Speaking on a recent ifa webcast, PPS Mutual chief executive Michael Pillemer said the lowering of commission levels has had a significant impact on the ability of firms to add more advisers.
“The 60 per cent upfront commission is still not commercial in a lot of instances, and it doesn’t cover the cost of actually doing the work,” Pillemer said.
“I think that’s a problem, particularly when it comes to financing new advisers into the business.”
While he acknowledged it would be difficult to see commissions going back to their pre-Life Insurance Framework (LIF) levels, moving them higher would help the situation.
“In the absence of moving to something like an 80 per cent upfront, which is probably more reasonable, advisers either need to take it on the chin or look at perhaps supplementing the upfront commissions with fees or raising funding to help finance new people into the business.”
According to Lifespan Financial Planning CEO Eugene Ardino, also appearing on the webcast, in an environment with all the insurers paying the same rate of commission, the conflict for advisers is “minimal”.
“The only conflict is, do you recommend insurance, or do you recommend too much insurance? And the reality is, most clients don’t buy enough insurance because it’s very expensive,” Ardino said.
He added that the reduction in commissions to 60 per cent upfront has also been a factor in increasing premiums.
“I don’t know that that conflict is going to or has done any significant damage … but I accept that there is a conflict there,” Ardino said.
“Whereas, when you consider the damage that reducing commissions has done to the insurance industry and to [clients] who are now not buying insurance because advisers aren’t prepared to work with them because it’s not commercial for them to work with them.
“And we’ve seen the impact. The evidence is there. We’ve seen the volume of insurance being bought by consumers fall off a cliff in the last seven or eight years, right? And then that, I believe, is one of the significant factors that’s impacting this incredible increase in premiums.”
Importantly, Ardino added, any changes need to be done in a way that doesn’t exacerbate the under-insurance problem in Australia.
“I think we want people to buy insurance. I don’t want to be encouraging people to buy insurance from TV ads or directly, because often those products are inferior. Often clients don’t know what they’re buying,” he said.
“I would rather have an environment where we can have more people, more consumers, buying insurance, accessing advice to buy insurance.
“I also think that as an advice community, we’ve professionalised over the last eight or 10 years, so I feel we’re far better equipped to deal and to manage those potential conflicts.”
Ultimately, he added, access to insurance advice is simply “too important”.
“Anything we can do to make it more accessible, I think we should really consider doing so. For me, I’d rather see commissions go back to where they were, or some way back to where they were,” Ardino said.
“I think that the advice community, the advice profession, is more than equipped to deal with those potential conflicts, which I think aren’t that bad, so far as conflicts go anyway, and they already exist, just at a lower level.”
I haven’t seen policy failures as damaging to an industry as these in my entire career in economics and public policy. There’s absolutely no policy case for placing effective revenue caps on insurance while increasing compliance costs by orders of magnitudes. Amazingly, no in Canberra seems to care very much that premiums written have cratered over the last five years, down from $750mn in 2019 to $250mn. What would I know though, I was only the Chief Economist at the Australian Chamber of Commerce and Industry, have degrees in economics and law from ANU, and post-graduate economics from Johns Hopkins University.
Imagine if the puppets that made these imbecile decisions and the clowns who supported them were held personally liable for the carnage that they have caused to untold Australian families and businesses…!
There is absolutely no argument that can be put forward from the Govt or ASIC that can validate or justify that a return to risk insurance remuneration commission levels should not be be an absolute minimum of 100% Upfront and 20% Renewal with a 1 year pro-rata responsibility period.
The only block would be the pig headed attitude by ASIC that they won’t admit that their previous Report 413 in 2014 was biased and was a report designed & created to achieve a preferred outcome.
The manipulation of Risk Insurance remuneration has been an abject failure based on ideology and political pressure and a cosy relationship at the time between Kelly O’Dwyer and Sally Loane of the FSC.
None of it makes sense, none of it has been effective and none of it has contributed to any proposed benefits or outcomes that were pushed and pushed by the people who thought they knew best, including now Senator Andrew Bragg who was incredibly vocal in his role with the FSC that their preference was for Level commission only or none at all.
Disgraceful in the extreme.
Have some courage and guts to reverse the current model and restore some future for Advisers and the valuable protection that so many Australians are in desperate need to secure.
Underinsured Australian lives is a legacy they should be ashamed of with many families having suffered due to the misplaced ideologies of those people you have named.
Shame shame shame.
Advisers jump straight to “increase commissions” as a solution for this, but there needs to be more research and disclosure to explore how much more premiums clients pay to fund the upfront and ongoing commissions over a period of, say 5-10 years compared to what they might pay for a one-off advice fee. In my opinion, only with full disclosure of this difference (as well as highlighting the benefits of reduced conflict that is inherent with commissions) can clients provide fully informed consent about paying commissions versus a fee for advice.
What is the conflict inherent with commissions?
There is none!
While you are at why don’t you explore the conflicts charging hourly rates incur? or set even set fees? Commissions seem to have worked well for over a hundred years. You seem to think commission creates a conflict, however I don’t think it’s as perverse as you think it is, considering all insurers pay the same commission and under best interests and professional standards you really should be recommending a suitable sum insured for the client based on their personal situation. Simply thinking advisers opt for maximising sums insured for commission is rather simplistic when considering our compliance regime.
80/20 can work. At least PPS don’t rely on so called general advice advisers.
The FASEA exam for risk agents is another major hindrance as well. In addition to the Annual Fee Consent Forms, red tape which doesn’t exist in any other nation on earth.
“Agents”? . . . “AGENTS”? In which decade are you living? Some of the problems risk ADVISERS are encountering come from such archaic language. Step up and read up, independent risk advisers are not “agents” of insurance companies any longer and haven’t been, in the main, for well over a decade and many not for 3 decades or more.
Under QAR, that’s exactly what they will be, AGENTS.
Insurance Advice is dead. Why do we keep digging out the corpse once a year and trying to breathe life into it.
A highly regarded compliance expert said to me “anyone providing insurance advice needs their head read due to the complexity of legislation and the adversarial nature of the regulator ASIC”.
Can you imagine the embarrassment on a whole range of parties due to the back flip, if the rate went back to 80% or 100%.
You’re 100% correct in all you state. Sadly, after 36 years in the risk advice industry and now retired, I can tell you in no uncertain terms that for ANY major positive change in the industry the upfront commission rate WILL need to increase to 100% and renewals remain at 20%. This is, of course, only if we want more new entrants and the return of better levels of new business.
I’ve run these numbers extensively over many years. Under current conditions these are the minimum levels a professional self-respectable risk adviser needs. This 100/20 (nothing less) would enable on-boarding new clients AND new entrants to the industry as ‘apprentices’. 100/20 will also provide a working profit at a level of sustainability. This 100/20 holds and I stand by it against the background of the current compliance regime. IF, and a BIG IF, the compliance regime eases and time-wasting red tape is slashed (REALLY slashed) there ‘may’ be a case for less than 100/20. However we all know that any time government is given power it usually takes an act of God for it to ever relinquish that power. Red tape is a proxy for government power here.
Therefore, on balance, I would have no alternative but to conclude there will be no risk advice industry as we know it come the end of 2026. I have held this view since 2020. I saw that premiums would go stratospheric (this will get much worse prior Dec 2026) and the life industry will be looking to leave our shores – they’ll simply have no choice with minimal new business. They will deeply regret their decision to sit on their hands as they allowed govt and special interest groups to decimate our industry by slashing commissions and increasing claw-back periods. These two factors were the last straw for many older advisers and remain two of the largest hurdles for new entrants. Further, it is clear by now that anything resembling a specific risk advice uni degree qualification is never going to happen. That is the real doorway for proper numbers of new entrants to our once great industry (profession?) but sadly I fear this is gone forever.