In a joint submission by the Consumer Action Law Centre, Financial Rights Legal Centre, Choice and plaintiff law firm Maurice Blackburn, the life insurance advice industry is taken to task for not taking the possibility of fee-for-service risk advice seriously.
“The industry’s response shows a lack of imagination, it hasn’t considered moving forward without commission-based sales,” said Consumer Action Law Centre chief executive Gerard Brody, commenting on the joint submission.
“As long as there is a financial incentive for life insurance advisers to push certain products, there is little reason to think Australians will get advice that is prudent rather than profitable.”
Mr Brody said that charging a fee for life insurance advice would be a more pro-consumer remuneration model.
“Charging a fee for service is a much more transparent and ethical remuneration model. It would mean consumers will know how much they’re paying, and will allow them to shop around for the broker with the lowest fees,” he added.
The consumer groups gave argued that the life industry should develop a code of practice and a “standard cover option to help simplify policies” as well as improve disclosure and “end stepped premiums”.
The submission comes as a majority of advisers have indicated they believe commissions are an important tool in combating Australia’s underinsurance problem.
To Ben #14….very well said.
To Ben Liddicoat from BBK #13….how disappointing.
The vitriol against the majority of financial planners in Australia contained within your comments is evident.
You have ripped into every quality financial planner in the country who elects to be remunerated by commission.
A bit of explaining is necessary:
Your BBK website clearly states “100% Commission Free Financial Planning with BBK”.
Your BBK Financial Services Guide dated 10/03/2014, also states:
“If you do not wish to pay a fee for our services we may be willing to work on a COMMISSION BASIS or negotiate some other arrangement”.
It also states that you are able to receive up to 115% Upfront commission and 33% renewal commission for insurance products recommended.
Now, lets not be concerned about a commission rebate to the client, because the fact is you actually may receive commissions for advice if your client elects this option.!
Hypocritical?
This notion that if you take away commissions you all of sudden have these cheating, thieving Liars that are out there calling themselves advisors will start telling the truth because they now get paid a fee. How rediculous a notion. Cheats , thieves and liars will always be cheats , thieves and Liars wherever they are and however they are paid. In addition everyone talks about commissions being unsustainable, help me understand which companies are on the brink of bankruptcy because of commissions? As others have suggested, mandate all insurers pay the same rates, no conflict end of story. Hey and on another issue everyone keeps talking about this industry has such a bad name, may I suggest a number of advisors do (every industry has )and they need to be dealt with, what I do not hear from the public is they do not trust insurance advisors. Not once in 25 years has a client been concerned that I get paid a commission.
Dear Ben (number 2),
Apologies if you took offence. If you’re a good operator (on commission or otherwise) I am not having a go at you, or trying to destroy or manipulate markets! That’s a bit of hysterical to suggest that I could or would destroy anything!
I am simply describing what I have seen, and reporting factually about what is already known about the bad behaviour of many in the industry. They are denegrating the profession, not me. If you remove the commission, you remove the potential for others to blacken your good name. That’s all.
Mr Liddicoat, you must be desperate for clients if you are willing to denegrate your profession with such an outrageous and inaccurate post. This is one of the biggest problems our profession is facing at this moment. Too many self-interested parties trying to manipulate the market to suit themselves, willing to destroy the great number of excellent financial planners who are doing a good job helping their clients. I think it is commendable that you have embarked on an alternative remuneration structure. All power to you. But please show a bit of decorum and respect for your fellow practitioners.
Insure yourself against commissions!!
The insurance company takes the premium, then pays a commission to the impatient adviser, who dutifully does everything possible to keep a clients policy in place, indexing all of it it (even though debts usually go down) while insurers go about recouping the cost of their sale. All the while the value of the initial advice gets stale and the client slowly gets poorer as a result – maybe by sucking their super cash whilst their too young and busy with family to notice.
No matter how a client pays, it’s always the client who pays!
If you can’t justify an upfront fee for a long term benefit you should go back to adviser school. Commission structures just bleed the clients slowly but surely.
There is a fundamental ignorance contained in this article. I might NEED a mobile phone just as I might NEED insurance. However, I and most people I know, will only BUY what I WANT to buy. Hence, despite needing a mobile phone or Insurance, I will only buy it if it will suit my purpose and if it is something I WANT to own. In conclusion; clients buy Insurance because they understand that they need it but most importantly because it is something they WANT. No one is capable of forcing someone to do something else when they WANT to do it.
Choice, please explain to me what I should do with the young couple (23yo) that already have a mortgage and a new baby due in 5 weeks.
Should I charge them a fee they can’t afford or receive the commission?
Ps: I am doing their super, binding nominations and underlying investments for free.
To Gerard Brody:
Consumers can already shop around and negotiate the cost of financial advice. They always have been able to.
Every adviser who is remunerated via the commission model has the ability to reduce the commission amount received thereby reducing the premium cost to the consumer. The consumer is in control of the negotiation.
The comment in relation to ending stepped premiums is laughable and shows exactly how very little understanding exists.
Level premium cost can be up to double the cost of the Stepped premium cost depending on age. The crossover point is often between 5-7 years with the break even point between 10-12 years. Any financial benefit of Level premiums is often only experienced from the 12th year onward. There are certainly situations where Level premiums are recommended and suitable, however, for consumer groups to make these comments highlights their gross naivety.
To quote Gerard Brody: “charging a fee for life insurance advice would be a more pro-consumer remuneration model.”
A $2000 insurance premium with the commission stripped out of it will reduce by approx. 30% to $1400.
The 2-3 client meetings, analysis,advice and implementation process from start to finish take a total of 8 hours at an hourly rate charge of $200 ie($1600.00)
So, the consumer is now paying $1400 for the insurance premium and a fee of $1600 to the adviser….a total cost of $3000.
This client is now paying 33% more in total cost than simply paying the insurance premium of $2000 and having the adviser remunerated via a fully disclosed and compliant commission model.
So Gerard, please explain how this scenario can possibly be a more “pro-consumer model” ??
In addition, you seem to reference the fact that a consumer shopping around for the lowest fees will therefore receive greater value….WRONG!
Cheap rarely equals value.
None of these self-proclaimed ‘consumer’ group have made any reference to the cost of the claims process to financial advice practices. Hmmm…
Could it be they have been (again) hoodwinked by the ISA and inferring that the claims process becomes the sole responsibility of the ‘consumer’ (completing forms, following up outstanding requirements, etc.) – just as it is for those in ISA’s and direct-product purchasers?
The real value of insurance advice provided by financial planners is at claims time – an already stressful period for clients. Or do they expect adviser’s to do it for free or charge an upfront payment (or fee for service, to use their terminology) before we help them out?
Do any of these people have the slightest clue as to how this industry works??
Gerard Brody seems to be confused.
Adviser remuneration is entirely transparent in the inclusion of percentage and $ amounts contained within the SOA.
The customer knows exactly how much the adviser is receiving for the advice AND product/s provided.
The consumer also knows how much they are paying as the insurance premiums are clearly disclosed and identified.
He then tackles the issue of financial incentive and predictably uses the words “PUSH certain products”…..because that terminology assists his agenda.
To rectify any perception that there may be financial incentive to recommend one product over another, the solution is simple.
Retain Upfront, Hybrid and Level commission models and standardise the rates for every insurer.ie.no commission difference between any product provider AND no Upfront commission allowed on any insurance replacement business within a 5 year time frame of the last implementation date.(Hybrid or Level Only).
When is this all going to stop? the life insurance industry is not sustainable as a fee based industry, not so as a level premium based industry either. A code of practice how many do we need THE FPA, THE AFA, ANZIIF, oh the corporations ACT, then dealer group codes of practice.
Ethical what is not ethical about commission? really? how many advisers are not ethical? my financial risk practice will be destroyed should you take away commissions, the consumer cant substantiate a fee of $3,000.00 a day oh you think that’s to much how much a day does a lawyer cost? you engage in this conduct, It was developed to ensure practices stay in business, you will destroy them. Stepped premium is a must and the idea of level only is simple, the product providers pushing to raise revenue Metlife is up 120% is that not enough? oh level premium just like the SIS Act is third line forcing, it forces the client to stay with the same provider reduces competition what over educated derlicts
Why end stepped premiums? They are a perfectly legitimate tool for insuring a clients’ short term insurance need, or a need that declines over time e.g. their mortgage.
The issue with fee for service in this area is as sue Sue Viskovic said, the real cost is anywhere between $2500-$3500 per case! I can guarantee 95% of clients will not be prepared to pay this sort of cost plus include profit for any business to continue trading just for insurance cover.
Let alone charging for claims work at a clients most vulnerable time.
I am more than comfortable with differrent models being available however name a industry where people not within the industry are trying to demand what my business can charge for the work it does? Should we have an enquiry into all the pro bono work we do for our clients and set up a fund so when we do pro bono work for clients we can recoup our losses from that fund?
Suggesting it would be better for consumers to pay fees so they can shop around for the lowest fee is laughable. Under the current model most advisers don’t charge any fees at all for insurance advice! And the premiums paid by our clients are typically similar to products via direct channels (when comparing like-with-like). Be careful what you wish for Choice. You could be doing Australians a great dis-service.
I have yet to have one of my clients over 25 years say they would like to pay a fee for the advice I give. or suggest they feel my advice would be any different if I did charge a fee. In my disclosures I always demonstrate all insurers offerings and premiums and outline exactly why the recommended product has been chosen. This continual nonsense that because we are paid a commission suggests we are giving poor advice is an absolute load of bollocks. Perhaps car sales people , new home sales , the corner Deli, Woolworths and any industry that makes a dollar from a sale should have to charge a fee. In addition non of my clients that I have had the privilege to be able to hand over a claim payment to have wished I had charged them a fee, my gut feel is they would not have purchased cover in the first place. I wish all those so called experts that have never been in the field providing the valuable advice we give pull their heads out of the sand and get a life.
Whilst we are in “competition” with the direct sales market with their huge advertising budgets targeting ignorance, and we assume funded by NOT paying for advice provision (and then not paying out on many claims), commissions cannot effectively be replaced by fee for service for the everyday person’s insurance. High net worth, no problem, but not the average Australian. Also made harder since the full rebate of commission not received by the planner is received by the client – which doesn’t happen yet.