An open letter to John Trowbridge
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An open letter to John Trowbridge

Tony HartleyA response to the Trowbridge report – or should we refer to it as the ‘Swiss Cheese Report’? – it’s so full of holes.


Tony HartleyA response to the Trowbridge report – or should we refer to it as the ‘Swiss Cheese Report’? – it’s so full of holes.


Oh Mr Trowbridge, I have taken the time to read through your Final Report (90 + pages) twice over.

What a masterpiece of subtlety it is, with respect to bolstering the profitability of the Product Providers (PPs) and their Parent firms to the detriment of the Advice side of our industry.

Your report mentions that you and your team set a goal to attain an “alignment of interests across the life insurance value chain,” yet the main focus of your report takes is on the distribution and advice components of the value chain –only 1 page seems to relate to Insurer practices.

Whilst your Report rightly points out that PP’s are the province of APRA to regulate, why wasn’t the issue of profitability of PP by line of business covered? How do we, the distributors, know that we are not marketing a product whose profitability may have severe financial consequences on the product provider – it has happened before! Transparency is the key and opacity is what exists.

Let’s not even consider the righteousness of ‘take-over’ terms…

Oh that’s right by reducing the costs of distribution, the FSC members will have reduced costs to bolster such positions – should they exist.

I can see how this could be used to support a definition of ‘consumer benefit’ ie. having solvent PPs. If you want to take from the distributors, then let’s mandate that the savings made go back to the consumer, by way of reduced premium pricing.

I guess you’ll cite that “free markets” will deliver that?
Surely such a Review must address the other players in the value chain more fully- PP’s, those selling research etc.?

My headline take on 3 of the key recommendations are:

1. Open architecture of APLs is great in theory but in reality is difficult to manage (research, compare etc.).

To have a product on our APL it must pass a thorough a due diligence process.

Our process goes further than simply comparing product features and benefits but extends to reviewing underwriting histories, claims processes and whether the people in the teams are customer centric (things the online platforms fail at).

In order to adopt 'open architecture' (OA), we would need to expand our whole process which in turn would come at a cost which your 2% might help to offset but importantly it could actually give rise to having products being distributed that we have low faith in (for disclosure we exceed the ½ of PP rules).

You may have complete faith that all your PP cohort will act in the policy holder’s best interests (e.g. at point of claim) but experience has taught me that without an Adviser in your corner, it may not always happen.

2. Limiting commissions in the manner stated, will drive down the value of existing businesses.

With the average age of Risk Adviser being in the high 50's, one would have to consider that building such value is central to their retirement planning.

So not only is this change and the limited grand fathering going to deliver a short term cost but longer term, I'd be willing to bet the 2.5 -3.0 x recurring multiples currently being paid an/or obtained, will come down considerably.

This will be exacerbated for those with BOLR arrangements should they be overturned as inferred.

3. You acknowledge that the combination of an IAP and 20% commission will result in a business losing monies to put a case on its books and suggest that this is aimed at “delivering a balance between acknowledging the initial costs of advisers and eliminating any behavioural doubt as to whether the client’s interests are being placed ahead of the adviser’s own interests.”

How is an Adviser losing money to take on a client, beneficial to either the client or the Adviser? It’s hard to fathom how ‘behavioural doubt’ comes into play.

Whilst I am sure your maths qualifications are beyond question, surely even you get that clients need their adviser to be in business and in their corner when something goes wrong (eg. claim, change of circumstances etc.).

From your stint with APRA and your actuarial pricing experience, does APRA have comfort in PP’s issuing or retaining unprofitable products?

To my ‘advice-side’ colleagues who haven’t really considered this report and see change as a fait accompli, let me suggest you need to a) consider its impact on your business generally and whether being silent is the right course; and b) consider why it is that only one side of the value chain is being asked to carry the load for the structural reforms that are alleged to be needed.

Yes, there are parts of the report that strike a resonance and need to be focused on - including conflicted remuneration and quality of advice but let’s not bring in changes that solely impact the advice side of our industry.

For transparency, the business I Chair is independently owned and most/all of the advisers who support it will be able to adjust.

My fear however is for the many that won’t and the exacerbation this will have on Australia’s under insurance problem –all for what, a small minority who churn their client’s business.

About Tony Hartley

Tony Hartley is chairman of non-aligned dealer group Madison Financial Group and venture capital firm Pharos Financial Group. 

Tony has been involved in the financial services industry for over 20 years, for 9 years he was employed by the ING Group where he held senior executive roles including executive director of ING Australia’s advice division, the unit responsible for managing ING’s advice businesses.

Tony also headed up various ING M&A activities, culminating in the ANZ merger/sale.

In late 2004 Tony and Mark Perry established a joint consulting business which supported a number of start-up businesses including Pharos. 

Pharos purchased Madison Financial Group in 2012. Madison currently has over 80 advisers across most states in Australia. Madison manages approx. $3.2bn in FUM and $60m in risk premium.

An open letter to John Trowbridge
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