The proposals, delivered to Assistant Treasurer Josh Frydenberg’s office by the AIOFP yesterday morning, are a response to the proposed life industry reforms which the association believes are impractical and not commercially beneficial for small business operators.
The AIOFP said its major concern was the three-year retention period and has called for it to be reduced to two years.
“How can any business or any person trying to make a living operate with a three year ‘threat’ over their income for circumstances outside of their control?” the proposal said.
“If the current commission regime of 120 per cent was retained we could understand the three year approach to some degree, but to reduce the upfront by around 60 per cent and then impose a three year claw back is non-commercial and will destroy small business operators.”
The AIOFP also suggested an increase in the first-year commission rate to 70 per cent to “adequately compensate” an adviser for taking on new business.
“In recognition of the adviser on-boarding costs, permit advisers to retain 20 percent of the first year’s premium in the event of premature termination and implement a time of risk formula for the remainder of the first year.
“In the event of premature termination, the adviser retains 20 per cent of the first year premium and the remainder of the first year commission is subject to refund based on a ‘time on risk’ formula, assuming a two-year clawback clause,” it said.
The association also called for the “imposition” of a capped level commission model for all advisers who have been found ‘churning’ policies until they can prove “their innocence”.
“Churning advisers are a minority but they need to be curtailed,” the proposal said.
“We suggest imposing a level commission restriction on any adviser whom is suspected of policy churn and we encourage all stakeholders to report the adviser to ASIC.
“This will restrict or eliminate the minority of advisers who resort to [churning],” it said.
[quote name=”emkay”]I have four renewals due this week, one has an increase of 25%, two at 15% and one at 19%.
To act in my clients best interest I have to review these policies. This MAY lead to changing companies (or may not)this would now be called churning. My clients best interest cannot be served by leaving them with a company that happily increase the cost of insurances at these rates. I call it gouging, but the insurers have now turned ME into the criminal for looking after my client. What a great system……for them[/quote]
[quote name=”emkay”][quote name=”grad”]if they’re churning then why not take them to court for a FOFA breach?[/quote]
Because in most cases they probably couldn’t prove it was churning. This was always a smokescreen, if a multi-national company cannot deal with a couple of risk writers their entire management should be sacked. Its all a lie.[/quote]
I get that, but it is possible to assess advice that incorporates reasons for product switching under the FOFA framework. If your clients are better off by switching products then put the reasons in the SoA and the circumstances in the file note and you’re all good.
In fact, you are worse off on the AIOFP “model” because on the mere accusation of churn you will be forced onto level until you provide the file notes and the admin catches up. I’d rather argue against the regulator’s case in court than have to prove something to the satisfaction of the regulator.
@DE, maybe you’ve been living under a rock. When you have the FSC as the front for the major banks and insurers, the Union Super Funds, the consumer groups, the regulators, the ALP and the media on one side and all you have on the other side is the AFA and to a lesser extent the FPA, how do you think that match up is looking? Then you throw in a Liberal Government which used up a lot of political capital on the FOFA amendments and got rolled on most of it, then you also have a government that sees little benefit in supporting our industry. Against all that, the major representative bodies have done a pretty good job. They aren’t the ones that make policy, they aren’t the ones who have agitated for change, they aren’t the ones who created this problem in the first place, but they have stood up for advisers in trying to promote a rational solution.
And before you cast aspersions again, I ‘m just a hard working adviser in a little financial practice, working for myself and not the associations.
.#14 2 Little 2 Late
have you been living under a rock
firstly the FPA only got involved after the event and the AFA had no backbone with the FSC,
I would think your working at the associations with those comments
I agree with 2 Little 2 Late on this one. AIOFP just joined this now whilst the AFA and FPA have been slogging it out with the faux Liberal Frydenberg and the big end of town.
I do agree with some of AIOFP recent comments. Advisers should be letting their concerns known to the Liberal apparently pro small business government.
Hats off the AFA and FPA to date for their work to date.
Be careful of the posers out there
Can anyone explain how time on risk clawbacks work, I also agree with you emkay that the clients best interest cannot be served under clawback arrangements and this also gives the insurance companies the opportunity to inflate renewals with no loss of business. Has everyone forgot that we were paid these high commissions as a trade off so the insurance companies could get rid of the costs of maintaining the agency force. NOW THEY WANT US TO WEAR THE COSTS AS WELL AS NOT PAYING US ANY COMMISSION
Am I the only one who wished the AIOFP was more involved earlier?
To start acting now just seems like posturing.
The AIOFP support would have been preferred earlier, to give more ammunition to the FPA and AFA at the appropriate time, and help combat the more powerful self-serving interests of the insurance providers.
I am not happy with the outcome – but do acknowledge that FPA and AFA at least fought on our behalf, worked long and hard and got their hands dirty at the right time in a genuine attempt to affect the outcome.
It’s very easy to sit back, do little, wait for other’s to fail, criticise, and then send off some suggestions after the fact. 🙁
Advisers aren’t the only ones to loose out what about young families (single income, long term debt with little kids)? How are they going to afford both advice fees and premiums. If they do this through super that will just penalise retirement income? Why hasn’t the government considered better accreditation standards for those that provide high quality strategic professional advice. IFA’s need to be recognised as advice providers and not the manufacturers sales representatives.
I totally agree with ALL of Big Al’s comments
[quote name=”grad”]if they’re churning then why not take them to court for a FOFA breach?[/quote]
Because in most cases they probably couldn’t prove it was churning. This was always a smokescreen, if a multi-national company cannot deal with a couple of risk writers their entire management should be sacked. Its all a lie.
why don’t we just spend a little time and resource on a system with all financial adviser on it, that would identify Advisers Turning clients,the Adviser will not get paid the up front again but continue to get the ongoing for servicing the clients.
re the churners, this restriction option is something the insurers could have implemented themselves if they were really interested in stamping out the few which undertake the practice!
As for option on claw back, this makes more sense.
Every client I have spoken with about the 3 year provision cannot believe that we could carry such a payment system. 2 years is pretty fair, on a time on risk basis.
The re-consideration and re-negotiation of the current unworkable framework must be pursued rigorously and it is utterly encouraging that this proposal is based on common sense and a realistic basis which will in fact benefit the consumer by assisting quality Risk focussed practitioners to continue to operate on a sustainable business model and therefore have the ability to continue to provide quality advice.
ASIC Report 413 which was the catalyst for the current situation found that on any other remuneration model other than Upfront commission, the pass rate regarding advice provided was 93% and this was based on only a sample size of 202 files sourced from an estimated total number of advisers of between possibly 15,000 to 16,000.
As ASIC had a pre-conceived outcome looking for justification and consequently targeted cases or files that would have a higher possibility of failing based on a combination criteria of Upfront commission and a higher than standard lapse rate, of course the result they got was the result being sought.
In reality, the results regarding the relationship of poor advice and upfront commission should also not have been accepted as the sample size only represented approx. 1.35% of the total adviser numbers, assuming a total of 15,000.
Even so, based on ASIC’s findings, it must therefore be assumed that as the hybrid and level commission files that were assessed reported a 93% success rate at an 80/20 or 30/30 combination, would result in the current framework recommending that hybrid and level commission models should be left exactly as they are now as they deliver high quality advice outcomes to the consumer.
In fact, the proposed 60/20 model actually goes against the ASIC findings as there was no correlation between reducing the commission rates even further from the existing 80/20 or 30/30 models and the receipt of a higher quality of advice to the consumer.
I absolutely agree ‘Reality’ that a two year responsibility period IS still too long and that slashing rightful payment for hard earned work at the same time is extremely unfair to small business advisers.
Life insurance companies always had the power to stop churners but chose to turn a blind eye to it for THEIR financial gain. Now they want to blame advisers for what really is a massive beat up anyway. This is yet another example of a very small minority controlling the majority.
An adviser in Josh Frydenberg’s office that I spoke to a couple of weeks ago all but confirmed that the push for these reforms very much came from the big institutions who are very clearly aiming to feather their own nests behind the disguise of these reforms.
I very much thank the AIOFP for making a strong stand on these reforms. As honest hard-working advisers, we absolutely cannot take them lying down and must continue to protest against them for the sake of the industry (which I strongly suspect will suffer despite the party line now being rolled out by insurance companies), Australian consumers and small business advisers like myself who are doing the right thing by their clients!
100% in year 1 and 30% clawback in year 2 calculated monthly is fair so that we don’t all work for nothing.
If any change to commissions is to work there has to be a guarantee to advisers that for every new business case submitted that we are allocated a (Dealergroup Fee) which is non reclaimable for example $400 if the policy should lapse with in the first 2 years,.
The ongoing costs of the adviser with dealergroup fees will need to reduce by at least the same percentage to our commissions if we are to survive and every adviser out there paying upwards of 30k per annum will know what I am talking about.
if they’re churning then why not take them to court for a FOFA breach?
Where is the FPA and AFA??? at last someone who is trying to support some rationale. Churners should be penalised, not those who are concerned with their clients. Better move AIOFP. The other two just leave planners out to dry…
Whilst I think two years is still too much I really appreciate the AIOFP stepping up to the plate. I am far from reliant on risk advice and already write Hybrid but these proposals are much more appropriate for a Risk adviser.