The policy will consist of a maximum total upfront commission of 60 per cent of the premium in the first year.
It will also include a maximum ongoing or trail commission of 20 per cent of the premium in all subsequent years.
Also agreed to was a three-year retention or clawback period to commence on 1 January 2016 and a ban on other volume-based payments, with appropriate grandfathering arrangements consistent with the FOFA laws.
Life insurance companies will offer fee-for-service insurance products to support advisers who wish to operate under this model.
“The Government welcomes the significant reform package received today from the Association of Financial Advisers (AFA), Financial Planning Association of Australia (FPA) and Financial Services Council (FSC) on behalf of the retail life insurance industry,” Mr Frydenberg said.
“Having previously expressed my preference for industry to develop genuine solutions to the problems identified in the Australian Securities and Investments Commission’s (ASIC’s) Report 413 Review of Retail Life Insurance Advice (2014) rather than for the Government to act unilaterally, I welcome industry’s response,” he said.
[quote name=”Ben”]60/20 is a massive reduction in income. The life insurance companies have screwed independent advisers. Aided by ASICs biased report, which targeted churners and then purported to be representative of mainstream advice. This will send hundred of independent risk focused advisers out of business and push more Australians into the hands of the most conflicted advisers employed by product providers. This is a very sad day for independent financial planners.[/quote]
Yeah – that always irked me with the report – they specifically targeted advisers and advice that had complaints against them, and then found that 37% of the advice had issues. Well duh. Then they go and claim that this result was indicative of the entire industry and use it to cut $225 million pa from advisers and redirecting $225 million pa to the big insurance companies.
It’s like doing a survey amongst prison inmates and then claiming that 100% of the population are criminals. :/
Shame, Shame,Shame I would have thought companies that represent the industry would have an understanding of the industry. This is a bunch of PAYG employees making decisions that doesn’t effect the life they live.
They do not know what the cost of giving advice is or how to run a business only to receive the salary every week for showing up to work and Bundy off at 5.
looks like the big guys will get even bigger and control the market, as you can see with all the attention the big guys have been getting of recent showing us that the people are not getting proper personal advice, they are just a transaction. Its the Small business that has been supporting the people and with this that will be gone.
I’m lost. Who does this actually benefit? If insurers premiums remain the same then the end user doesn’t benefit…they do as they get more bang for their buck. The average joe will not pay for risk advice…and thats the majority of clients who are well underinsured…so again the client doesn’t benefit. So who benefits? The adviser doesn’t benefit regardless of where you work. Makes you wonder if those in the decision making process has ever spent a day in an adviser role!! And the bollocks I am reading about consulting with advisers is gobsmacking as I am yet to read a forum where the majority of people arent up in arms.
C’mon people do you really think the associations have sold you out. You all know their positions.
The real issue is with a Liberal Government that isn’t a Liberal Government in this instance. The banks won over Minister Frydenberg and the small business adviser was ignored.
Get onto your MPs and tell them.
Get onto the Minister!
What a joke. Although, I have noticed TAL have reduced their Life and IP premiums recently on average by 18%.
Whilst I remain confused where the upfront figures come from given a complete lack of openness in this process I believed an 80% figure was workable. 60% may be workable if the cost of providing advice is reduced. Given this in order to achieve anything out of these changes the process of providing advice needs to be made easier (which has not been raised by anyone other than advisers as yet) and the premiums needs to reduce. Given neither of these will happen in my opinion the changes are an absolute joke and reflect poorly on everyone involved. In relation to the clawback period, advisers will need to charge a fee to reflect this risk given that no-one can forecast out three years and you can’t be held accountable for unforeseen events meaning that with no premium decrease the cost to the end consumer will be higher.
This has unintended consequences written all over it! The political class and the spivs have won the day but in time this will unravel. Court challenges; loss of revenue of ins coys and overseas competition will bring it undone. Just give it time. By the way the AFA has lost all credibility and will also be undone with this outcome.
I don’t have a problem with lower commissions, I dial down all the time. I do, however, have a problem with commission being legislated. While they are at it, they need to legislate that lower commissions will result in lower premiums! This is not the answer to churning or bad advice. The product providers will be rubbing their hands together and come out in full support of the proposed changes. They are the ones that know who and where the problems are and do nothing about it.
What a joke we have been sold out by our supposed associations. Hope the payout was worth it. Banks and Institutions are the winners and Clients and Advisers are the losers. How does this help the clients?????
IN MEMORIAL
The Life Insurance Industry in Australia passed away on the 25th June 2015 (suddenly but not peacefully).
The Funeral services will be held progressively between 1st January 2016 and 1st July 2018.
The Life Insurance Industry was established in Australia in the 1830s to look after the well being of widows and children and to protect Governments by reducing the burden of vulnerable people on Government expenses.
The Life Insurance Industry will be survived by what can only be described as a half hearted attempt to placate the Financial Institutions of Australia.
In lieu of flowers, memorial donations may be made to the families of all those hard working, well intentioned, passionate risk advisers left behind in the wake whilst trying to look after their “clients best interests”.
Our deepest sympathies are extended to what will become the remnants of a great Industry.
Rest in peace!
If the industry, as a whole, had delivered on it’s constant promise to deal with Australia’s under-insurance problem, then it wouldn’t be forced into uncomfortable regulation. The bad old days of high up fronts and easy churn, are thankfully getting further behind us. The best advisers will survive and prosper.
Hint: if you don’t want to be sold out, don’t sell out yourself
Premiums won’t drop.
Parliamentarians salaries and perks will increase.
Direct insurers will continue to run rampant.
Labour lawyers will continue to chase ambulances kidding people into unnecessary expense to handle vanilla claims.
Accountants will do as they please and receive the blessing of ASIC.
An absolute disgraceful sell out of IFA’s and small business. The banks have achieved what they set out to do in the first place, decimate IFA competition. FPA & AFA should hang their heads in shame.
What is your business worth now with a 3 year liability attached? We carry the ENTIRE risk and bank profits go up again.
Time to get out of risk, which is exactly what they want.
Three year claw back? makes it very hard to look after the elderly who may cancel out earlier? Today, im doing a 65 year old, It makes it more difficult knowing you may have return your payment
The Insurance companies will probably not reduce premiums, thereby leaving the client in the same position. Another win for the big financial institutions. For the adviser community…govt doesn’t really care…just get advisers to become more professional… more degrees more education… because there are no crooks in the professional world…good grief!
I have always used Hybrid anyway and agree upfront should go. What I don’t get is reducing this to 60/20 from the 80/20 or 70/25 it is currently.
Expecting a small drop in premiums? Good luck, very unlikely. Interesting that if premiums do drop that makes the 60/20 even less than what it is now.
[quote name=”Ross”]Will premiums reduce accordingly ??[/quote]
Very good question Ross. It would seem an appropriate sharing of pain and adding value to the client if premiums were reduced to reflect the reduction / changes in commission.
Lets not a have repeat of the removal of rebates where some institutional product manufacturers have just pocketed the money they would have paid out in rebates rather than reduce platform fees. Or are the rebates still being paid but called marketing allowances or reductions in dealer fees? You have to love creative accounting don’t you
As a general comment I can live with Hybrid solutions but the 3 year clawback provision. Find an industry that the client can determine when to cancel / return the product / service 2.9 years after taking it out and then the company who provided the advice returns 30% of all revenue received. Why shouldnt financial planning advice be the same!
Sounds just fine to me. Up fronts cause actual, or at the very least perceived, conflicts and not ideal advice.
A good adviser can still be very profitable and sustainable in this basis.
Personally I’d be happy with no commissions on risk at all, but I understand that model would be too tough for those who do risk only.
A great win for the life insurance companies.
60/20 is a massive reduction in income. The life insurance companies have screwed independent advisers. Aided by ASICs biased report, which targeted churners and then purported to be representative of mainstream advice. This will send hundred of independent risk focused advisers out of business and push more Australians into the hands of the most conflicted advisers employed by product providers. This is a very sad day for independent financial planners.
It’s a sad reflection on the limited view taken by the government on this issue. A myopic view which only seeks to blame the adviser and then disrupt his or her business is the inevitable outcome. I’m too disappointed to go on. I wish all of you well as you try to establish a model that will work.
The banks and large insurers must be laughing all the way. This whole issue is one of their making – they set the comms they pay, they encourage/facilitate switching from one insurer to another with takeover terms, its alright when they are getting the business but not when they are loosing it to someone else, they are the ones in charge of setting premiums, they are the ones who have courted the big group contracts with the industry funds on cheap premiums and are now bleeding from massive claims. But who is the one party at fault in this whole thing, the advisers, the ones who have no control over what happens.
SOLD OUT BY ALL!
Will premiums reduce accordingly ??