The FSC’s submission – which has not as yet been made public despite a number of requests but a copy of which has been leaked to Risk Adviser – proposes a “remuneration model” remarkably similar to the “reform model” recommended by John Trowbridge.
Among a number of recommendations, the FSC argued that “high upfront commissions” should be banned and that the industry should move to a “level commission regime”.
Like the Trowbridge report, the FSC suggested that 20 per cent would be an appropriate level and that a level not exceeding current market rates should be implemented.
In addition, it proposes an “optional additional first year adviser service payment” which would be a capped percentage of the premium’s value to provide “partial, but not total, compensation to advisers for up-front costs”.
Similarly to Mr Trowbridge’s proposed Initial Advice Payment, the FSC argued this payment should be subject to a responsibility period and that “clawback of adviser payments” should apply.
The total first year remuneration for an adviser should be “significantly lower than existing rates for hybrid commissions”, the FSC argued.
“A level commission structure will result in a meaningful change across the advice industry that will assist in cultivating an environment conducive to behavioural change,” the submission said.
It also called for an insurer code of practice – to be agreed to by the FSC’s life insurance members – and proposed a 12-month period to determine the code’s content.
The recommendations come despite suggestions some FSC members were supportive of a hybrid commission regime, with a number of them having recently moved towards such structures.
The Trowbridge Report can be accessed here: http://www.riskadviser.com.au/pdf/Trowbridge-report.pdf
editor@riskadviser.com.au
I wont be writing any insurance with the big life companies because quite simply
its in the clients best interest not to get screwed over by the big life companies that focus on profits above all else. My clients best interest will always come before insurers profit margins.
They won’t be on their own at claim time because the ‘no win, no fee’ lawyers will be there to help them and take a mandated maximum of 50% of the claim payment. Also remembering that they only take cases they know they will win. I.e. Genuine claims
We all know the Trowbridge Report (TR) was flawed from inception as it’s catalyst was the ASIC Review of Retail Life insurance, which itself was skewed at best by selecting a small group of “the worst offenders” and sold as being representative of the industry at large. Trowbridge’s predetermined view showed in his foreward citing “perverse incentives” creating the “churn problem.” If advisers are doing the wrong thing by clients, there are already laws to deal with them. Enforce them.
The TR recognizes that clients are generally better off receiving advice as opposed to direct or group policies. One would think direct and group lines would be the targets for “improvement.” Alas, it is us again with the likely outcome of implementing the report’s recommendations being more people going to direct or group and getting worse outcomes. This sort of “logic” runs through the report.
Now that the FSC submission is known, all risk writers should be asking each insurer they deal with what their submission/input was to the FSC. We may then start to understand which insurers care about better outcomes for their clients (lives insured and advisers) and those about profit only.
They run with hare and hunt with the hounds. You know they are lying because their lips are moving
What a disgrace!
Isn’t there a saying. “Never hold an inquiry or review unless you already know the outcome”.
Lets face it the bulk of the insurance companies wish to make risk advisers extinct. it suits their long term plan to bring sales in house, market average contracts, make claiming difficult and ultimately make more profit.
The poor consumer will be the one that suffers. They wont save any money and will be on their own at claim time.
I was told in August last year by a BDM that upfronts would go and insurance companies would pay a placement fee. The insurance companies knew what they wanted and have got this guy to deliver it.
Could write a novel…but wont, too busy preparing for the worst-whilst still hoping for the best!
Plain & simple, the best of the best talent & quality “people” (who just happen to be Risk advisers at present) will potentially (& almost certainly) be lost to this ONCE great industry.
Very sad time for the average working Australian family, it will be very difficult for you to ever receive personal Face to Face quality Life insurance advice, ongoing reviews as your family situation changes & good luck come Claim time!!!
Unintended consequence…..OR INTENDED consequence…..
The big boppers will continue to line their pockets with highly priced legacy contracts, congrats on looking after your fellow man & woman……..Well done!!!
Tony I think the ICAC is more appropriate as this is blatant corruption done with the blessing of the AFA the association who represents us, this will end up with a class action by advisers against the FSC and anybody else associated with trying to restrict us as business people by reducing our commission to suit there greed, Slater and Gordon would love this one all the way to the BANK how appropriate would that be, only thing is we all may have to put our hand into our pockets to fund a class action as our associations are not doing anything.
That’s right. Price fixing by government. The government to force self-employed people to price below cost. We are to be serfs. Serfs have no right to set the price of their labour. The insurers do not want us to be free. We must be tied to their product lists and sell at their price, whether it sends us bankrupt or not.
I’m actually a little bit confused. Given that the FSC is made up of many members representing various sections of the Financial Services Industry I imagine there would be differing views between the members. What I’d like to know is – how did such a large group of members collectively put together one united Trowbridge submission? Assuming that there would be some FSC members who disagree with the views expressed in the submission who actually decided what the FSC submission would or would not say? Did one FSC member prepare the submission? Does the submission reflect the opinions of only one or perhaps only a few of the FSC members?
totally agree – that’s what I’ll be doing. I’ve also made a conscious decision to not accept any more BDM appointments … the BDMs for the most part offer no value or very little value, and I often feel that they call to invite me to lunch or a coffee just because they have to fill an activity target – not because they have any value to add. No more easy appointments for BDMs I reckon .. let them stay in their offices so management can gauge whether they really do add value. What do these people get paid? Insurers could cut some costs pretty quickly in my view.
What a disgrace. These Life companies are so hypocritical — “oh no, our profits are declining because advisers keep churning our clients”, “oh no, we cant afford to pay these large upfront commissions”… meanwhile they are running around offering very tasty inducements for advisers to switch large swathes of their clients. It’s a joke! Less than 6 months ago I was approached by a Life BDM who said that she could arrange for about 50 of my clients with a particular insurer to be rewritten across to the insurer that she worked for (as long as I signed a confidentiality agreement). This mass switch was apparently available with full commission and no underwriting. It would have been over $90-$95K in upfront revenue. Had I of accepted this CHURN inducement my clients would have been paying slightly more and the product they ended up with would have been inferior on a few counts. I politely declined. Code of conduct you say?? A planner mate of mine told me that when he worked for one of the big 4 banks some time ago he and his colleagues spent years rewriting clients from the in-house retail product (only available via bank advisers) across to the retail platform product. Money for jam is what he called it. Exact same insurer, same product effectively (just a different name)… but slightly lower premium I believe. No underwriting at all – full commission! The clients were better off, the advisers loaded their pockets with the easiest revenue they would ever earn and the insurer just allowed it to go on. There were sales targets to be met after all and BDM and Exec bonuses were on the line. Absolute disgrace!! We talk about churn from Insurer A to be Insurer B … that’s one thing, but holy moly, it’s hard to feel sorry for an insurer who allowed (and from what I’m led to believe actively encouraged) advisers to churn their own book. These BDMS and Life Execs will do anything to get some extra business on their books .. it’s all about the mighty dollar – nothing to do with the client. I heard there was an insurer a few years ago who at one point (for a limited time only) accepted every single application that was sitting in their underwriting suspense book at standard rates – regardless of the client health. They just made a decision and “BOOM” – everyone was in force. I have no idea why this happened – it certainly doesn’t make any commercial sense to me. I’ve heard from some former colleagues who used this particular insurer at the time and (no surprise) it seems that word was leaked about this “special deal” and so (no surprise) quite a few very unhealthy (i.e. uninsurable) clients just happened to be looking for insurance at that time. That’s gotta be a sustainable business practice right? Code of conduct you say?? Insurers paying for shelf space and dangling huge carrots in front of advisers, insurers who have armies of employed bank planners who have no choice in terms of the insurer they use. Greedy underhand profit-destroying practices that just never seem to go away. But do eventually come back to bite! But it’s those nasty risk advisers who are the problem isn’t it? Wake up Mr Trowbridge!!!
Lets show them how powerful the adviser network is by not writing any business with any bank owned or associated insurer for one month, then we can show how we can control our destinies. Clearview is one of the only insurers who has stood up for the advisers so maybe we should reward them for this and their products are very good.
The industry must remember that Life Insurance is sold not bought.
If commissions are restructered or reduced,I hope that the rates
are reduced and passed onto policy holders.
Go on, kill the industry.
New client acquisition, Compliant SOA production, Implementation, claims support, practice fees, staff wages, declines, office expenses… Just to name a few.
@ 20% all of a sudden, the juice is not worth the squeeze.
Funny how the financial services providers have recommended advisers take all the financial pain with the proposed changes to risk remuneration. No mention of significantly reducing their premiums to offset the amount they need to pay advisers or of reigning in their cannibalistic ‘marketing’ programs that have encouraged ‘churning’.
I’ve said it before and I’ll say it again now – the AFA made a huge mistake partnering up with the FSC and engaging an provider-focused Chair. Advisers have been hung out to dry (again) as if the problems identified in the ASIC report are solely the responsibility of advisers. Despite the fact that over 90% of the files checked by ASIC using hybrid or level commission were found to be compliant.
I can’t recall a more blatant grab for profits at the expense of the industry’s primary revenue generators. No life insurer deserves any loyalty or respect.
Absolutely no surprise here – collusion as expected. I’m wondering – did the FSC call for the opening up of APL’s, so the likes of Westpac and NAB planners can offer more than just the in-house bank owned insurance?
So the other 130 submissions were simply window dressing as Mr Trowbridge only had to read 1 – the one the FSC gave him – did they also pay his fees?
To all the advisers out there who have received calls from the large life offices assuring them that this report was a total surprise to them and that they will need to ‘crunch the numbers’ as their actuaries are saying that this proposal would cost ‘them’ a fortune, this is the reality.
These companies built the recommendations and approved and priced them well before the FSC Sub committee report was ever tabled.
No mention of reduced premium costs to consumers by the 40-50% savings that these companies will be making over 5 years. Mr Trowbridge – who apparently is an Actuary – must have missed that one but maybe maths isn’t his strong suit.
The mandate was improving affordability for consumers and addressing underinsurance problems. Nope cant see any of that here – just a land grab by large life companies who see direct insurance as their most profitable channel. Of course it is when you can deny claims by underwriting in arrears.
Bring on government intervention Mr Frydenberg, would have to better than the vested interested involved in this sham. Banned Commission and premiums reduced by 40-50% we can live with.
Hmmm, I wonder how the ACCC sees this, is it a new type of price fixing but from a different view. Total Utter crap is what it is