Partner of Bombora-aligned MBS Insurance Trevor Shipton said in a submission to the parliamentary joint committee inquiry into the life insurance industry, which was made public this week, that the Life Insurance Framework reforms as they stand will decimate the self-employed sector of the life insurance industry, thereby giving the banks and insurers more money and power.
“As the aligned adviser works inside of the profit pool of their employer, if their commission is reduced, their wage can simply be increased, because the profits will stay in the same environment,” Mr Shipton said.
“In contrast, the [non-aligned] adviser receives the full impact of the reduced commission, as they have no parent company or employer that can reimburse them in other ways.”
In also stating his opposition to LIF in his submission, director of self-licensed DJM Financial Services Damien McColl cited a case from April 2011, where he was heavily involved in a client’s successful total and permanent disability (TPD) claim.
In that case, Mr McColl said the insurer wasn’t providing a service to enhance the claim’s chance of succeeding.
He noted that the insurer seemed to rely on particular medical reports it had sought and the wording of the questions the insurer asked of the doctors did not bring out all the information needed to assess the claim thoroughly.
“The client was very upset and stressed by the situation. We succeeded in getting the claim paid and this was a lot of money for this client,” Mr McColl said.
“It took over two years from start to finish and a lot of my involvement. The only fee I received from this client was the normal renewal commission attached to the policy (and this policy commenced before I was looking after the client).
“I spent countless time on this. I did it for the client.”
“As the aligned adviser works inside of the profit pool of their employer, if their commission is reduced, their wage can simply be increased, because the profits will stay in the same environment,”
That’s simply not true or realistic. Why would their employer pay them more for producing less revenue? Although IFAs like to think that the advice and product arms of the big five are all in it together, the reality is that each operates as a seperate cost/revenue centre. Like their independent counterparts, the ‘aligned adviser’ (by which I assume employed bank planner is meant – not independent business owners who are simply licensed through an institution) will receive less revenue from insurance commissions following the implementation of LIF. Their KPIs will not reduce, their salaries will not increase, they will just be told to lift their game and get on with it. This has been the message to planner enquiries where I work. (That’s assuming the big five even stay in the advice space, and there appear to be indications that ‘vertical integration’ is nowhere near as profitable as they want it to be, so they won’t.)
” … each operates as a separate cost/revenue centre.”
Similar to Kuwait, Saudi Arabia, Lybia and other OPEC members. They are all run to protect their own interests, however that doesn’t stop them from colluding. This type of thinking occurs at the very top …
Reduce competition means increase in prices. Increase in fees, means those who need advice – such as the low socioeconomic Australians will not have access to it.
The policies have been designed to protect consumers. I guess if you don’t have the ability to pay for advice, you are not consumer. Hence, don’t require the protection.
Financial advice will become only to those who can afford it.
Adrian, intelligent move including claims management fees. But your other statements regarding ability of advisers to manage claims is a bit off and your assertion that advisers are only real if non aligned- mate you have your hand on it and are obviously deficient intellectually. Probably a bare riskie taking the assumed high ground. And the subject was LIF ???
Yes, LIF undoubtedly means that advisers who rely on commissions will lose income – unless they develop the ability to charge fees for service. Change is never easy but it is necessary.
At one of our recent training days, a Dover adviser gave an extremely helpful presentation on how he has added claims management under a fee for service model that is now a significant part of his practice. This presentation included a detailed case study of a successful claim that took over five years (and a lot of determination) before the insurer made good on a seven figure claim. The grateful client was happy to pay a decent fee for a very dedicated and effective service that could only have been provided by a non-aligned adviser who was not beholden to the insurer. Our adviser can rightly be very proud of himself.
Lower commissions means advisers need to generate more fees for service. The best way to do that is simply to provide more services. Non-aligned advisers are well placed to do this because we are the ones with the freedom to solve clients’ actual problems whatever they may be. Let’s face it: non-aligned advisers are the only real advisers. So take heart: we will cope with the change and thrive afterwards.
Of course the FSC and the institutions total screwed IFA’s in the LIF process so they can flog more rubbish direct insurance.
But Damien, you had every right to charge a fee for service for 2 years of extra work to get this clients claim paid. Good job you did look after the client. I fail to see what this has to do with LIF though ? The Insurers are always going to try to make claims difficult, LIF or not.
It is true. Probably why we were so easily screwed.