In a submission to the LIAWG – in response to the interim Trowbridge report – Perera Crowther Financial Services director Sam Perera questioned whether life insurers participating in the working group are looking out for their own interests, not those of the IFA market.
“When the names of the self-serving executives are made public, I have no doubt that the IFA network will be abandoning the patronage of their insurance companies due to their wanton disregard for the IFA market,” the submission said.
“It is imperative to delineate the issue of consumers receiving advice that is in their best interests and free of conflicts from the wishes of the Insurers who appear to be hijacking the current debate in order to reduce their cost of sales to improve their profitability,” it said.
In a separate submission, AFA immediate past president and Joe Nowak Financial Services managing director Michael Nowak said the introduction of a level commission regime would have a negative impact on advisers not aligned to the insurers or financial institutions.
“I find it peculiar that this report could suggest that the use of only level commissions that may be as low as 20 [per cent] as this model would not support the provision of quality life insurance advice unless it was subisidised advice from, for example, an aligned provider,” Mr Nowak wrote.
He said that the focus of insurers needs to shift from achieving competitive market share to raising levels of insurance among consumers and ensuring high quality impartial advice.
“To date, these companies have largely been spending their marketing budgets on promoting their own brands,” the submission said.
“This is totally understandable, however if significant changes are being proposed then I believe these must be backed by leadership to make a positive impact to achieve this group’s objective.”
“A conscious and co-ordinated effort must be made to grow the market rather than continuing with the practice of undertaking activities to grow their own market share which has largely been the case.”
Both advisers questioned whether the interests of the FSC and AFA – who are co-managing the LIAWG process – are aligned or not, given their respective representation of insurers and advisers.
On a whole the top 8-10 retail Life Insurance manufactures have terrific core definitions and benefits. I also support the statement you often hear bandied around the industry, which is…100% of all legitimate claims are paid…well from the retail space anyway…even from the old “Closed” series that don’t have the so-called “Bells and Whistles”. I believe the “Bells and Whistles” just create a lot of noise about nothing. They also create issues that places the Adviser in a lose…lose predicament when one applies the “Catch all Best Interest Duty” clause…It’s any wonder why everyone is so confused right now.
The solution to the issue of insurance policy “churn”, can be addressed in the following manner, subject to a mandated Charter and Code of Conduct signed by all product providers:
Both Fee for Service and Commission based remuneration can exist in complete harmony if all are managed correctly. The consumer should have a full range of choice available to them to encourage as much flexibility in accessing risk advice as possible.
1.Commission rates including Upfront, Hybrid and Level modes should be standardised across all product providers to remove any issues regarding remuneration bias or conflict.
2.No Upfront commission available to ANY replacement business within 5 years of the existing policy being issued…Hybrid, Level or Fee for Service only options.
3.All product providers via the Charter are obligated to alert other providers to repeat or serial churners and those advisers are either limited to Level commission only or refused acceptance of business.
So the IFA advisers, who take every opportunity to bash the banks, aligned advisers and major institutions all of a sudden want those same companies that happen to own insurance companies to look out for the interests of the IFA advisers?! Grow up. The aligned v non aligned mud slinging was always going to be a slippery slope. Industry funds must be laughing.
Chris, my submission also mentioned to John that churn can be minimised if Life Offices were true to their word and stuck to the Guarantee of upgrade instead of closing off products and alienating pools of lives. You make a thoroughly valid point.
Change is happening, cant hold it back boys ! The Life Insurance sales model is broken, if you don’t change non traditional competitors will do it for you and you will simply say ‘what happened’ in the years to come, consumers have been paying for to long due to poor product construction, high churn, high commissions, volume bonuses, sales incentives, overs trips and the box at the footy, cant stick our heads in the sand forever !
Interesting that in this very publication the spruikers of fee for service risk advice have been championed and advisers who rely on commission have been pilloried, yet when talk of changing commission rates people are upset. I thought the IFA segment would be cheering this on. How easy it is to bag commission and then sook when there is a threat to remove it. Where are the champions of fee for service risk advice…no where to be seen!!! How funny is that….
The support of the IFA adviser market from the insurers in regard to the matter of commissions has been utterly deafening on the whole.
There have been very few that have come out publicly and made commentary supporting the quality advisers and the continuation of commission payments as a viable form of remuneration to the adviser and a viable form of product structure to the insurer if managed correctly.
In private, many of them will state that Upfront commission payments are profitable if managed correctly and that a level commission system would be the worst outcome form a profit perspective.
This entire and drawn out issue regarding adviser remuneration models is ridiculous and is greatly impacting adviser confidence and self worth which in turn will result in less insurance business produced from the IFA market.
Perhaps FSC execs should deliver more claim cheques to dying clients in homes or hospitals to see the real value of what we do.
The LIAWG are all CLOWNS. No idea about the real world!
What is being missed here is that the insurance industry is reasonably robust where policies and conditions change to reflect new trends and feature offerings. If insurance companies offered automatic upgrades instead of closing policies and starting totally new policies without new underwriting, the issues of lapses and churning would be significantly reduced. It is no different to general insurance apart from the change to personal health. You should review the quality of the insurer, the policy conditions and features then the cost. We want to promote competitive competition and improved value but all of a sudden when margins get squeezed the big insurers start squealing and using their political weight to deflect the real issues. Many people are stuck in old insurance policies that are uncompetitive and restricted features the big insurers love those people.
I thought risk ‘fee for service’ was all the rage! Commissions shouldn’t matter should they? Where are all the risk ‘fee for service’ aficionados hiding in the IFA segment. Isn’t this what was wanted..no commissions and fee for service only. Seems to some it is easy to say but a little harder to do when staring down the prospect of weening yourself off commissions.
Well said Sam Perera. Those providers who control their own distribution (i.e. the banks and AMP) will find other ways to support those “advisers” and ensure they stay in business. The IFA’s will lose out.
Given the recently emerged – but longstanding – issues with such tied advice lines, this can only be bad for the financial planning industry and consumers.
The bigger picture is the insurance companies trying to increase profits – this time at the expense of the advisers rather than the customers.
I’ve been told that the Actuaries and CEO’s of life companies are trembling in their boots at the prospect of 20% level commissions as this model apparently will send them broke. Right now my slightly conspiracy theorist attitude suspects the industry providers have been morally and emotionally bankrupt for some years now. For example how does anyone think it is reasonable to structure “under the table” deals with Licensee’s that ensures the introducing adviser will never have renewal revenue reallocated to a new adviser regardless of what the client wants. Just one detestable example and there are others…
If insurance commissions ended up being levelled to 20% then I wouldn’t bother risking my butt over it I would provide scaled advice or even decline to advise so the ultimate loser will be the under-insured customer!
This is an excellent article that highlights the plight of non-aligned advisers.
This working group is a joke!