Responding to questions posed by counsel assisting Rowena Orr at the conclusion of the royal commission’s financial advice hearings, the AFA said it would “strongly oppose any move to make further changes to the treatment of commissions” in relation to life insurance.
The submission noted that changes to commission arrangements made under LIF only commenced in January of this year and that not enough time has passed to determine the impact of these changes.
“To the extent that these changes were felt necessary by the Government, we certainly see no need to make further changes until there has been the opportunity to assess their effectiveness,” the submission said.
“We have not seen any recent evidence that would support a ban of commissions on insurance and would suggest that in the absence of this evidence and a comprehensive review of the consequences, that this should not be proposed.”
The AFA added that “international experience does not suggest that banning commissions on life insurance is a viable model” and that removing commission structures will make it more expensive for clients to seek advice on their life insurance.
“We believe that a banning of commissions on insurance would decimate the market for retail advised life insurance resulting in a significant decline in the levels of insurance that Australians have and also a decline in the number of financial advisers,” the submission said.
“This would lead to much greater stress being placed on the welfare system and Australian families.”
Delusional…that’s the mindset of those thinking that commissions should be retained “to pay for claims assistance”. Get real. Clients will happily pay for assistance with claims, but guess what? If you’re an agent of the life office your duty is to THEM not the client. The only way to sort the problem out is for fee-for-service advice from people independent of the product manufacturers – just as it is with nay similarly conflicted business model. That doesn’t guarantee competence – just removes bias. The whole point of the RC was that those “advising” clients were also selling the products!
Philip, your clients may be happy to pay fees for insurance advice and claims assistance. But has it ever occurred to you that your clients are the exception not the norm?
Behavioural finance teaches us that most people hate paying additional explicit fees for a service rather than having as much as possible built into the product cost. This is the case even if the explicit fee option ultimately saves them money. Only a minority of people are open to persuasion that explicit fees are better, and I suspect those sort of people make up a large part of your client base. But if people are forced into a choice between good quality insurance with explicit advice fees, versus junk insurance with no advice fees, most will choose the latter. Do you really think that is in the best interests of society?
Nope that wasn’t the point of the RC at all. The RC highlighted the problems created when advisers are under pressure to sell inhouse product. Much of it related to super and investment products which are not subject to commissions at all. The Sam Henderson case study highlighted conflicts created where advisers are focused on selling inhouse SMSFs via fee for service. The SMSF conflict is one that is present in many accounting practices and “fee only” planning practices. Conflicts always exist in professional services, and trying to manage them by dictating payment methods is missing the point. The RC has shown us that banning vertical integration (including inhouse SMSFs) is the real solution.
I’m so sick of this political rubbish. How about they ask a few insurance clients (I can supply a few) who’ve been through the claim process with the support of their adviser and then discuss the value of paying them ongoing – just in case
Between the eventual 50% reduction of commission already in place and the absurd theory that an adviser needs a degree to give good advice, the adviser numbers will diminish considerably. Obtaining a degree will not ensure honesty and will very a tough ask for advisers who are already flat out managing their businesses. Many will leave the industry hence underinsurance will be a huge issue, although people can still go to the bank planners. I wish them luck.
You seem to neglect the 100%+ increase in ongoing commission, Russell? Much better for business for the long term, if advisers were thinking ahead a while ago they wouldn’t need to panic as they would have already been writing hybrid/level instead of being greedy wanting maximum upfront.
Higher education standards aren’t intended to ensure honesty. They are intended to ensure competence.
If you believe competence can be proven by better means than the FASEA proposals then say why. Personally I think FASEA’s approach of categorising a law degree as a relevant qualification for financial planning, but an engineering degree and CFP course as worthless, shows that FASEA is utterly incompetent. But none of this has anything to do with ensuring honesty.
We already know from the UK market the effects of banning commissions on the social security system and indeed on the take up of protection for the family in the event of a catastrophy…