Commenting on a submission made to the Life Insurance and Advice Working Group, ClearView said it has cautioned the inquiry that any “experimental changes” to adviser remuneration could “strangle the independent financial planning community”.
“Significant reduction in overall remuneration of financial advisers will severely impact the profitability and sustainability of independently-owned advice practices.
“[This will force] many advisers into institutionally-aligned dealer groups with narrow APLs as the only means to survive,” a statement from Clearview said.
ClearView chief executive Simon Swanson said the submission also calls on the working group to focus on driving competition, innovation and improved customer outcomes by addressing a number of conflicts of interest.
“We believe there is an irrefutable case that the default position should be for an open architecture for approved product lists (APLs) so that advisers are not unduly restricted,” Mr Swanson said.
“Shelf space fees are inequitable in the financial services industry and we believe they should be banned.
“A number of dealer groups require upfront payments, which start from around $100,000 and rise to over $300,000 per annum for life insurance products, to be placed on their APL,” he said.
Mr Swanson explained shelf space fees lead to customers often being recommended a product not because it’s the most suitable or appropriate, but because of an insurance company’s willingness to pay that fee.
Within the submission ClearView also proposed the words ‘commission’ and ‘incentives’ be abandoned because of the negative connotation they carry.
Instead of these terms ClearView proposes they should be replaced with alternative terms such as ‘adviser service fee’ or ‘financial support’.
Ahhhhh – How simple life was in the “old days.” We had ONE piece of paper called an application. Name address dob etc was on side. The other had the medical info. That was it. About twenty years ago, the computer arrived. We were told the “paperless office” had arrived. ha ha ha ha
I did an application the other day. Thirty two pages. The fed into the computer and printed it out. Another thirty two pages. Add on the SOA the FSG the post app letter. All told about eighty pages in a paperless office??? ahhhhh the good old days….Merv Gay
Bento, I fully support competition and alternative remuneration models. But it is time to stop the lie that commissions increase the cost to consumers for life insurance. As my example demonstrates, it is simply not true. You must compare direct policies with adviser/commission policies for a fair argument. If commissions were banned you would have nothing to rebate to the client to offset your fees. All policies would effectively become direct policies. Be careful what you wish for!
Well done Ben. You built a rock solid argument to support your case. In your second example, what happens when you remove the commission? Does the premium:
a) stay the same?
b) become more expensive?
c) become cheaper?
If you can do such a good job of finding the best deal from the commission payers, I bet you could do an even better job by stripping out the commission in your recommended policies, and charging a fee for your time. Then your recommendations wouldn’t be limited to those that pay a commission, and there is no temptation to inflate the client need to get a bigger payday.
Bento, this is one of the problems at the moment. There is this misguided notion that commissions = higher premiums. It is simply WRONG. To prove my point, I just googled ‘life insurance quote’ and selected a well known provider. I quoted a $1M life insurance policy for myself. The cost was $1481.27 pa. As a comparison, I used the adviser quoting tool for THE SAME COMPANY. The price was $674.19 pa. The cheaper policy included commission, the more expensive policy did not. Which one do you think would be in the best interests of a client? Do you think a client would be upset if I received a commission for recommending such a policy, and used the commission to offset the cost of advice?
Ben! Do people still sell insurance by telling clients that their advice is free?
If they pay their insurance premiums, and that triggers a commission based on that premium, aren’t they paying for it?
However you structure it, the client always pays.
How can anyone talk about “balance” in the debate when they completely ignore the issue of dealer groups charging shelf space fees to have products on APLs?? Ben?? THIS is the issue that must be addressed before you talk about your own needs/wants. Unless such artificial drivers of recommendations (even if that’s only a perception – it’s a very real and reasonable one) are removed who would ever trust this industry?
What a terrible idea. Rather than changing the word commission to something else, let’s talk about the benefits of commissions. For example, our clients effectively receive their advice for free. Similar products sold direct to the public are priced the same, but consumers miss out on the advice. In many cases the direct insurance providers rip-off the public with policies which are full of exclusions. Same goes for industry super funds. Come on people. Let’s get some balance back into the debate and talk about the great aspects of the current system. Of which there are many.