In an effort to “better align the interests of financial firms with those of consumers”, the FSI final report has waded into the controversial debate around life insurance commissions, recommending changes to the remuneration status quo.
The report recommends the government legislate to prevent financial advisers from receiving upfront commissions on life insurance products that are greater than ongoing commissions, thereby seeking to reduce “incentives for churning” and improve quality of advice.
“In light of recent evidence, the inquiry is concerned about high upfront commissions for life insurance advisers,” the report states.
“This has been a longstanding industry practice reflecting that life insurance has higher arranging costs, such as managing the underwriting process, and that consumers are often not independently motivated to purchase life insurance.”
Referencing ASIC’s damning review of the risk advice sector, the report says that “to date” industry approaches to self-regulate the industry have “not worked”, leading the FSI committee to conclude changes are necessary.
“The inquiry recommends a level commission structure implemented through legislation,” the report concludes.
“This would provide a balanced and cost-effective approach to better align the interests of advisers and consumers.
“The remuneration model needs to be sustainable; otherwise there is a risk that providers may exit the market, making it more difficult for consumers to obtain life insurance advice.”
However, it adds that “at this stage, the inquiry does not recommend removing all commissions” and that the percentage amount of the level commission is a matter for the industry to decide.
It also urges the government to heed the findings of the AFA-FSC working group on life insurance.
ZRisk is NOT wrong re the banks wanting to sell direct, without advisers, on General advice basis
Money for old rope!!!!
ASIC is on that bandwagon, regardless of the demonstrable poor quality of insurance now being sold direct.
Rember, our “friend ” senator Cormann ‘s amendments to FOFA were designed to allow just that. I & a few others raised it, but the AFA & FPA were stone bloody quiet.
Imagine the banks profits if every life policy had a 2 year pre-existing exclusion !
This sounds like Mr Murray still works for the bank, it does not work like he thinks, my running costs are about $300 per hour and to do the right job it takes around 10 hours, if the premium is around $2000 I have lost money so I wear it, a level commission would not even pay my hourly rate.But what if the client cancels the policy in the first year and the insurance company takes back 100% do we complain no we wear it, so Mr Murray how about you listen to both sides of the argument.
ZRisk you’re wrong. plenty of us IFAs rebate risk commissions and are doing fine, clients love that we are on their side, sure there are initial sacrifices but its sweeter on this side. join us
What a load of rubbish. No adviser can survive on 30%
upfronts. I work for a bank and sick of being tarnished by
a rubbish media and regulator. Have always looked after clients, why are we all in the spotlight and not the Cowboys.
The banks are colluding with the regulators to come in and
sell direct. They call this “risk minimization” and will cut out
advisers weather employed by banks or IFA.
Oh nice…..30% of a $600 premium is $180. That’s one hours work to do a 40page SOA, two client appointments, applications, follow ups etc. Call me The Flash.
Cut the regulatory paperwork crap and I’ll be happy to take 30%.
At our AFSL we have just conducted an internal review of insurance given ASIC’s recent report. I personally don’t believe that there is anything wrong with upfront if disclosed as required by law and indeed the client is then not subsequently churned.
In any case we have accepted ASIC stance and have made Hybrid or Level the only available structures within our AFSL. There is an opportunity to get exemption to do upfront if the circumstances warrant on a case by case basis.
it will be interesting to see what the life companies say about this. ??
Looks like another believer in the quality of the ASIC report. Looks like there may have been just a little collusion as to the timing of ASICs release. Were there any other colluders ? The FSC. Insurers?
Looks like Mums & Dads ( aka the great Australian middle class ) must look after themselves if this gets up. I wont be able to afford to talk to them on 30% of premium in the first year and they wont pay $2500 fees for my advice & efforts, particularly when its not tax deductible
The direct sellers will love it. Watch ALL the banks set up direct floggers
It is difficult to comprehend the naivety of David Murray’s FSI’s suggestions,that the level of upfront or initial commissions should not exceed ongoing commissions. It comes off the back of an entirely flawed ASIC report that used methodology and samples designed to produce an already intended outcome.ASIC took an already skewed sample representing a minimal percentage of total adviser numbers and then went about labelling the industry as a whole using terminology such as “damning” report etc.
The so called “churning” issue can be easily controlled by the insurers if they actually want to (questionable). The insurers all know the advisers who may employ this practice and so the simple answer is to only allow level commission payments to these advisers or not accept their business at all.
Adviser who are ethical, professional and act in the best interests of their clients AND the insurers should not be penalised because of the few that may not.