The framework covers 14 point proposals, firstly one to introduce a hybrid commission structure with a maximum upfront commission of 60 per cent of the premium in the first year with an ongoing 20 per cent renewal commission.
Starting from 1 January 2016, upfront commissions will be capped at 80 per cent and then reduced to 70 per cent from 1 July 2017, before settling at 60 per cent from 1 July 2018.
Also agreed to was a three-year retention or clawback period to commence on 1 January 2016 and a ban on other volume-based payments with appropriate grandfathering arrangements consistent with the FOFA laws.
Life insurance companies will also be required to offer fee-for-service insurance products to support advisers who wish to operate under this model.
The proposal also outlines that the government is to consider measures to widen dealer group approved product lists by 1 July 2016.
Also proposed was the introduction of a Life Insurance Code of Conduct which is to be developed by the FSC by 1 July 2016.
Commenting on the new framework, AFA chief executive Brad Fox said the final position represents a compromise that, while challenging, is at least workable for most advisers.
He added that it offers a package of measures and a transition period that will see advisers, licensees and insurers share the responsibility for improving the outcomes of retail life insurance advice.
“This has been a very difficult eight months,” Mr Fox said.
“The ASIC Report created an opportunity at the outset for industry to come together and seek a solution to the issues raised without having government dictate the measures. Our intention in this process was always to find a united industry solution.”
Commenting on the remuneration proposals, Assistant Treasurer Josh Frydenberg said the government “welcomes the significant reform package” from the AFA, FSC and the FPA.
“Having previously expressed my preference for industry to develop genuine solutions to the problems identified in ASIC’s Report 413 Review of Retail Life Insurance Advice (2014) rather than for the Government to act unilaterally, I welcome industry’s response.”
FSC is a organization that donates to political parties and tells us how to work for free, there main funding sources which must be the Banks/Insurers and if you look at there board you will understand what I am saying, the AFA and FPA have been sucker punched into agreeing with a threat of government intervening on insurance, which is unconstitutional for any government to say what a person should be paid unless they are employed by the government. Advisers need to stand up on these issues now.
Or get your assets out of your names because in 2 to 3 years you may be going bankrupt from people who may have to cancel policies and all the work you have done will be for nothing.
Love it. Bring it on.
Has anyone sat down with Josh Frydenburg & Co. & laid out the repercussions on the table. If not, I & many others I’m sure, would like to have a chat. This is a huge issue that will affect millions of families in the future. After all, isn’t this what it’s all about? Underinsurance & the impact it will have on Australia. Why does the wrong doing of a few mean that all are punished.
Those who are working at the coal face ought to be asked & heard. This is no small matter
All members were invited to make a submission to the Life Insurance and Advice Working Group on at least three occasions. Over 100 did. The AFA had a member working group on the issue as well as an independent licensee working group. The Board are also all advisers and are therefore an adviser voice. We don’t like the outcome any more than you – but every other outcome achievable would be worse. The political pressure is for level commissions only as outlined in the Financial System Inquiry. The changes are a problem that have to be overcome. Its time to start looking at how this can work – some advisers already are. Clawback is a very tough outcome – Let’s get in solution mode and work out how to deal with it.
As a member of the AFA, I must have missed the survey asking me what I wanted from the association on this issue. Clearly the AFA represents its members in the same way that Trowbridge’s report represented all of the parties it was supposed to i.e. not at all.
What affect will this new Risk Remuneration Policy impact our business valuations.
I am so glad that I never joined AFA or FPA. They don’t deserve our money. They don’t live in the real word. If anything, they should be transfering the focus on the direct TV ads & the lack of diligent advice by the Super funds. Oh, the underinsurance is going to get worse
I agree. Who is able to look after the mums & dads with family. They are already struggling to have someone service them.
I agree
I’ve had time to ponder this since my earlier comment and even spoke to one of the very learned Directors of my Licensee whom I’m very proud to be a part of. He assures me this isn’t as bad an outcome as I first might envisage – although he did agree, its still not a good result for us HONEST advisers. I still have several additional thoughts that I feel compelled to share…
1) I’ll put my kids life on it that while advisers are now expected to drop their income by 30 and 40% over the next few years, NOT ONE insurance company BDM, CDM, Manager or Executive Manager will do the same. You know…”to show us the support they keep telling us they’re here to offer.” Profits will only increase now so guess who benefits!!!!
2) I have suffered a massive loss in faith at the beliefs of the Liberal Party today.
Did you know fellow advisers that on Josh Frydenberg’s very website, one of the Liberal Party’s so-called belief’s reads as follows…
“In government that nurtures and encourages its citizens through incentive, rather than putting limits on people through the punishing disincentives of burdensome taxes and the stifling structures of Labor’s corporate state and bureaucratic red tape.”
If I’m not mistaken, our right to succeed through incentive (voluntarily offered at staggering rates too by the way, by the same life insurance companies that have stabbed us in the back today) has just been revoked through the support offered by Josh Frydenberg and the Liberal Party. As a result, we are now forced to ‘conform’ under a communist remuneration regime that dictates how we can be paid. How very UN-Liberal.
I am subsequently 100% convinced that someone, somewhere has been paid off for this reform and as I’ve said time and time again…”THIS JUST STINKS TO HIGH HEAVEN!”
My business is within the first 6 months of operation and I explained to someone this morning how my upfront income had reduced from 110% to 80% on a policy (ie) a reduction of 30%. It was then asked of me if the premium payable to the insurance company had reduced by the 30% given that this was a reduction in their cost of doing business. Short answer is no, longer answer is that a lack of competition will actually lead to an increase in premiums over the longer term. Under this model I will probably not be here in four years with the only saving grace being that hopefully I can write enough business in the next few years to have reached a reasonable ongoing income as I definitely won’t be growing the business. The other fact is that your ordinary Australian’s (say a premium of $2,000 to $3,000) will no longer receive advice as it won’t be cost effective to provide it so more people will be uninsured and at risk.
ATTENTION ALL ADVISERS WHO HAVE FPA & AFA MEMBERSHIPS!
There’s only one answer to all this that EVERYONE should do! Resign your memberships with The AFA and FPA immediately! If they have no members on their books then they cannot represent us and will CEASE TO EXIST! Don’t think about it, DO IT! This will send the message to them and they will think twice about what they are proposing!
Shame, Shame,Shame I would have thought companies that represent the industry would have an understanding of the industry. This is a bunch of PAYG employees making decisions that doesn’t effect the life they live.
They do not know what the cost of giving advice is or how to run a business only to receive the salary every week for showing up to work and Bundy off at 5.
looks like the big guys will get even bigger and control the market, as you can see with all the attention the big guys have been getting of recent showing us that the people are not getting proper personal advice, they are just a transaction. Its the Small business that has been supporting the people and with this that will be gone.
THREE times the responsibility for half the revenue… wonderful wonderful wonderful.
Best part is, apart from a few, you cannot get a straight answer out of any insurers in regards to their submissions.
Pressure should have and must be applied to the insurers to disclose their submissions to Trowbridge, I for one (and no doubt MANY others) am fed up with being fed bull5hit by various company reps and where they stood on Trowbridge’s original ridiculous recommendation.
Is it compromise yes… An acceptable compromise? NO
Excellent work FSC you must be happy with yourselves, you just made acting in the best interests of the client more expensive… FOR THE CLIENT!!
Where is the product providers responsibility in all of this? During this whole discussion there has never been any talk about reducing premiums. Although this debate is supposed to benefit the client, will it really? Advisers need to run a business with less commission but still keep up with the ever increasing compliance pressures. On top of that they have to do the right thing by the client but be mindful of a 3 year responsibility period, how can this possibly lead to ‘best interest’ of the client. What happens when the insurer jacks up the price significantly to the point that it makes it unaffordable for the client, like we have seen recently, even with level premiums? Why isn’t there any pressure on the product providers to do the right thing. This all looks like a slippery slope with only one side of the industry carrying all the load and responsibility. It remains to be seen if the industry and the government have just created a bigger problem.
IN MEMORIAL
The Life Insurance Industry
in Australia passed away on the 25th June 2015 (suddenly but not peacefully).
The Funeral services will be
held progressively between 1st January 2016 and 1st July 2018.
The Life Insurance Industry was
established in Australia in the 1830s to look after the well being of widows and children and to protect Governments by reducing the welfare burden of vulnerable people on Government expenses .
The Life Insurance Industry will
be survived by what can only be described as a half hearted attempt to placate
the Financial Institutions of Australia.
In lieu of flowers, memorial
donations may be made to the families of all those hard working, well
intentioned, passionate risk advisers left behind in the wake whilst trying to
look after their “clients best interests”.
Our deepest sympathies are extended
to what will become the remnants of a great Industry.
Rest in peace!
Thanks for smiling at us while stabbing responsible advisors, who have small businesses in the back. So clients who have changed circumstances in the 1st three years will be encouraged not to change. How is this the best advice???? Your short sightedness will send so many good advisers to the wall. No discount for clients and this will just push clients to the big banks or no advice rubbish on TV. Big Banks and institutions 1 Clients and advisors nil.
Yes I do emkay. But you may as well accept that things are changing and as one adviser in a sea of many, there is very little chance your voice will be heard. As I said, the proposal is much better than the Trowbridge original ideas. What do you think an upfront payment of $1200 and 20% would do to your business? And combine that with the original proposed clawback period of 5 years!!
Haha – that’s hilarious!
Couldn’t agree more. On the verge of cancelling my AFA membership today as they’ve not represented my view on this at all and rolled over instead.
Who do you unrepresentative swill think you are? All three of you are funded by the banks, correct? The banks win big time with their distribution channels and salaried employees. This is a sell out of IFA and small businesses and Fox et al should hang their heads in shame.
do you understand what a 3 year clawback means? What do you think that will do the value of your business??
I would like to see this 3 year clawback mandated for Financial Planning Advice also – I can hear the scream already!
Perhaps Brad’s salary should be dialled back to 60%, and, if and/or when he leaves, any income earned in the previous three years is clawed back commensurate with the planned claw back regime he supported?
I agree with all of the comments made in relation to the new policy. However, let’s face it – the new risk remuneration policy is FAR FAR better than what was proposed by Trowbridge. Yes it’s going to be tougher on our cashflows, and no the life companies will not reduce their premiums. But at least the risk advice industry is not completely dead. We will all adjust and move on. Now the next challenge is for our licencees and ASIC to streamline Risk only SoAs and the implementation process!
This is NOT representative of my opinion on this matter at all and I feel significantly let down by the AFA and the weakened stance it’s shown on this. This is nothing short of BS and another pathetic example of the minority ruling the majority.
Great news for clients, this must mean the insurance companies will be reducing premiums given they have just saved themselves approx 20% that would of gone to the adviser in the 1st year…. hmmm doubt it! Even better if the clients circumstances change and that insurance product no longer remains in their best interest the adviser gets penalised by doing what is right.
Thank you AFA for showing the industry how useful you are and what a waste of money it is to be a member of, this will not be tolerated by the advice industry as we are struggling to survive now and you want to ad extra restrictions, the responsibility period is an insult to the upfront commission and who is paying for our dealer group fees that have been increasing every year, it looks like we will have to form a association that actually represents the advisers and is not selling us down the river
SOLD OUT BY ALL!
This is great for the insurers. There is no ROI for advisers in fighting an unfair underwriting decision. More energy in keeping the client for 3 years than energy in the initial advice.