Mark Schroeder, chief executive of advice firm Schroeder Capital, said in his submission to the Parliamentary Joint Committee inquiry into the life insurance industry that an 80-20 commission model is the best remuneration model to keep the industry viable and competitive.
Under this model, year-one commission will be capped at 80 per cent of the premium, with a 20 per cent trail and a one-year clawback (80-20 +1).
A 2016 submission from Zurich had proposed a similar model, Mr Schroeder said.
“I am pleased to see that Zurich has issued their research and findings that not only wholly supports my recommendation of 80-20 +1, but provides far more evidence in support of my recommendation,” he said.
“Moreover, Zurich likewise concludes that the best result for the industry and consumer is remuneration of 80-20 +1.”
In 2016, Zurich said in its submission to the Senate Economics Legislation Committee inquiry into the Life Insurance Framework bill that an 80-20 model is one it believes will be capable of supporting a vibrant, growing financial advice community.
“The adequacy of the commission payable rests on the specifics of each case, in terms of size and complexity,” Zurich said.
“A vibrant advice profession, and thus the accessibility of advice, requires advisers to be fairly compensated for the cost of providing advice at the time they provide it.”
Currently under LIF, scheduled to commence on 1 January 2018, the rate of upfront commissions paid to advisers will be phased down to a maximum of 60 per cent, with ongoing commissions capped at 20 per cent (60-20).
In addition, a two-year upfront commission clawback period will also apply, under which 100 per cent of the upfront commission will be clawed back in the first year and 60 per cent of the upfront commission will be clawed back in the second year, should a policy lapse.
fact is Nobby, most prospects I talk with wont pay a fee on top of premiums as gap is too small between full premium and no commission premium. IE payback period is too slow when ongoing fees are factored in. 2yr claw backs are silly. Stop the churners being in commission business and life companies can manage this – it will push out the small % and leave the majority who are sensible in business.
There is some debate from insurance companies whether your initial statement is correct; where a fee is charged and commission rebated to the client but subsequently the policy cancelled, there is talk that the insurer will still create a ‘debit’ against that business/AFSL equal to the clawback amount.
If the client was charged a fee for service, and the commissions were rebated or nil taken, then a lapse in the first or second year wouldn’t matter. Who would work for nothing?
But the insurers still keep ALL of the premiums paid!!!!