In a letter written to every federal member of parliament – seen by ifa – AIOFP executive director Peter Johnston has warned that if the reforms go through in their current state there will be a mass exodus of advisers from the insurance industry.
“It is predicted that over 5,000 professional risk advisers will move/retire from the industry [with 5,000 support staff losing their jobs,] leaving the majority of advisers working for specific institutions offering conflicted and biased advice to consumers,” Mr Johnston said.
“The industry and consumers cannot afford to lose professional advisers greatly diminishing choice for consumers,” he said.
Mr Johnston added that these reforms, while pushing advisers out of the industry, will also “exacerbate the nation’s underinsurance problem”.
“A consumer’s family risk requirements is not a one size fits all approach; each family needs a professional adviser to assess their specific needs,” he said.
“The Proposal’s recommendation to impose a three-year clawback period and halve upfront commission payments unfairly treats the adviser with uncertainty of cash flow over three years, making it very difficult to stay in business.
“Furthermore, the clawback penalties are solely focused on the adviser, with the institutions avoiding any culpability if the policy fails due to circumstances outside of the adviser’s control,” Mr Johnston said.
Oh, no underinsurance problem at all. It will be solved by the ‘innovation’ economy you see.
No doubt the insurance ‘promise’ will be solved through more tele-marketing and more online insurance policies, and insurance apps direct to your iphone. Direct has been the fastest growing sector.
But let’s see how Direct goes delivering on the ‘claims’ promise. Totally different kettle of fish.
For the consumer it will be too late by then. Meanwhile the government blindly accepts that it’s risk writers who are the problem…
@Reality Check – Lately I have been charging fees for risk advice as a bit of a trail.. Essentially an SOA fee of $500 – $1,000 depending on complexity and still taking Hybrid commission.
This has been fine when it has been a relatively ‘clean skin’ client or one where they have disclosed previous issues to me and I can mention the possibility of an exclusion etc upfront.
For the clients who get unexpected exclusions/possible decline due to disclosing issues during the personal statement that they did not mention to me during the pre-assessment they pretty quickly become frustrated about paying $1,000 for advice they potentially can’t implement.
Well done AIOFP and Peter Johnston for taking up this fight. Its a shame that the AFA and FPA haven’t had the same backbone or commitment to their members. But I guess both the AFA and FPA are heavily funded by the insurance companies!
Every risk adviser I speak with is falling into one of the following camps if 3 year clawbacks happen:
1. Most will sit on trails and stop writing new business as it’s unprofitable to do so.
2. Those with BOLR agreements will look to sell up.
3. Some are going to try charging fees in addition to commission but don’t see much take up by customers.
4. Most are saying they will have to let staff go.
Obviously with these changes the banks and insurance companies will increase profits in the short term but it is staggering that government have been unable to see the longer term implications for customers and underinsurance by being hoodwinked by the FSC and insurance companies.
I only write risk supplementary to super and investment advice and I am out. I’ll still stay in the financial planning industry but I’ve realised I can get a back office/compliance job on the similar $$$ working way less hours.
I was looking at starting my own practice this FY but no chance with these consistent changes being made by those who either have no idea or have conflicted interests.
GREAT WORK AIOFP executive director Peter Johnston. Could not agree with you more.
These have been my exact concerns since these reforms were handed down. If any Government – including the Labor Party who seem hell bent on wiping out independent advisers so industry superfunds can rule the roost, think these reforms will increase consumer confidence with life insurance – you’ve been completely mislead.
If you REALLY want to increase consumer confidence, march yourselvses into the direct life insurance offices and the financial planning sections of all 4 major banks and have a closer look at what goes on.
I hear there’s a 40-50% lapse rate with direct insurance in the first year and similar figures for claims. How does that increase consumer confidence???
I know for a fact that banks push their solutions on customers at alarming rates with planners who have little understanding of risk solutions (using their own ‘average quality’ solutions) because of the incentives and bonuses upper management receive for premium inflows. These bonuses are massive too – so much more than what us little advisers receive for the HONEST work we do.
Thank you AIOFP executive director Peter Johnston for the effort you’ve put in to protect our industry and the advice that Australian consumers need so badly.
If the insurance companies were finding it hard to make a profit by paying commissions when they were given business, then I guess they will find it really hard when no one gives them any more in the future. Based on the proposals we can’t see a reason to bother with risk anymore.
Very true. It raises a strong question of my continuation after 26 years. There are far easier effective ways to have addressed the real needs of churn. A proper definition of churn and what it does include. In my case, having written mostly level premium for 20 years; there is little little reason to churn in and thus I have been implicated in an issue that captures my business and financially impacts my future.
what happens if an insurer has a bad run of claims effecting their profitability -likely via the crazy non underwritten group plans and pushes premiums up -forcing the client to cancel- how is that the advisers fault?