He said that, unless there is a clear justification for retaining those commissions, the cap should ultimately be reduced to zero.
Speaking to Risk Adviser, Lifespan Financial Planning chief executive Eugene Ardino called Mr Hayne’s recommendation “wrong and irresponsible”.
“If the cost of accessing insurance goes up, coverage will go down. Furthermore, it is difficult enough to get consumers to pay for insurance, let alone convince them that they should pay for advice on insurance and then pay for the actual insurance. This is evidenced by the approximately $2 trillion under-insurance problem in Australia,” Mr Ardino said.
Mr Ardino noted that if commissions on insurance are removed, there will be fewer advisers recommending that Australian consumers buy insurance, and therefore more people will be under-insured.
Further, he noted that even the most hard-nosed idealists could not argue with that.
“This exacerbation of the already significant under-insurance problem would outweigh any benefit arising from the modest increase in the standard of insurance advice from the abolition or reduction of insurance commissions,” Mr Ardino said.
“This is especially the case in the absence of any systemic or large-scale client losses caused from poor insurance advice from advisers.
“The two most important things a professional planner does are encouraging clients to save and ensuring they have the right amount of insurance to protect themselves and their families when things go wrong and threaten their life savings and quality of life. A lot of suffering is likely to result, and, in many cases, taxpayers will be left to help pick up the pieces.”
Let’s gather 5 best clients whom we have helped in claims and head to Canberra
When will we have the hearing of all the good advisers and all the satisfied clients? I mean we’ve had all the victims, the crooks, the CEO’s that have no idea and have put out recommendations based on these people surely we need to hear the good.
The one thing that all the ban commission people don’t understand is that insurance is a lot different to every other business. When you see an accountant you are usually going there for a tax return because you earned money and will get some back (this is also tax deductable). You go to see a lawyer because you are in trouble or have something to protect or gain. You go to the doctor because you are sick (usually covered by the government through Medicare anyway).
When you see an adviser for risk insurance it is to protect yourself because you cannot afford to lose. You have to pay a premium for the insurances and the best way for someone to be compensated for this is via a product commission. There are very few people willing to pay $2,000 for insurances and a $2,000 upfront fee on that with the knowledge that they will have to pay a fee at claim time too. This will lead to them going directly and probably getting a policy that doesn’t suit them.
If someone gets a policy that doesn’t suit them why should I be concerned?
Because it becomes a burden on society?
Oh please, spare me the sanctimony you moral crusader.
Sanctimony? Why do you think people are in this industry. If they wanted to make a quick buck they’d be flogging Real Estate. Most people actually care about their clients.
oh you are a real prize.
Not sanctimony. Reality.
We recently helped a client get paid their legitimate $180,000 Trauma claim (Melanoma) which their well-known Insurer tried to wiggle out of. (Insurer referred to incorrect policy wording to confuse the client – the so-called ‘fine print’). We used our expertise and policy archives which go back 20 years. The client had been paying premiums for over 15 years. We did not charge for our claims service (though I acknowledge the trail collected over the years).
I wonder what a lawyer would have charged as a ‘no-win, no-fee’?
It’s simple. We hold the big institutions accountable and they don’t like it.
Dear oh bloody dear, fancy letting an ex-LAWYER (yep, trustworthy eh) decide the future of our industry. Hayne’s misguided and uneducated comments all through the RC showed nothing but contempt for the way advisers/risk specialists protect hard working ordinary Australians, how we build our businesses over decades to do this and how we champion the cause of our clients at claim time (where the rubber really hits the road!). What a totally out of touch, inappropriate and fully uncaring human being. I am continually gob-smacked how he is accorded ANY credibility in the matter of risk insurance given he demonstrates NOT A CLUE on the process and execution of helping a client secure appropriate cover. This is an absolute travesty that he is allowed to run sway over decisions here. I truly hope that more entities like the AFA, Eugene Ardino, Don Trapnell et al loudly and forcefully voice common sense over this matter. The abjectly clueless politicians are no better than Hayne so someone has to wake them up, assuming the BigBanks will allow them to be heard.
Well said. Be an interesting exercise to dig out Haynes files from his dodgy lawyer days abnd see whether he was as squeaky clean as he wishes us to be, or as I suspect, have over charged and had a conflict of interest by wanting to earn a profit.
Congrats John, you are now ASIC public enemy #1. McMaster spoke out of turn and look what happened to him.
Hayne was salivating profusely and enjoyed the crucifixion of so many eminent financial services leaders. His has not been impartial and I have a suspicion that he supports the socialist left. He has no idea of the processes and expenses of operating a professional financial planning practice. Nothing ever is easy in our industry and if he believes that we are able to survive with a artificially disseminating cash flow as well as setting aside hours to cover all the compliance documentation we have to deliver, then he is fool. Self employed advisers have a lot of skin in the game through decades of building our practises. We are now seeing a steady dismantling of our hard work which will end badly for the whole industry. It all started with the banning of commissions and service fees for employer superannuation. I’ve walked away from a major corporate account because me fees were switched of. If incentives are taken away from us then the service ceases. We are small businesses and charitable institutions.
Eugene is absolutely correct. Plus to add my two cents worth, who will help a client who needs support in dealing with a claim with an insurance company who might choose to reject it. Does the adviser do it for free or should they first ask the aggrieved, confused, scared and emotionally or physically and always financially impacted client to pay a fee for the service? I hope some common sense prevails here before things get out of hand.
No, they will go to Hayne’s lawyer mates for the claim “assistance” and pay them 50% of their claim proceeds.
They won’t any more! One very interesting recommendation was that claims handling be deemed a financial product. So those TPD chasing law firms are now going to have to do everything in the full advice process to administer it, that’s a win for us.
Lawyers will get a carve out like they do at the moment for SMSF advice
we need to restrict how much lawyers get paid. i think $50k pa per lawyer is very generous. after that they can’t make any more money
Lawyers, accountants, doctors and pretty much every other professional doesn’t have an issue with asking for payment when clients are in need of their help? Apart from your want for nice regular, recurring income and the fear that your clients wont want to pay it, please explain to me why you should be any different?
Big Maxxy, would you pay $3,300 including gst for advice to have your insurance needs analysed for you and your family and appropriate insurance policies recommended to you? From this you may or may not proceed with the recommendations and premiums would be additional. We may also need to charge an implementation fee to process the applications with the insurer as this can be time consuming given the number of exclusions, loading and tests we need to follow up on.If you are happy with that we can help you. In the event you do need to make a claim, you may may not be capable of speaking to us, so perhaps your partner may inform us of the need for a claim and we can arrange a fee to charge to assist with the claim, 20 hours work is not uncommon. Your partner is welcome to deal directly with the insurer. in their time of distress. Over the last 4 years we have had 3 declined claims approved by our intervention. Kind regards and await your reply. Sorry i forgot to mention each year if you want to discuss your insurance i will have to charge an hourly rate to do that. I am sorry, i know it adds up but we want to be seen as professionals now.
Can’t see any value in paying you $3,300… I’ll go to another adviser or use iSelect or a Russion meerkat and do it myself. If there is a problem with a claim, then I’ll pay someone $3,300 to sort it out for me. Do you offer a stand alone claims service as part of your service offering?
Have clients that already do. Don’t forget how much cheaper the annual premiums are over the life of the policy when there isn’t a 30%+ commission mark-up.
No, I personally wouldn’t.
But when I need specialist medical help I pay at least this, because I understand the value of it. Rightly or wrongly, all the good work you’re doing is being undermined by the perception that the commission model is inherently conflicted.
Maxxfish, if you argument is so sound (and thought through) explain this.
Doctors – First point is Medicare – why have it. If the services are so valuable clearly they should have no problem asking the client to pay – should work well. I am not sure if you are aware how much the tax payer spends on Medicare each year? And why do Doctor not need to produce an Advice Document?
Lawyers – 1) Legal aid – whats that about? 2) Retainer for lawyers – whats that about? 3) Lawyers charging a percentage on the final claim – whats that about? 4) Why do people get involved in class actions – because individuals can’t afford it (sorry I answered one for you).
Accountants – You are aware it is a legal requirement to lodge a tax return each year, BAS quarterly etc. And why do many accountants take their fee directly from the return when received? Why are Accountancy fees tax deductible?
Please explain why these professions should be any different?
Look forward to your response.
Lawyers, accountants, doctors and pretty much every other professional don’t have to;
– Conduct a thorough needs analysis of the client
– Provide an advice document which can be up to 100 pages
– adhere to the best interests duty
– get swamped in compliance documents
– chase and followup medical records from time poor doctors
– deal with inefficient and impractical Insurance company procedures, paperwork, call centres, etc.
If I could see a client for risk and make a verbal recommendation and complete an insurance application and write some file notes, then that is the equivalent of the professions you describe.
Did you ever wonder why it costs so much for an Adviser to service a client? Or is your head so far up your arse you can’t think?
You make a good point about the absurd amount regulatory hoops we endure, and its impact on cost-to-serve – but I’m afraid none of it’s pertinent to the question of how and by whom our services should be paid for?
(and if we are going to start name calling, I suspect anybody who sees adhering to a best interest duty as a burden on their business should probably get their head out of the trough and continue on their journey to a well earned extinction!)
Are you an Accountant? That is one profession that should have best interests applied.
Whats your point? How does this relate to commissions?
Hi Maxxfish,
The significant difference between the other professions that you’re talking about and insurance (which is a subset of the Financial Planning profession however a very different skill-set) is the difference between actual value and perceived value.
Other professions, such as lawyers, accountants, doctors and dentists all have the advantage of immediacy when conveying value. In a majority of cases, there is a real personal or legal threat against them. People are at risk of punitive or health damages and that’s a very real prospect to a client. There is almost a certain guarantee in most of these cases if you don’t do the right thing, the negative event will occur. If you don’t pay taxes, for example, there isn’t a 65% chance that you won’t get hunted down by the ATO. They will find you! There is a real up-front value associated with those professions that aligns the actual and perceived value.
The problem for insurance advisers is three-fold. 1) There is a human bias that understates the chances of something negative happening to them. 2) There is a brain function which causes ourselves to view our future selves as an external person, and makes it hard to understand the emotion and costs of not being insured in the case of an event we under-estimate occurs and 3) the advice is not the product, which requires on-going future payment to maintain, which is different to all the other professions. Whilst professionals know the true value of getting good quality insurance advice, however the clients perceived value is lower due to the way our brains work.
We could argue the ability for Risk Advisers to demonstrate their value, educate the public and create awareness around why insurance is important, who and why you should have insurance and why you shouldn’t go to an expensive law firm during the claims process to get assistance because the success fee they charge is often extreme.
We could also argue for reducing the compliance requirements on risk advisers to consist of requesting the information required from a client, disclosing any product vertical integration in their business and allowing the provision of a short, 1-2 page statement of advice outlining the value of, and which, insurance that the client should take up and allow them to charge $250 for the meeting.
Neither of those two options are feasible in the current environment, it just will not happen. 1) demonstrated in all other regions where abolishing commissions was attempted except one, that the industry was not able to sustain insurance numbers sans commission and 2) We are getting more regulation, not less.
So, as an alternative – we could stop the media/politicians and people outside the industry running scare campaigns against insurance providers who collect commissions, properly implement the best interests duty and ensure that APL’s have a minimum number of products for their advisers to choose from. We could scrutinise dealer groups and responsible managers more heavily and place cushy management jobs at risk instead of all the focus being aimed at the client-facing members of a business and we could allow the market to provide both commission-based insurance and fee for service based insurance as they do now and the clients have a choice of model that they wish to access.
Most of the issue exists around transparency. Clients haven’t been traditionally informed well enough regarding the commission attached to a product and the amount of money that’s associated with completing the process. They also haven’t been given the option to dial down premiums and pay out of pocket, either. The problems that have been inherent in a commission-based product are fixed by alternate implementations than banning them.
The reason why banning commissions is not the reason to move forward is a very simple business case that seems to be overlooked. Insurers pay Advisers a commission because it creates a sales channel for them to be able to move their product, and manage the on-going client relationship on their behalf.
This means that the insurance companies spend significantly less capital on a sales team and a client management team. The claims experience is smoother and the application process is smoother, because it’s being overseen by a professional in every interaction. By using Advisers as a channel to attract clients to their product, they’re saving a lot of money on in-house systems and processes than they’d otherwise have to spend money on to attract them directly.
If commissions are banned – there is no more scope for clients like SD to ‘dial-down’ commissions. There will be no more discounts for Advisers selling insurance advice fee-for-service. All of a sudden we’re back to a level playing field where the cost of advice is going to be given on top of the fee-for-insurance. Now, the only way I can really see people getting around this is that insurers need to offer Advisers a discount on the premiums paid by clients if they go through a Financial Adviser. That could work, if we market to clients and let them know that they need insurance however this is likely to price out the lower end of the market because they won’t be able to collect the fee on the insurance up-front that they need to cover costs + they can’t make up the money long-term with a fee paid by the product provider for the insurance policy.
And here we end up again, with another policy aimed at ‘protecting’ the client that just adds more barriers and costs to the lower end of the market and only makes the product affordable for the top end of town.
That’s my take on why insurance should be treated differently.
I asked, and you have eloquently put your case.
I concede all your points, but am still having trouble coming up with a workable and practical solution to the inherent conflicts of interest that exist with the commission model. It may just be that the system is broken, but, all things considered, it just may be that it’s the best option we have.
The Hayne Royal Commission speaks of conflicts of interest. So in an effort to stamp out such conflicts, banning commissions and creating mayhem is somehow what we need to tolerate to the detriment of our businesses and this will simply grow the under insurance problem. Ministers and regulators agree and so we pay the pain as will our clients….if we have any left.
Joe Hockey, former Treasurer though has just awarded a government travel contract to Helloworld Travel which is owned by Joes mate Andrew Burnes, a good friend and fereral liberal party treasurer. Any conflicts here…what a farce
…which means increased taxes/fees for NO BENEFIT for all the taxpayers who must pay for these underinsured folk.
the other problem of course with Mr Haynes position is that he has probably never needed to have insurance and he has always been paid in the top5% of Australians, he wouldn’t know what its like to need insurance, but also the fact is it will take 5 – 10 years for this insurance issue to rear its ugly head and for people to complain after an event that “I didn’t have enough insurance” and where will Mr Hayne be then ? Probably 80 years old and in a nursing home with no care in the world or any idea of the misery his ideological stance will have on families across Australia
Saw this and could help but feel it was so true ..
“There has not been one singular comment from any Life Insurer that I am aware of following the RC recommendations coming out in support of advisers continuing to be remunerated at least by the existing commission structures following the negotiated outcome from LIF…….not one.
There has been complete and utter silence from the very companies that have benefited greatly over the years from advisers placing theirs and their client’s trust and business with these organisations.
Unless I am mistaken, I have heard not one supportive statement from any of them.
One can only therefore assume, this so called ” relationship ” that advisers have with the Life Insurers is like a very,very bad marriage and all one way only.
Its like we live in the same house, but no longer sleep together.!!
They will chase and accept the new business and when it dries up and you are servicing existing business, you never hear from them.
So, why aren’t the insurers openly and strongly criticising the proposed recommendations to reduce commissions to zero when they know the quality business received comes from quality risk advisers and has longevity.
With no risk advisers left soon, will the insurers be satisfied this is the outcome they really want?………the cynic in me is worried this may well be true.” …
Well said and agree not one life insurer has stood up for the valuable role that we do for our clients both during the underwriting stage, negotiating loadings and exclusion’s and most importantly working for our client at claim time. Who will do this in a zero commission world?
( acknowledgements to C and Chris who wrote it in another forum)
So when a BDM next rings you, tell them you have stopped wring insurance and to nick off. The insurers will get the message soon enough
If it’s so ‘valuable’, which, for what it’s worth, I think it is, why are you all so scared of having to explain this value to the end client?
Lots of things are valuable but people simply don’t have the money to pay for everything. removing Commissions is simply transferring more money from the client to the Insurer – their is no adviser making more money here (but lots of well paid compliance jobs). We know people wont pay $7 to see a Dr so your argument, if it is so valuable, why won’t people pay. Frankly, some will and many won’t. I am learning to live with the fact that I no longer care about the ones that can’t afford advice – clearly neither do you. Net gain?
We are not scared to explain the value – we just want clients to have payment choices as they currently do. We offer our clients the option of paying a fee and reducing the commissions to zero OR via a commission once the cover is successfully placed. 98 out of 100 currently choose to pay via a commission. It would be great if clients chose to pay via an hourly rate, my experience is that the vast majority would choose not to given the choice. If you take the choice away from the client, then my guess is that the 98/100 people would choose not to engage a risk only adviser on a fee for service basis and they would just go online and buy their own junk insurance or via the intrafund (read no advice / no best insterest duty and junk cover – compared to comprehensive retail cover). How does that help the client?
No advisers if no commission who then helps the client with a claim.
Majority of Insurers are trying to delay claim payments or even deny them – thats when a good adviser is critical to ensurer the client gets paid Isnt that what Insurance is all about.