Speaking to ifa, Forte Asset Solutions director Steve Prendeville said that introducing the recommendations would decrease the value of risk practices and make businesses “immediately uncommercial”.
“At the moment, risk revenue trades at about 3.5 times recurring revenue and investment planning is three times,” he said.
“What [a change to remuneration] is likely to do is bring the model down and we are likely to see it come down by more than 10 per cent, maybe 20 per cent. So it will come down to more align with financial planning.”
Mr Prendeville added that if the proposed remuneration model were to be implemented in its current form it would “kill the industry overnight”.
However, while the industry is reviewing Mr Trowbridge’s recommendations, “common sense will prevail” and it will be realised that the remuneration structures will not work, he said.
“What we are likely to see is not a capping of $1,200, because that does not reflect what will work, but it could be a capping that could be – instead of receiving 110 per cent up front – in line with 50 per cent upfront and the deferred payments sort of 20 per cent ongoing,” he said.
Echoing Mr Prendeville’s comments, Centurion Market Makers director Chris Wrightson said limiting adviser remuneration, which a lot of older advisers who operate as a single-person practice rely on, will push them to move out of the industry and even sell their businesses.
“If they reduce commissions dramatically you will see an exodus of quite a lot of the older, [single-person operator], risk-only-type advisers because they simply won’t make the living they used to,” Mr Wrightson said.
Introducing the proposed remuneration reforms will also see the value of risk advice practices decrease, he said.
“[The proposed remuneration model] effectively equates to reduced remuneration or more importantly reduced business earnings, and planning businesses are like any business – if you’ve got to forecast for reduced business earnings or reduced profits, the value of your asset falls,” Mr Wrightson said.
“If Westpac puts out an announcement that their forecast earnings for the next 12 months are going to fall, shares fall also.
“Clearly, if implemented, [the] value of risk planning books and risk advice practices will fall,” he said.
The intention of the Trowbridge Report was to improve the quality of advice….right? Advisers would be definitely put out of business.
Knocking out your older experienced risk writer as some have suggested as a good move, is seriously NOT because then the knowledge and experience goes with them. Remember financial advisers did not write risk products until more recent times. My experience is that the older more experienced risk writers gave real quality service, prepared and assisted with claims and knew every detail of the products. Trowbridge will kill the insurance industry.
Ian Bailey. Interesting. Needs a leap of faith though. Will insurers genuinely offer a proper adjustable commission scale which does not kick adviser, as do current discount options where the insurer wins
Could end up back to 85/25 or so by default, with 5 yr responsibility
I have the solution! Zero commission policy with option to increase premium to pay for adviser fee if client cannot afford up front fee.
This gives both options fee or increased premium to pay adviser. Client will clearly understand the cost of advice.
I’d suggest if Trowbridge was implemented a few would exit (just like some dinosaur planners did a few years ago when it all got too hard for them) and THEN practices run well and with strong business models based on transparency and fee-for-service would become VERY valuable. You either get with the program or get with your retirement plan.
I have read the report and it seams that it is based on the advise of insurance companies, I have been in the business for 37 years and have never had any complaints from my clients about commissions that I am paid, a recent pole of my clients indicated that they would not be happy paying up front charges.
I think the report is a knee jerk reaction
and only to boost profits from some insurers.
In reference to churning most term life policies offer the same benefits so it comes down to premium but when insurance companies reduce the premium they don’t make it retrospective and the inforce policy premium be comes vulnerable to churning.
I believe Steve to be spot on
But why is the debate ignoring the elephant in the room. These FSC proposals, if implemented, must be a breach of the Trade Practices Act, as it constitutes a breach of market power and possibly constitutes a cartel
Write to the ACCC
However, Mr Prendeville added while the industry is reviewing Mr Trowbridges recommendations common sense will prevail and realise the remuneration structures wont work.
THE PROBLEM WITH COMMON SENSE IS ITS NOT THAT COMMON.
And in my opinion the idiots that recommend this rubbish obviously have absolutely no idea how the risk insurance industry functions and provides benefits.
Many years ago with Peter Smedley at the helm Colonial cut commissions dramatically with the promise that cheaper premiums would be the end result, I am still waiting for this statement to become reality
Putting the insurance debate aside for a moment it does little for our industry and its principals when industry brokers “bandy” around a multiple of 3.5 times for a risk book. I have analysed 30 or so risk books ranging from highly undesirable to excellent operations and there for suggest the industry brokers start being professional and always give ranges from 2 – 4 times !!!