greater annual recurring rev than $1m written upfront or hybrid over the last 5 years and thus the business writing level comm would be worth more and also have greater cash flow, profits, etc.
Sure, might make early years tougher if no upfront comm, but surely smart business owners have diversified income streams, a strong balance sheet and clear business plan to manage this until up and running…
Am I missing something or is it just that most risky’s are running such poor businesses they need the upfront revenue now to stay afloat?
This thing smells. Now Mr T , in a letter today, appears to be saying that HE, and he alone, was the enquiry, not a Working Group of 3 each from the AFA & FSC, where agreement in the name of the industry needed to occur, each side making concessions. Gee that may have resulted in a hybrid 85/25. The A team indeed
Front up Mr T. For you to retain any credibility produce the terms of reference, details of who paid you.
Then produce the MODELLING and publish ALL submissions
So the whole set up to copy a Parliamentry enquiry was a joke – there was NEVER going to be a consensus view
[quote name=”Craig Yates”]
Could it be that any FSC members who did not support all or parts of the submission were misrepresented in their views?
If it is discovered the FSC submission does not represent agreement or understanding between one or many of the FSC members, how can it be possible for a representative body to submit recommendations when there may not have been consensus?[/quote]
Craig – if any of the members did not support the FSC submission, they had the chance to make their own submission.
Conversely, if they didn’t make their own submission, we are entitled to believe they DID support the FSC submission.
Bento, Bento, Bento….
Because Craig’s advice is to pay him for providing his client with great advice, and an appropriate outcome where the Client gets covered, the insurer gets a premium and Craig gets paid for the work he did. Everyone wins. How would ‘Everyone’ win with the Trowbridge report….It’s a very different outcome.
Craig, why on earth would you believe that Trowbridge would be conflicted if he took money from the insurers? If taking money from product providers doesn’t conflict your advice, why would it affect his?!
I can handle level commissions, but at current market rates high 20s low 30s, or hybrid at current rates. I suspect the dealer groups will go first requiring all insurance providers pay the lower rates to their planners, possibly causing some to leave dealer groups and go independent to still receive current rates. I don’t see any of the product providers wanting to be first to reduce commissions to the independents, as new business will vanish.
I think each adviser should ask their BDM for a copy of their submission. If the Banks/Wealth companies have nothing to hide this should not be a problem. I suspect that this conversation will be very awkward…
so how do we get hold of the list of insurers that are on our (non-aligned adviser) side?
More to the point, how do we get all advisers to stand up and shout at our representative bodies to bring about control in our hands? Only when we have a proper lobby will we manage to fight the big end of town in any meaningful manner.
I find it interesting that only recently a product manufacture sat in front of many advisers and on more than one occasion confirmed level commissions would send them broke. Which is it…send them broke or do they want to send IFA’s broke? I’ve taken the position years ago not to believe anything the manufacturers say. They have single handedly placed the Risk Industry in the position that it’s in right now. The upfront incentives are designed to entice advisers to churn policies in an attempt to off-load risks they have carried for 5-7 years. They have made their money on that client so it is now time to let them move to another carrier and in doing so the new carrier has acquired the opportunity to underwrite the risk again, which in-turn resets the 3-year non-disclosure period. How convenient! Very sceptical of the carriers right now…
Surprise! Surprise!
Um not really, for years industry funds, governments, legislators and various consumer groups have continuously called for higher standards/education and more professionalism while expecting advisers to pay for it all.
We now have our business partners ( I use the term loosely) jumping on the same bandwagon in order to bolster their own profits. Over the last decade or so we have gone from being wined, dined and seduced – in short treated like whores by our business partners ( for their own benefit) to now being treated like cheap whores. Welcome to the new world of advice!
Something smells off here… and its beyond opportunistic, if true (as we haven’t read the FSC’s submission) it’s disheartening and pathetic. Were the members of the FSC in ‘complete’ agreement? The FSC webpage says members include; AIA, Clearview, TAL, Zurich… all of whom lack vertical integration and whose representatives have all told me that they do not support the conclusions and recommendations which Trowbridge put forward. Surely for the good of consumers we need to maintain a competitive market which allows a variety of business models to remain commercially viable. Implementation of Trowbridges’ recommendations would kill the industry overnight, rendering many good businesses run by ethical and responsible advisers unsustainable, reducing choice and leaving the young and those who cannot afford the fees seeking ‘do it yourself’ or poorly advised solutions. The industry needs to be honest in seeking to eliminate the real issues not taking advantage to reduce competition.
AFA are you hearing what is being said, the Trojan horse was what the FSC did and you let it happen.Time to speak up isn’t it ???????????
As suspected, this was a stitch up by the banks and life insurance companies to screw independent advisers. The recommendations will not adversely affect their own in-house advice teams as they will merely push their profits from the advice side to the product side. Independent advisers on the otherhand will be forced to close up shop or operate at a loss. What a sad state of affairs financial planning has come to in this country. ASIC and the ACCC should hang their heads in shame for ignoring this cartel-like behaviour.
And this should come as a surprise to…? Nobody.
The winners out of this strategy are the industry players and any suggestion form them that they support anything like the current model is complete nonsense. They would be happier with direct channels, and employees. We’re on track to head back to the future. In five years time the clock will have turned back 30 years.
We should only support those Insurance Companies that actually want IFAS in this industry.
Very clear to myself, that certain insurers do not want us in this industry.
Time we only support those that do.
.
interesting this, us advisers should only support those companies who want us in this industry. we should show those who don’t, we won’t support them with business going forward.
I would love it if the amp submission was also leaked. I suspect that would make for some interesting reading.
I do think the retail insurers should release their submissions so that advisers know what their real thoughts are, but I suspect that may lead to reduced flows to some of them.