The AIOFP has confirmed that it will be commencing discussions with senior FSU executives in the new year to present a business case for reversing the Life Insurance Framework (LIF) legislation. The association argues that the framework has the potential to “cripple the industry”.
“We also want to present our position on grandfathered revenue,” AIOFP executive director Peter Johnston told ifa.
“We will be building our case around what happened in the United Kingdom over nine years ago where the nation’s underinsurance ratio dramatically increased when advisers left the industry, leaving the government and consumers exposed to the financial and social consequences.”
While LIF is yet to fully play out, Mr Johnston warned that premiums have actually increased for consumers. He pointed to the misconduct of many direct insurance companies, which were found to have sold low-quality policies directly to consumers by the royal commission.
“During our London conference in June 2019 a delegation of experienced risk members will be visiting various government and industry bodies to prepare a report for the FSU and ALP national executives by September 2019,” Mr Johnston said.
Former NSW premier and current FSU national assistant secretary Nathan Rees said the FSU will consult with the adviser members of the FSU and take their views to government.
“We will do our best to ensure a sensible policy landing once the final royal commission report is handed down. Ultimately the policy position should not benefit one group of providers over another,” Mr Rees said.
The Liberal Party has faced heavy criticism for its handling of significant issues impacting the financial advice industry and small businesses in general.
This week, Synchron chair Michael Harrison called out the Liberal Party’s decision to introduce the LIF, which reduced adviser commissions by up to 50 per cent, following arguments that such a move would make life insurance more affordable and improve the take-up of policies.
The Synchron chair argues that the Liberal Party has supported “myriad” initiatives that profoundly affect the ability of financial advisers to run businesses that can support them, their families and their staff and provide meaningful service to their clients.
“The Liberal government has made changes that mean you can’t make more than $25,000 in concessional contributions a year. To add insult to injury, the government has imposed a $1.6 million transfer cap, which limits the amount of money you can transfer to pension phase, although you can leave more than $1.6 million in the accumulation account and pay 15 per cent tax,” Mr Harrison said.
“In other words, if by some happy circumstance you have more than $1.6 million to retire on, the government will tax you.
“The Liberal Party government has done almost nothing over its successive terms in office to encourage or support financial advisers or the clients that depend on them.”
Mr Harrison believes Australian business owners once voted Liberal in the belief that it was more supportive of business than the Labor Party.
“As time moved on, business owners voted Liberal in the belief that while the Liberal Party was no longer overly supportive of business, to vote Labor would be worse,” he said.
“Recent times have proven that neither of these two beliefs ring true anymore.”
Insurers that wanted LIF have now been sold. AMP, etc…
Advisers will be less due to FASEA and Education requirements.
Perfect storm coming thanks to demoted Kelly O’Dwyer!
Age care was looking good for a career change but another RC to happen there so maybe not!
This is embarrassing and makes the industry look like children who do not get their way
We are well and truly into this system and the chance to lobby has past.
We need to adapt our business models to adapt
I have moved on and I encourage others to do the same
Would you confirm if you provide Risk Insurance advice on a fee for service only basis and if so, how do you go about this ?
If you provide Risk Insurance advice and still receive remuneration via commission, would you please explain how these changes are not going to be destructive to both adviser’s businesses, their employees and the consumer seeking quality advice.
No I do not provide it on fee for service
However I look to provide advice on a clients whole situation and the risk commission is a part of the overall fee
I am looking to write business on 30% level commission now which tripled the valuation of that part of the business and provides me more certainty next year
I build long term relationships and actually plan to REDUCE the level of cover my clients have over time as their needs reduce and use the saved premiums to build their wealth.
I don’t just sit on a risk book like many others .
Granted if I was a narrow sighted “risky” who didn’t know how to look at a clients while picture I would be worried
I’m also assuming you aren’t starting your business. People who have built a large book based upon the historical commission structure and trail payments are like the baby boomers bitching about the property market — they got the upside and think everyone else should cop it sweet. I am comfortable your opinion would be different if you were starting today because you definitely wouldn’t be going level 30%.
Hey Scott started 2 1/2 years ago after 20 odd years of industry experience.
We have built a successful practice.
First year I needed upfront so did it that way.
Second year I was flexible depending on circumstance.
Now I look to do level where possible and build a business mix with OGS.
I am happy, I am successful and I don’t need to bitch and moan about claw backs.
have a nice day
However, none of this addresses the issue that there is no evidence to show that a reduction of commission to 70% or 60% will benefit the quality of advice the consumer receives. The purpose of the ASIC 413 Report was to attempt to prove the quality of advice improved as the commission decreased.
If there is no evidence to support this reduction, then what is the basis and justification for this to occur?
Are ASIC attempting to increase the advice success rate from 93% when Hybrid or Level commission was assessed to 95%, 98 % or 100% simply by reducing commissions and extending the clawback period ?
This is unfounded and unrealistic.
If there was documented consumer benefit ( ie reduced premium cost) then it may be a consideration, however, what is happening is exactly the opposite with premiums going through the roof.
There is no basis for commission reduction to be more than the current model and so the LIF should be abandoned at this point.
If the Govt can prove a consumer benefit from paying the adviser less and less then lets hear the answer.
Would you also please confirm what “moved on means” so we know what you are talking about.
By moved on I’m left to assume you left the industry because you realized its no longer able to sustain itself and help the entire spectrum of the population, or perhaps you only focus on HNW clients…stuff those that really need help and will struggle to afford it…
No by move on I mean I am looking to the future to have a profitable rewarding business not living in 1983 like the rest of you dinosaurs
For a person purporting to be part of this industry, you certainly have an aggressive and ugly side to you.
Intimating that the other respondents are all dinosaurs simply because they are either challenging the status quo based on facts or don’t agree with your opinion says a whole lot about where you see yourself.
Self image is important, but not when it takes up the whole mirror.
No. I am just encouraging you to look to a positive future and not a chequered past. There is NO WAY this will be reversed so don’t put energy to that.
Oh please. Spare us the benevolent provider drivel.
Stand up and be counted Stuart Robert !
Reverse the LIF decision to further decrease the level of commissions from the current level.
Show some courage and support for the small businesses that apparently are the backbone of the country and to which Malcolm Turnbull referred to the Liberal Party as ” The Party for Small Business” !
Risk Insurance advice businesses going out of business does not deliver enhanced consumer outcomes on any level and contributes significantly to the financial drain on the already pressured social security system when people have not sought or acted on advice in respect to personal risk insurance implementation.
That 2 year clawback under LIF is about to go bang. When mortgage stress occurs, guess which discretionary expenditure goes first, and it isn’t Netflix. Could be a few mortgage brokers creaming on risk sales about to find out a lot about LAPSES !
It was all a scam and the insurers said a lot of things and delivered nothing except higher premiums. Churn is now legal under BID as insurance companies put bells and whistles and discounts for new business, we will have no choice but to rewrite, unless health occupation changes……
Do you know 10 plus years ago we never seemed to have a problem with 100% UF on risk until the GFC came along and a lot of advisers who’s AUM dropped down significantly started writing risk and then the Sh*t started.
At least the AIOFP try to lobby, yet we hear nothing from AFA & FPA. In fact the AFA & FPA just rollover and accept anything.
AFA & FPA just try to sell education $$$$ and have the right to monitor their members for more $$$ they are too busy doing that to lobby. but at least the AFA stayed in the fight a lot longer that the FPA they did sweet F all and the bloke that was best buds with Sam Henderson thinks he can still head the FPA without any issue he was terrible in the RC. Laid over and didn’t stop the word independent advisers getting screwed as fair as I’m concerned if you are self Employed even if you have a dealer group you are still independent advisers full stop. The FPA please pat me on the back because we finally got law passed who can call them self a financial adviser, its a joke they just call them self a real estate adviser or a banking adviser so glad you wasted so much time fighting the good fight for so long on which should have been done in 12mths. Both the AFA and the FPA should have merged into one large group like accountants.
I blame Brad Fox for part of this when he led the AFA and just rolled over. I was at a National Conference 3 weeks ago were Brad was a speaker and his major “theme” was all about controlling the controlables and that you should just go along with change…… made me SICK! I got up and walked out. It went along ways in explaining why he wasn’t up for the fight and failed us all. He even at one point suggested that clients love to get a tax deduction for advice fees and that it was a good thing that ASIC is going to ban % based fees….. what a moron, doesn’t even realize what he is saying in relation to pension clients.
lets be honest, FPA and AFA are lap dogs of the FSC et al. More interested in how many $$ they can make flogging “education” courses to the few advisers that will be left
Since the LIF was introduced we have seen all of the same FSC members raising premiums on existing clients by upwards of 30% BUT cutting premiums on new business. Effectively trying to create a churn issue that has now been proven wasn’t there in the first place! The LIF has been a disaster for advisers AND customers.
Great work Bloody O’Dwyer – the one women WRECKING ball to IFA’s.
What an absolute disgrace she is.
And she should be held liable for the promotion of Dodgy direct Life sales via the LIF.
interesting how reducing commissions has resulted in every insurer increasing their premiums…mmmm… looks like LIF making insurers more profitable for banks as they offload their insurance business.. just a coincidence though, I have every confidence that our trusted politicians have not done any back room shady deals!
I don’t think the politicians did a dodgy back room deal. I think they were too stupid to realise what the banks were doing.
I agree with the sentiment about the 88% figure. however it should be noted that even at 88%, margins are squeezed due to significantly higher compliance costs.
we will consider our options around a change to level comm, and fees for SOA preparation. we are already considering turning away prospects with less than $5,000 in annual premium. However with the 22% trail, I’m guessing there isn’t a lot of difference in the overall long term cost to the insurer, only time will tell if these changes will benefit the consumer (and life office) with more stable premiums and higher persistancy rates (for insurers). I think the 2 year (commission) responsibility rule is where the most effect on so called churning will be felt.
Just goes to show, the FSU has more power to change things with the government, and will have even more power if Shorten gets in, more power than the FPA and AFA put together. Maybe the FSU can become a code monitoring body, and the FPA and AFA can take a few steps back and try to make money from the worthless courses they offer.
I agree FSU is representing its members FPA and AFA should be ashamed sick of recieving emails from FPA about useless codes of conduct they are bringing in where were they with Sam Henderson where were they during this whole commission for us. Good ridons
Gee, your spelling and sentence construction leaves a bit to be desired Anonymous.
I would feel comfortable if LIF stayed at the 88% it currently is. This is a middle ground. I have written 70% less insurance this year and hope this is noted by the insurers. Time for FPA, FSC, insurers to note a mistake was made and keep LIF at the 88%.
there was never anything wrong with 100%, get rid of the cowboys and there isn’t a problem
It was never said the LIF would reduce premium, the modelling showed that the actual cost to the insurer after year 5 went up.
LIF was introduced to combat the churn that ASIC now say doesn’t exist……..
Only part of LIF I agree with is getting rid of 100plus % up fronts. But it should never have been allowed to drop below the old hybrid of 80/20
80/20 is perfect and where it should remain…
I’ve always written hybrid, so these changes had no impact on my business. 2 yr responsibility periods though are a bigger issue. You end up giving clients cheaper options / less cover so that they wont cancel policies within 2 yrs.
There is a natural conflict between ‘Best Interests Duty’ and NOT switching clients between policies. If it’s better for clients is that “churn”? Or is that simply doing the right thing by your client?
I agree but the 2 year clawback is a joke. I would understand if it was tiered down but to get a 60% clawback if a customer cancels through no fault of your own in month 23 is ridiculous and unprofitable. Like a lot of advisers I’ve practically stopped writing new business because its unprofitable.
This absolutely correct and fully supported by the findings of the ASIC 413 Report.
This report specifically identified that when any other mode of commission payment other than the then Upfront level was applied to the files assessed there was a 93% advice success rate and only a 7% advice fail rate.
ASIC therefore determined from this report that when either the THEN Hybrid (88/20) or Level commission models were applied there was a high rate of advice success as noted.
There has never been any evidence produced at all that can identify when the level of commission paid is decreased further than the 88/20 model, the advice success rate increases beyond the 93% rate already identified.
And of course ASIC would know what ???? I have not seen anything in 20 years to tell me ASIC knows what to do proactively and not 3 years retrospectively after the event !!!
The issue with ASIC is that 413 was fictitious and targeted and proven incorrect after they received the correct lapse data from the insurers BUT it was NOT ASIC that stipulated commissions should fall below 80/20 or that there should be a 2 year clawback. This was a stitch up by the FSC to gauge profit supported by the AFA and FPA who are paid by them.
The 100%+ of upfront was just an aggregation of the old individually paid “Upfront Commission” paid directly, and the “Volume Bonus” paid to the [pre FSRA AFSL] “General Agent” or “Aggregator”. the total margin was always built in.
In addition, for many, many years, “Clawback” was commonly 100% for the first 4 months, then reducing by 5% per month until the 2 year mark – not the 100% or similar now for a whole year implemented now. As usual, excessive, intrusive, ignorant legislation and regulation.stifles innovation and competition.
The LIF is, IMO, corrupt, absolutely unsubstantiated political support of Cartel Pricing by an incredibly ignorant and anti free market “unLiberal like” [anecdotally, from several people who know] “Dumb as a rock” [ex] Minister – one of the reasons she rarely speaks in public.