Speaking at the AFA roadshow in Sydney yesterday, chief operating officer Phil Anderson said the AFA and FPA received little support from the industry to ensure a better outcome for advisers.
“We [did not have] an alliance of parties coming to support a better outcome,” Mr Anderson said.
“[During] the FOFA debate we had the Coalition on our side [and] we also had the FSC on our side.
“This time around the advice associations had the support of some of the independent licensees, who spoke out in support of the retention of a [80/20] hybrid model and other arrangements.”
Mr Anderson did acknowledge, however, that some of the life insurers “actively lobbied to get the right outcome” for the best interests of both consumers and their advisers.
There were parties calling for greater changes than the ones proposed by Assistant Treasurer Josh Frydenberg, he said.
“[For example] consumer groups – some of the consumer groups want no commissions at all. They are not thinking about issues like underinsurance or access to advice.
“The FSC was clearly on the other side of the debate and probably a majority of the life insurers were on the other side of this debate.
“Both sides of politics were [also] absolutely determined that there would be significant change.”
Mr Anderson added that while the AFA and FPA fought to obtain a better outcome for advisers, when faced with the alternatives of the FSI recommendations and the proposals of the Trowbridge Report, they are much better off.
“The retention of the existing hybrid model, that is what we wanted,” he said.
“But I guess [where we have landed] is better than Trowbridge and is significantly better than level commissions only.”
Have just read through the FSC’s Consultation Paper on Replacement Business Framework 3rd April 2012.
It states: “The FSC proposes to introduce it’s Replacement Business Framework from 1st July, 2013”.
…..and then came the opportunity of a bigger kill and a greater prize to the corporates, banks, direct insurance businesses and insurer’s profit margins.
This consultation paper recommended a capped 30% (plus GST) commission to be paid on replacement business over a 5 year maximum period, the removal of takeover terms offered by insurers and a 2 year responsibility/clawback period applied.
There is absolutely no mention at all about the removal of or reduction of commission paid to an adviser regarding the acquisition of new business (not replacement business).
In the 3 years since this paper was produced by the FSC from April 2012 until April 2015, something went very, very wrong with the assessment, rationale and process regarding this matter.
This paper actually made sense.
The current proposed Life Insurance Framework does not and I suggest the Life Insurance companies that placed submissions recommending no commission or significantly reduced commission models and the 3 year clawback provisions should be taking very close notice of the “fractured relationship” that now exists between IFA market and themselves.
When the new business dries up, consumers who need advice can no longer afford it, profitability goes through the floor and BDM’s and middle management don’t have a job, it will only be then they may turn around and realise the extent of the damage this totally mismanaged process has created.
For a little light reading, I dug up a report from that awesome lobby group, the FSC, from 2012 that dealt with churn and how to combat it. Interestingly, in the three years since that report they’ve gone from a relatively sensible solution (capping the commission on replacement business and a 2 year claw back: 100% in year 1 and 50% in year 2), to their current ‘stick it to the adviser’ stance.
Given the composition of the FSCs Life Industry board, it does make you wonder whether some of the insurers who claim to be on the side of the consumer (and their advisers), really are.
The 2012 report can be found here:
http://www.fsc.org.au/downloads/file/...
[quote name=”Leo”]Gav, I’m not sure Insurers see themselves as representing advisers.[/quote]
🙂 Of course you are correct Leo, but it’s what THEY (the insurers) would have us believe! 😉
The recent Rice Warner Underinsurance in Australia Report has identified that there is a $1.8 trillion underinsurance gap in Australia.
The underinsurance gap costs the Government $1.6 billion and the median consumer’s Life Insurance cover only meets 60% of their needs.
The impact of the proposed Life Insurance Framework will decimate Independent Financial Advisers who specialise in Risk Insurance, thereby significantly reducing the experience and knowledge required to educate the public in relation to the importance of financial security and protection.
As a result, the underinsurance gap will widen ,the reliance on government support in times of disability and illness will become greater and the cost to government will blow out thereby reducing the available capital to fund and enhance essential services such as health and education.
And here we have consumer groups who represent the very people who are going to suffer as a result of these proposed changes, arguing that the changes do not go far enough.
It is simply staggering that this situation has got to this stage in the form it has and through the process that has occurred.
And when you read what the FSC and some of the associated insurers have proposed in relation to their ideal outcome regarding adviser remuneration and clawback, it must be accepted that they will be considered the architects of a disastrous outcome regarding the financial protection of the Australian public and an escalating and unmanageable cost to the taxpayer.
It simply does not make sense.
One of the main areas of contention is the 3 year responsibility period
Insurers are NOT taking a lead and colluding to provide for anti-churning.
If my policy lasts for 2 years and is re-written through someone else, why does the new adviser not get debited for the commissions via a trade off with insurers. NO MORE COMMISSIONS FOR 3 YEARS SHOULD BE THE OUTCOME[/u][/b][b][u]
There are currently 30 Pizza Hut franchees suing Pizza Hut as they went broke because Pizza Hut forced them to sell Pizzas for $4.95 to compete with Dominos despite franchisees telling them that they were losing money. Franchisees that were running successful practises were forced to sell pizzas at a loss and never recovered. Given that these vested interests and lobby groups will offer no help to any of our businesses that go broke as a consequence of these changes why on earth are they allowed to influence the way we do business. Insanity.
Every adviser should read through the submission that Mossy has referred to in order to accurately grasp the attitude and position the FSC have taken especially regarding the submission’s wording relating to remuneration and the clawback provisions.
It is unrelenting, misguided, misaligned and designed to be an interim submission containing a threat that if their proposed unworkable model does not achieve it’s intended outcomes(which is impossible due the fact that there will be less advisers, will not reduce the underinsurance problem, will not deliver greater awareness toward insurance or greater affordability to the consumer)then in 2020 the FSC will then be threatening to propose reducing commissions to nil. The insane thing is they will put forward a concept that by charging nil commissions it will enhance consumer outcomes and improve the standard of advice when ASIC found that when charging Hybrid commissions of 80/20 and Level commissions of 30/30, the pass rate for quality advice received was 93%.
So, if the FSC have come up with their own broad ranging, independent analysis and review that can prove reducing commission levels below the current Hybrid and Level options that are in place now, then lets have the results of that study. Until then, the proposal to reduce Hybrid commissions to 60/20 is baseless.
The FSC also stated that the clawback should apply to EVERY discontinued policy (regardless of the reason).
So the FSC appear to be very comfortable that the adviser should receive a 100% commission write back if their client died in the first 12 months of taking out a Life Insurance policy!
The original intent of any clawback option was surely to be a deterrent to assist in controlling deliberate policy replacement. The FSC are more than comfortable to have advisers lose full commission payment due to factors entirely out of their control and in no way related to replacement.
Unjust, unfair and unworkable.
The FSC has released their submission. It’s Appendix A which was attached to their FSI submission (page 92): http://www.fsc.org.au/downloads/uploa...
The thing I love about the FSC’s submission is the date: 5 February, a few days after the submissions apparently closed.
Gav, I’m not sure Insurers see themselves as representing advisers.
It’s time the insurers fronted up and collectively requested / demanded that their ‘body’ the FSC released their submission. Why is this so hard to do if there is nothing but positives for the two sets of clients the insurers represent. Namely the Life Insured and the adviser who recommended the product…
“[For example] consumer groups some of the consumer groups want no commissions at all. They are not thinking about issues like underinsurance or access to advice.
“The FSC was clearly on the other side of the debate and probably a majority of the life insurers were on the other side of this debate.”.
– And yet the FSC still refuses to divulge its submission to Trowbridge!! Given that ALL of the insurers are members of the FSC, this rings a little hollow.
Please name them !!
“[For example] consumer groups some of the consumer groups want no commissions at all”
He just doesn’t get it. With a 3-year clawback, only big instos will be able to afford to write Hybrid basis life insurance, due to the additional cash needed to back an AFSL’s financial viability requirements with ASIC. The rest can only risk level basis.
Really??
Consumer groups drove the agenda?
Please name the groups and where the lobbying efforts were directed so stealthily that you hardly heard a thing.
As for consumer groups having an issue with “churning” that is a big stretch. Exactly how engaged are consumer groups supposed to be in that issue according to the AFA?