In an email to shadow treasurer Angus Taylor, seen by ifa, AIOFP executive director Peter Johnston said he put forward the association’s main concerns in hopes of reaching a “bipartisan outcome” on what it sees as the key financial advice issues.
“We are pleased you both recognise that your previous government had treated our industry poorly and despite most of our team being former Liberals supporters, we had no choice but to defend ourselves against your legislative brutality and determination to unfairly reduce adviser numbers,” Mr Johnston wrote.
“We were highly supportive of Mathias Cormann and his team leading into the 2013 election with fund raising and technical assistance. We will support any government that acts in the best interests of our members and their clients, conversely, we will defend our members and their clients where necessary.
“Our objective over the next 12 months is to get a bipartisan outcome with three critical issues leading into the next election. We have also given these views to the minister’s team and believe whoever comes out publicly first will get the immediate support of our industry.”
Returning the structure of risk insurance to pre-Life Insurance Framework (LIF) conditions was the first issue on the AIOFP’s agenda, with Mr Johnston arguing that there simply wasn’t a need for the wholesale restructure of the risk insurance framework that came from LIF.
“Back in 2014 the institutional lobby had decided they wanted to go directly to consumers via digital/robo/direct sales and wanted advisers out of the consumer relationship,” he said.
“A ‘justification’ story was concocted around lowering the cost of insurance premiums for consumers by reducing commission from 120 per cent to 60 per cent and eliminating ‘churners’ (advisers who regularly move clients from one company to another).
“This 50 per cent reduction in commission was then met with additional unnecessary compliance requirements rendering risk advice uneconomic. We believe there are only around 200 pure risk advisers left in the market.”
The end result, Mr Johnston argued, is that there is a lack of fresh capital being injected into insurance pools, which has led to premiums “doubling for existing policyholders, policies getting cancelled and our national underinsurance problems worsening and thought to be well over $2 trillion”.
“It is an unmitigated disaster that needs urgent attention,” he said.
“The risk industry structure was ‘NOT BROKEN’ pre 2014 but arguably needed some minor adjustments. We think the market has accepted that risk commission is here to stay but that is not enough, it’s on its knees under the current structure. Keep the cap to mitigate conflict but it must go back [or close] to pre-LIF conditions.”
Pointing to the UK and New Zealand markets, which he argued had also attempted to eliminate risk commission over the past 10 years only to see commissions back to 240 per cent and 180 per cent, respectively, to “revive the market”, Mr Johnston said clients should be given choice.
“We suggest advisers should be compelled to give consumers two risk remuneration proposals, a fee for service and a commission option, let the consumer decide – not bureaucrats in Canberra!”
TPD is now the target of huge price increases with insurers. So now they are gouging TPD along with IP. What is the end game here?
The insurance pool needs to increase yet nothing is being done to address it.
Also, why isn’t insurance via superannuation funds more expensive, especially non-underwritten cover? Their IP even contains more generous Total Disability definitions than all the retail IP policies.
Maybe the all mighty Master Of the Risk Insurance Universe, John Trowbridge may have some enlightening ideas on how to fix this massive problem ??
We have had a few cases where clients have totally declined any advice due to charging modest fee on top of the insurance comms, to help cover the cost of advice. Some have actually commented that they never had this trouble (paying a fee) in the UK or NZ when sourcing cover.
It’s not the level of commission that is the root cause of the problems with risk advice, but the overly-prescriptive compliance burden placed on anyone brave enough to give risk advice. Solve that conundrum and the industry will recover very rapidly.
Peter Johnston wants to live in 2014..In case you didn’t know since 2014 we’ve had FASEA code of ethics, a Royal Commission, and the obligations of a fiduciary and messages of the FOFA reforms introduced in 2012 have been received.
What does that mean… It means Life insurance is dead… No amount of commission could get me to “sell” life insurance in the current regulatory red tape world and the bad legislation.
To quote a Compliance head “anyone providing Insurance Advice is a ticking time bomb”… Not just me saying it… No one can possibly provide Life Insurance in 2024 in a way that meets 2024 regulatory requirements.
What’s needed is a fix of bad legislation.
Yes, we need ethical advice with insurance cover. So the question needs to be asked, is that in the Best Interests of the Client (or the family left behind) to remain uncovered? Maybe not.
I would be the first to agree that a degree-qualified graduate, if he/she conducted due diligence, and took advice from old hands, would NEVER enter our industry as a risk-only adviser. A 35 page SOA to sell $1m of life cover, for 2/3 of SFA, is the killer. Then you have to pay the ASIC levy which somehow won’t be paid by the industry funds providing “general advice”.
Some of us keep going because, despite the BS, ,we are passionate about what we do. There are no longer any standard lives, reinsurers rule the world. Insurers have reduced processing numbers, and at the same time are illegally offering up front 25% discounts, but the adviser is required by ASIC to project premiums for 10 years, when NOTHING can be guaranteed past Year 2. Gouging is the order of the day.
Funnily enough, the industry might be killed off by its ombudsman – AFCA. Two recent outrageous decisions (Teagle v Resolution Life) and an MLC complaint where a trauma benefit was paid after the policy had lapsed because the trauma event was found by AFCA to have been diagnosed while the policy was in force, could rapidly force up the cost of life insurance yet again. You couldn’t write a script for this stuff!
I offered the option in my SOA’s from 2015 onwards to 2019ish. I stopped wasting the 2 pages in SOA at point when not a single client opted for fee only. Which mind you was priced way too low at $1,800 initial $800 ongoing.