In a statement released yesterday, Mr Trowbridge said he was “pleased” that the “essence” of the reforms he proposed in his final report had been adopted. However, he said that there would be scrutiny of the implementation of the measures announced yesterday.
“The reform process is to be closely monitored and a review is to be undertaken in 2018. This review should examine how effective the transformation is at that stage and consider the balance of my recommendations, in order to identify the further reforms needed to overcome remaining misaligned incentives and better support the interests of consumers,” he said.
Mr Trowbridge added that the industry must introduce the reforms “quickly and constructively”.
“I will be a keen observer over the next three years of the industry’s implementation of the reforms announced today by the Assistant Treasurer. The review in 2018 will enable residual remuneration conflicts, quality of advice questions and industry effectiveness to be reassessed at that time and further reforms to be undertaken,” he said.
At the same time, product manufacturers, who largely remained silent during the heated debate over reforms of the retail life insurance industry, have come out in support of the new proposals.
Responding to the reforms – which will see the remuneration proposals made within the Trowbridge Report set aside for a hybrid commission structure – life insurance product manufacturers CBA, NAB, AIA and TAL have all supported the new measures.
Commonwealth Bank group executive of wealth management Annabel Spring said the bank has worked with advisers and industry group to “help deliver these reforms” which, she added, will “transform insurance and advice” to deliver long-term benefits for clients.
“The phased commission changes provide clarity for advisers as they adjust their business models to enable them to continue to meet the financial needs of all Australians, and we are committed to ensuring advisers are supported as the changes are implemented,” Ms Spring said.
NAB Wealth group executive and chief executive of MLC Andrew Hagger said the reforms “represents a positive step for the industry”.
Mr Hagger added that the “complex process” has benefited from the “guidance and leadership” of Assistant Treasurer Josh Frydenberg.
Life insurer AIA Australia chief executive Damien Mu said the proposed framework will have a “significant impact” on the life insurance industry and in particular on advisers and, as a result, support from life insurers for advice partners will be “critical”.
“We will need to work more closely together on issues like product design, structure, process and systems and believe that a partnership approach, now more than ever, will be paramount to achieve a successful and sustainable outcome,” Mr Mu said.
“For consumers, we believe their best interests are served by having a robust market that supports choice, access to quality advice, independence, innovation, competition and value. We believe the reforms support these interests,” he said.
Expressing his views on the reforms in ifa sister title Risk Adviser yesterday, TAL chief executive Brett Clark said the reforms were both “balanced and significant”.
“TAL supports the reform package and the industry’s recommendations as an important step forward for the life insurance industry.
“[The reforms] are designed to provide a way forward for life insurers and advisers to work together to deliver a sustainable and high-quality life insurance industry for consumers,” Mr Clark said.
Did some filing this arvo. Found an article in Risk Adviser dated 14April in which Trowbridge was interviewed. by Aleks V.
Surprise, surprise, Mr T was quoted as saying “submissions from advisers convinced him that extending the “responsibility period “for commission clawbacks was not a good idea “
He then said “it is hard to administer clawback and it is very tough on the adviser. It ( the FSC version of clawback ) is put forward as a solution to the churning problem but I don’t like it “
Both Trowbridge & FSC did not want hybrid
Tell me if I am being unfair here. It seems the AFA/FPA, supposedly representing risk advisers, were so soft in negotiations that they conceded to the FSC on clawback in order to get 80/20.
BUT ONLY FOR ONE YEAR !!!!!!!
Trowbridge will keep an eye on his ‘reforms’ to ensure that the profits of the insurance providers increase dramatically, as over $200 million per year is transferred from adviser practices to the providers.
That was whole intent of his ‘reforms’ and the outcome.
Oh, and advice for clients will decrease dramatically, leaving them worse off… but that’s ok – as long as the giant companies make more money.
Rather than trying to truly address churning, his goal and outcome became a lot broader – how can we raise the profits of the providers by taking from all risk advisers (and maybe along the way take steps to addressing churn?).
I would suggest that reviewing the reforms should involve checking to see if premiums become more affordable to clients, and if MORE clients are getting good advice… but who am I kidding? The review will just check the Profit and Loss statements of the providers to determine if his changes are working 🙁
Hi Russell & Rodger,
I sent all my comments onto Josh Frydenberg inclusive cc him into an email I sent to General Manage Aon Hewitt Financial Advice – Jason Walker of which I have been completely ignored. I get the distinct feeling they are just running to the hills or crawling under a rock – after all these changes will not slash their revenue/income. However what ever it takes to assist to make our point heard I will do so.
COPY IF COMMUNICATION TO JOSH FRYDENBERG (excluding some personal information)
Hi Josh
Understand how busy you are BUT I need to meet with you to discuss the implications of the Trowbridge Report and subsequent outcomes. I have been in the Industry for 47 years and I have run the distribution of two Public Companies with hundreds of financial advisers.
I can meet you in Melbourne or I will fly to Canberra to discuss.
Can you please have someone contact me to arrange a suitable time.
This is an urgent issue!
Many thanks and take care.
Roger Smith
Sent from my iPhone
Great to read my fellow advisers’ comments. Why don’t we all send our comments directly to Josh Frydenburg??
Email:josh.frydenburg.mp@aph.gov.au or mail to :
Honourable Josh Frydenburg MP
The Assistant Treasurer, PO Box 6022,
House of Representatives, Parliament House, Canberra. ACT. 2600. It cannot do any harm!
Stuart Palmer, I couldn’t agree more.
Thing is that those churning and providing bad advice in the past have probably built up a huge book of ongoing business that will be unaffected by these changes… They have already made their money with no repercussions and latest changes hurts the small businesses most.
These ‘fixes’ such as opt in etc I do not agree with the concept but grandfathering such things doesn’t make any sense. Why change things in order to prevent the past from happening yet not actually disadvantage those who were the problem.
I personally feel that if everyone is serious about this then disclose your full name not just “first name or nickname” Be proud of who you are and what you stand for indicate your full name on the comments!!!
I am more than happy for my comments to be forwarded to anyone that is prepared to listen to what I/we have to say after all it is affecting us advisers future the likes of John Trowbridge is deciding our future – all our comments should be going to as many departments as possible even Trowbridge – Josh Frydenberg.
If you guys are happy I am copying your comments to Frydenburg…Stuart Palmer, Margaret,peej, Mattie, Roger Smith (hi from Leggy) Paul. He didnt respond to my email last time but maybe he’ll get the gist of our feeling.
We must stand united to stop our industry being the fall guy for the big end of town who dictate to gov via lackeys (Trowbridge).
[quote name=”New Start”]How about this for an idea?
Every Risk adviser in the country puts up some $ ( I’m not sure how much will be needed here) lets say $5k-$10k per adviser ( newbies not included), we form a new insurance provider .
this is what the actors in Hollywood did when the movie studios sought to control things, hence United Artists was born
maybe Dick Smith can be on the Board? it will have a uniquely Australian bent, and will also have a superannuation company as well. if I am going to get paid rubbish income, I would at least like to do it with a company I own[/quote]
Or a costitunional challenge!?
One way to reduce our cost of getting business on the books is to pass every new business proposal over to tele-underwriting. Let the Insurance companies pay for someone to follow up on all underwriting, they take money from us, let them pay to get it on the books.
Me Again:
I cant understand for the life of me, why the industry keeps protecting these so called advisers that CHURN business knowing full well within the industry who they are. Life Offices should not accept their business, Brokerages should remove their licenses and ASIC should be made accountable for allowing these people to still operate within the industry. Like all industries there is many a bad apple which makes the passionate ones and those doing the right thing especially for their clients suffer.
Perhaps if enough of us bombard this site with our views we may possibly be heard spread the word.
Mr Trowbridge seems to rate himself quite highly.
Insuer sustainability is easy-get out of Group Super
Is it just me or have we all missed the point? What other industry has its income regulated in such a heavy handed and draconian way? Not knowing how much income you will actually earn on a policy for 3 years because it is totally out of our control beggers belief. I thought small business was the backbone of the country.
How about this for an idea?
Every Risk adviser in the country puts up some $ ( I’m not sure how much will be needed here) lets say $5k-$10k per adviser ( newbies not included), we form a new insurance provider .
this is what the actors in Hollywood did when the movie studios sought to control things, hence United Artists was born
maybe Dick Smith can be on the Board? it will have a uniquely Australian bent, and will also have a superannuation company as well. if I am going to get paid rubbish income, I would at least like to do it with a company I own
now we will see just how many advisers can survive into the next 3 years. more importantly, how many (employee) adviser’s will keep their job, along with support and admin staff
I’ve had similar experience to you Mattie. Most people are simply unwilling to pay fee for service for insurance advice. It’s a completely different mindset for people to pay $2,000 fee for advice on $200,000 super/investment, to paying $2,000 fee for advice on $2,000 insurance premium.
I know some advisers are doing fee for service, but most of the examples I’ve heard of are effectively cross subsidising from high asset based or SMSF fees.
The likes of Mr Trowbridge, Josh Frydenberg and other government bureaucrats that sit in their ivory towers and decide the future of us insurance advisers and taking our livelihood away from us. How would these idiots accept having their salary slashed and be demanded to accept reckless change. In fact I would like to see these people do a stint out on the road doing what we advisers do on a daily basis and see if they can survive.of which I very much doubt. Why dont we look at the following industries based on commission and see how they would tolerate it:
Real Estate agent sells a house to a purchaser and tells them they must stay in that house for 3 years otherwise if they sell the real-estate agent will have to reimburse his/her commission to the vendor.
OR
Car Salesman sells a car and tells the purchase again he/she must keep that car for 3 years because if it is sold prior to the 3 years he/she will have to reimburse the dealership commission paid.
I have been in this industry for 32 years and I am totally disgusted as to what will probably be implemented. If the 3 year responsibility period comes in, I like many will be seeking alternative employment in another industry.
No one mentions what we have to obtain to retain out license.study throughout the year obtaining 30CPD points to keep up to date with changes etc within our industry.
All advisers in our industry should write/email grow some ….balls and speak up, stand united for what is right to avoid these people walking all over us and making decisions that effect us all! Even consideration to boycott submitting any business for a lengthy period and see how the Life Office would like that. BDM’s would be on our case as their jobs would be on line. These proposed changes will have an impact on our industry and will have a tsunami effect. Batten down the hatches.
Mr Trowbridge was reported to have filtered-out all dissenting voices from his Committee in his report. The whole thing has been an institutional orchestrated deception from the start. Even the AFA walked away from Trowbridge. Trowbridge is just a mouthpiece for the large institutions who are immune from these changes because they have their advisers on a salary, and also happen to be the primary organisations responsible for conflicted advice. We understand that high upfronts are not sustainable, but Hybrid 80/20 should have been where this landed, not 60. There is no doubt that these changes are designed to squeeze-out the independent advisers in favour of the big end of town such as banks who have done nothing but sully the industry with their high profile advice failures, Senate enquiries and large compensation payouts to their victims. Insurance companies can now raise their renewal premiums beyond client affordability (as some have done recently) and when the client cancels or wants a better option, it will be the Adviser who wears the clawback for three years. Reverse selection (clients cancelling in the wake of large price hikes) accounts for far higher lapses than churning by unscrupulous advisers ever has. Now the insurance companies are free to gouge the client. Australia suffers a chronic underinsurance problem which is a massive liability on the public social security system. If you want more people insured with non-conflicted insurance advice, then you should be encouraging your third party distribution, not sitting in your arm chairs making decisions to bolster your own organisations, reducing choice and killing off the competition.
Absolutely in the same boat as reality. This entire year of starting fresh, I’ve given every client the choice on commission or fee based advice for risk. Not a single one has taken fees, even though they’ve seen the (example) projections. Honestly, I would love to think there is a future for not just the well off of Australians to pay for advice, but I don’t see it. It’s either that, or I’m just not a good enough salesman to tell people to pay me 3k for insurance that will be 1400 a year.
trowbridge really got his way do the maths boys 60% max commission with 60 and 30 clawback years 2 and 3 its a 20% commission really if it lives 3 years otherwise we EARN WHAT PADDY SHOT AT.
[quote name=”Russell McConachy”]Stay out of it, John. You have caused enough damage already! You will only find a massive decrease in the number of decent, honest risk advisers and a seriously under insured Australian society. Then, we will start again and actually address the problem! Where else in our society do you see legislation for massive reduction in pay?[/quote]
Good to hear from you Russ – take care Roger
3 year responsibility period – consider this!
We did some business on a client 12 months ago. Not replacement business, New Business. His premium has now come up for renewal (10/7). Premium Increase on a 45 year old of 23.6%. At this rate his premium will double in just over 3 years. How can I accept the newly “negotiated framework” when some premiums are doubling every 3 years. This puts into question the client’s ability to maintain the policy.
3 year responsibility – GET REAL!
Hi Roger,
I was probably just venting. 99% of advisers are great HOWEVER there are a select few advisers in town that everyone (including all the insurance BDMs) knows are the reason these reforms come into place. They absolutely do churn, provide advice without SOAs by getting a client to sign ‘execution only’ etc…
It is a joke that they continue to make plenty of money while those doing the right thing get plastered with these changes. I can only assume that now a couple of them will now just choose to either sit on or sell their large book and laugh all the way to the bank.
If ASIC did their job OR the insurers hung these people out to dry I think these changes would have been avoided…
Roger, you are so right mate. Our (un)representative bodies haven’t even contemplated this. Must be because they aren’t reliant on commissions to keep their heads above water, no licence fees, PI cover to pay. Thinking of speaking to my staff about clawing back their salaries where they have worked on cases that lapse within three years. Is fairwork going to agree with this seeing as this ruling is soon to be applied to me?
I’m thinking of introducing a sort of user pays model in my business now…bear with me.
Phone rings: Hi, it’s XYZ, your friendly insurance BDM. Can I come and see you to talk about all the enhancements we’ve made to our products?
Me: sure, that’d be great. Just so you know, I’m now charging BDMs for my time. $440 ph is the current rate. I’ll shoot the invoice out today, and once it’s paid, we can set the time.
BDM: um, no, we can’t do that.
Me: Surely you haven’t forgotten that your company is an fsc member, and they want insurance advisers to move to fee-for-service, so that’s all I’m doing, implementing a full fee/user pays service.
BDM: We didn’t really agree with the fsc, we want to support you.
ME: great, you can support me by paying me for my time…
I just wonder how long it will take for my licensee (who has been completely silent on these proposals so far) to then tell me I can’t charge BDMs for my time.
Reality – It’s disappointing to hear that you have been forced to make such a decision. Things do happen for a reason so hopefully things will work out extremely well for you. One point I do need to make is that this Industry has never been a gravy train. It’s an Industry that has rewarded people well for their hard work nothing more, nothing less. Good luck!
Attention Mr Trowbridge:
You were paid to do a job and you have done it – i.e. put the FSC’s case in your report. Your 15 minutes of fame are over.
Crawl back under your rock and wait till the job the FSC has promised you starts before sticking your head up in public again.
Has anyone ever seen a requirement on an SOA to disclose the retention period? Maybe this is what will now become a major focus on future SOA’s. It might go something like this.
Mr/Mrs client, the remuneration that I ACTUALLY earn may be nothing like that stated in dollar terms and percentage term in your SOA. In fact I could well earn absolutely nothing and after the “one sided” recent negotiations in our Industry if I (survive) a period of three years I will in fact receive the amount stated in the SOA. If you for whatever reason change your mind or if the Life Office rejects your application I will earn NOTHING. If you become influenced by someone else in the Industry to change over servicing to them they will in fact get my future remuneration BUT I will be holding the responsibility for the 3 years anyway. Have I made the issue of remuneration clear enough or would you like to speak to John Trowbridge. John’s remuneration is much simpler to explain – it is based on 100% of what he earns he gets to keep – like most other Australians who work hard EXCEPT RISK ADVISERS. You asked about what I have to pay tax on. Well it’s interesting that I have to pay tax on 100% of the income I receive even though there is quite a strong possibility I won’t actually get to keep it and I cannot make provision in my business accounts for that contingency. Sorry what was your question? Yes, asking why anyone would be stupid enough to work under those terms and conditions is a very valid question. The only thing in my favour is that my life expectancy (keep your fingers crossed) is 19.2 years, so it looks like I will have to make a business decision to stop writing Insurance policies at the latest in 16.2 years but perhaps it will be a lot sooner than that.
I have gone from starting my own financial planning business shortly to looking to transition to a different part of the finance industry completely.
It is so disappointing that I can honestly put my hand on my heart and say I do the right thing by my clients but can no longer do this charging a reasonable fee. I am not a charity and can’t absorb the costs to provide advice to the everyday Australian. I got into the indsutry too late and missed the gravy train so don’t have a big book of clients to get my started.
These changes or opt in/FDS effect those who were doing the wrong thing previously the least… They already have a big book of clients to fall back on.
I have given 27 years to this industry and this the thanks I get.Everything is going up in price but we the adviser who provides the business to the insurance companies are now expected to take a pay cut.Modern slavery,the Insurance Companies get richer and we get poorer.
What further reforms is this clown proposing.
Perhaps personal risk cover should all be written under a general insurance licence and do away with all this SOA rubbish.
Why should we suffer if the client churns of their own doing?
This is the only field where earning an income is evil. Does the doctor have to disclose the remuneration earned from a referral? Does the chemist have to disclose the margin made on recommending home brand vs big phrama
Stay out of it, John. You have caused enough damage already! You will only find a massive decrease in the number of decent, honest risk advisers and a seriously under insured Australian society. Then, we will start again and actually address the problem! Where else in our society do you see legislation for massive reduction in pay?
John Trowbridge making any comment at all defies belief.
“The review in 2018 will enable residual remuneration conflicts, quality of advice questions and industry effectiveness to be re-assessed at that time and FURTHER REFORMS TO BE UNDERTAKEN”.
The architect of a report that was so completely unworkable and designed to destroy businesses and then told advisers they were not to blame, has the ego to actually state there WILL be further reforms in 2018, when the review is 3 years away.
It is even more interesting of course when you read the FSC’s submission to John Trowbridge dated 5th Feb, 2015.
In the section titled “Remuneration” on page 5 of 11,section 7 it states…
“Reviewing the application of this proposed model by 2020, with a commitment to consider alternatives if the proposed model is failing to achieve it’s objectives”.
The FSC’s proposed remuneration model under this same section recommended to Trowbridge….”Move to a level percentage so that upfront commissions for life insurance is no greater than ongoing commission on an industry wide basis. This level should be lower than current market rates for level commission arrangements, for example in the region of 20 per cent.”
Is it just me, or does John Trowbridge and the FSC appear to have an awful lot in common?
At the end of the day, there will always be advisers who rip people off. Just like people who speed, steel, take drugs and shoot people. Do you really think you will stop these type of advisers, no you carn’t its in there dna.
I am reminded of the Adage “S(He) who controls the money makes ALL the rules.”
Maybe it is time for a paradigm shift. We advisers SHOULD be controlling the money and be making the rules, except we have ‘allowed’ the money to be controlled by the big end of town. Should we be thinking about how we ‘charge’ the INSURANCE PRODUCT PROVIDER for the hours we do put in on their behalf. What if we had a ZERO commissioned product but the ability to add an amount to the premium much like a retail store could? Then we are no longer earning commission and there is free competition to charge the client upfront or the charge the client a percentage ‘mark up’? Perhaps our organisations or a new one need to have a robust discussion around these and other ideas that I am sure are out there?
A 20% reduction in commission payments and the ability to claw-back money from small businesses for up to 3 years. What’s not to like if you are a big insurance company! The poor old consumer though, what do they get out of this? Fees on top of premiums and independent advice will be harder to find. The direct channels of the life insurance companies will be rubbing their hands with glee. No FOFA red tape, no pesky adviser to scrutinise the quality or price of the policy. Yeah! They can fleece the unsuspecting public with CRAP direct policies and forget about these annoying independent advisers. Choice, Trowbridge, AFA, FPA, Parliamentarians, you should all hang your heads in shame. It’s a bloody disgrace. As for the life insurance companies, with their bullshit emails yesterday celebrating this as a win for insurance advice, well, we have long memories.
Im not going to be working in a industry where you may give your pay back sometime with in the next 3 years. I guess I have 6 months to change industries. This is bullshit. It only promotes the advisers working for wages. Ie banks.
[quote name=”CFP”]Actually Teddy, clients will continue to pay more. IOOF (TAL) group life rates going up between 35% and 75% from 1 July, despite their support of reforms. Probability of them changing that- 0%.[/quote]
I think you mean 35% – 85% 😉 But those increases are unrelated to the reforms.
I meant clients won’t pay less as a result of these reforms, despite the ‘reforms’ being made under the guise of benefiting clients. Same costs to clients, and less advice on offer is the result.
Premiums will continue as they normally do, with the new reforms having no impact on them at all.
Tell Trowbridge to get lost, he got paid to present a report, done. Not a very constructive one, none of his revenue model adopted, so go away you boring little actuary!
So when insurance companies don’t reduce their premiums and this makes no difference to the industry except taking profits away from advisers will Trowbridge admit that his report was a failure?
Yep it is those who can least afford the advice that loose out, those with smaller insurance requirements where time to meet clients best interests will likely be less than the income.
I just wonder when the government is going to start looking in some other professions and consider if the income they are earning is reasonable for the advice/service they provide, it bothers me when you hear of sick people that could have treatment or medication but can’t afford it!
In the spirit of this mandatory ‘tightening of the belt’ and regardless of the obvious financial distress these changes will cause to the majority of hard working risk advisers, I would like to propose that Josh Frydenberg and John Trowbridge both have their salaries reduced by 40% immediately. After all, if there is an occupation that needs ‘cleaning up’ more than the vast majority of politicians and their puppets, I am not aware of it.
Actually Teddy, clients will continue to pay more. IOOF (TAL) group life rates going up between 35% and 75% from 1 July, despite their support of reforms. Probability of them changing that- 0%.
Bigger off trowbridge you have done enough damage and sold out an industry for 13 pieces of silver…
“At the same time, product manufacturers, who largely remained silent during the heated debate over reforms of the retail life insurance industry, have come out in support of the new proposals.”
Well yeah – the reforms are about taking $225 million pa from advisers and redirecting these funds to the product manufacturers. Of course they support it. They got exactly what they wanted.
Meanwhile, the client pays the same amount, but will be receiving less advice on insurance (or be made to paid more i direct upfront costs to receive insurance advice).
Scoreboard: Big Providers: 1. Clients: 0 Advisers: -1
So the insurers with the most expensive products, and the insurers with the most union super business, have “warmed” to it. No surprise since it provides a barrier to switching clients out of overpriced policies, and will generate more business for products that rely on advertising rather than advice.
I look forward to hearing an alternative point of view from the more progressive insurers.
How about a trade-off or have we already signed the contract in blood? Remove the requirements for a risk SOA on annual premiums under $2000. Give us something at least, now that you’re “churning” issue is “fixed”. A 2 page template ROA perhaps.