Responding to the release of the new framework for the life insurance industry, Mr Handley told Risk Adviser he would like someone to explain the rationale that reducing adviser remuneration will actually lead to better quality advice.
“It’s still very difficult to fathom, however, that by any deductible rationale reducing an adviser’s income suddenly creates an environment to improve the quality of advice,” Mr Handley said.
“Better quality advice is about training, education, leadership and culture.
“It has nothing to do with remuneration whatsoever – would that mean that advice from an accountant or lawyer is suddenly better because they have reduced their fees?” he asked.
Mr Handley added that the “silence” from many of the institutions during discussions of the industry reforms has been “alarming”.
“They have completely lacked the courage to openly support quality advisers,” he said.
“It’s with great interest that we now read [that the insurers say,] ‘we will be here to help you through the change’, [but] we may well ask, where was your help when we needed it the most?
“I hope within the parameters of their own conscious they can answer this question. There are a few organisations [that] can hold their head high,” Mr Handley said.
While there is still more information regarding the reforms to be presented – including how the reforms will be enforced – Mr Handley said he is not certain about what to expect in the final outcome.
“As for expectation of outcome, at the end of the day we were not actually sure what to expect,” he said.
“We certainly had our view on what we felt was reasonable and during the process we consulted heavily with all stakeholders, including John Trowbridge, the AFA, FPA, the institutions and Assistant Treasurer Josh Frydenberg.
As a young associate trying to work my way up through the ranks and become an insurance adviser, I cannot see how I will now be able to make my start. The cost/benefit while building up a client base and renewal commission no longer seems possible and I am seriously thinking that moving to another industry is the best idea. I wonder how many others like me will leave. How will this fix the underinsurance issues in Australia?
As others have pointed out, the changes have NOTHING to do with better quality outcomes for the clients.
The entirety of the exercise was to transfer money from small business to big business, from advisers to providers.
Beyond the wishy-washy vague intentions to improve advice for the client, there has been absolutely NO meaningful case put forward as to how clients are better off.
The providers pocket more money and will not pass on savings via premiums to clients. Provider profit increases are a transferring of wealth from advisers, who will now provide less insurance advice. Underinsurance gets worse. Advisers can pass the costs onto clients, but that means clients bear the impact of the provider money grab. Either they pay more or won’t be insured. Loss/Loss for the clients. Somehow Trowbridge and the providers argue that if advisers receive less income, the quality of their advice will improve, but have never bothered to suggest how this is meant to happen.
The providers and our professional bodies are now telling us to ‘face this challenge’ and become better at selling in order to get the client to bear the cost so the provider can benefit.
Given the recent FOFA changes which incoproate Best Interest Duty were only recently introduced surely a review of how these laws were impacting upon the quality advice was warranted before making further changes.
If the letter of law under FOFA is followed the undesirable sales practices are not legal. Maybe the simple answer was in enforcing the existing law that was in place.
Couldnt agree more with Des.
Some of you need to take a step back and look at yourselves.
Your limited grasp of the ASIC report stuns me. It was a set-up who was selected, most of the alleged breaches were known before the checks were made. I cannot believe you believe a report from a conflicted, incompetent, ASIC .
Well said Wayne.
Crap
To Des Luplau
You may have missed it but 3 weeks ago in this forum and others statistically minded contributors demolished ASICs assertion of a statistical correlation between high upfronts and “poor “advice. The ASIC report was a polemic – they had an position in their mind re wishing to abolish commissions in risk commissions and went looking for justification
Wayne you are spot on. The simple fact is that the execs in the big institutions do not support quality advisers because they do not understand their value proposition. They try to invent simplified service models for their employed advisers which misses the point. The successful quality advisers typically have as much experience at managing client relationships as the execs do at managing their people yet the execs seem to think that they can replace the decades of experience of quality advisers with graduates. Perhaps they should consider whether they would replace themselves with graduates. Better still ask the quality advisers to explain their value proposition rather than creating their own client value propositions ( often based on the misconception that every client has the same needs as their own ! )
Wayne is entirely correct. This whole exercise by the F.S.C and others has duped the government and my Frydenburg into achieving a better outcome for the banks and large insurers and has always been about achieving their own ends, again we have heard little or nothing form any insurer about any reduction in premiums and how this will be passed onto the consumer. Insurers are now saying this is how we will invest in your future, “we will be investing $110 Million into making advice easier to deliver”…Bollocks….if they can afford that investment now where is it coming from ? the unsustainable cost of insurance that they have been ranting about?, they cant invest that and drop premiums so they obviously have no intention of dropping premiums. Its never been about unsustainable costs, its been about low profits. Wayne is spot on, good advice is about education, culture and leadership, the Dealer groups except for a few have been quite in this area as well. Their focus on recruiting new advisers to dealer group to achieve scale no matter what their quality is a a issue. The culture of “New Business” which drives dealer groups and insurers is also part of the problem. I for one will be reassessing every insurer and looking closely at those that have silently supported this outcome and as long as it meets the best interest of my client putting business with those insurers who supported advisers. I strongly urge other advisers to do the same and send a message to those that kept silent on this issue.
Mr Handley obviously needs to read the report from ASIC clearly showing the completely opposite findings in relation to the quality of advice where commissions are concerned.
“The way an adviser was paid (e.g. under an upfront commission model compared
to a hybrid, level or no commission model) had a statistically significant bearing
on the likelihood of their client receiving advice that did not comply with the law”.
Well said! Everyone I asked why the trail percentage has been limited to a maximum of 20% has been unable to provide an answer. There are clearly ulterior motives to these changes. Perhaps the assistant treasurer would get better buy from advisers if he could explain the logic behind each of the changes and what metric they are going to use to measure whether these changes are a success or not.
My guess is that Mr Frydenberg thinks that these changes will drive lower prices (although this was never publicised as the purpose of the changes).
Seriously Wayne, why are you surprised. The outcome is clear and heavily driven by the product providers. Within five years, the industry will look like it was 30 years ago, all employees and/or tied agents.