During the Hayne royal commission, ASIC noted that it would not seek any changes to life insurance commissions until at least 2021.
But a recommendation from the Hayne final report that the cap on risk commissions should “ultimately be reduced to zero” has risk-focused advisers concerned about the future viability of advising clients on life insurance.
FPA consulting with ASIC ahead of review
Speaking exclusively to ifa, Mr De Gori said the FPA is working with ASIC in the lead up to the review into risk commissions.
“It’s quite early on, in terms of there is nothing really being set up for the review. But we are looking at research, we’re looking at the data,” he said.
“We’ve already engaged with ASIC and the regulator about how we can work together… and how we can assist in the review.”
Mr De Gori noted that during the time when the terms of the Life Insurance Framework was being discussed, people often forget that a zero-commission model was put on the table, something both the FPA and the AFA strongly advocated against.
“The FPA and the AFA actually did advocate quite strongly to ensure that there was a commission model in place. And I think people often forget that,” he said.
“Those that are criticising [the LIF] don’t understand the actual implications of what was on the table. And though we didn’t support a 60/20, we definitely support an 80/20 model.
“That’s why the FPA and the AFA have been working together now to ensure that this model is at least retained, if not improved, depending on the review outcome.
“That’s why it’s critical that the review outcome is done in a way that is acceptable by the industry, and the FPA and the AFA working together to ensure that that happens.”
Joint task force to boost adviser advocacy
In the meantime, Mr De Gori said the FPA is continuing to work with the AFA through its joint task force. He is also looking at finding new ways of supporting advisers through best practice around advised insurance.
“As an example, we are looking at potential guidance and education for financial planners. We are looking at how do we work with a regulator in terms of the process and the terms of reference around the review,” he said.
“We are working with the task force and looking at the data that’s being produced or made available from life insurance companies regarding what’s happening with policies.”
Mr De Gori said the best thing advisers can do until then is make sure that they give advice to their clients in the best way they can and ensure that they do the right things in the advice they give.
“Because we need to make sure that when the review is done and when they pick up a file to review, there was no question mark about the best interest duty and the advice that was given by the advisers in the insurance advice they give,” he said.
“They can control that. They control the quality of the advice they give. They can control the quality of service and the outcomes for their clients.
“That’s what they should continue to do and do well, and also support the work that’s been done by this task force to ensure that the review is done fair and equitably.”
It didn’t work in the UK but I am sure Australia is different. I have no logic behind that statement but then neither did Kenny. I am sure ASIC will come up with some twisted statistics to prove whatever case they prefer.
Not listening ! FSC gave $40,000 to Liberals in 2019 election. That buys you a lot of “ear time” with Fydenberg
Knock, knock, knock….hello? Is there anybody there? Hello ASIC…hello Government MP’s….hello life insurance companies with your significantly less business inflows now than pre-LIF days and BID fiasco? Are you there? Are you listening? Can you see the carnage that’s unfolding right in front of you? No…I thought so!
From the lack of action taking place, I’m absolutely convinced fellow advisers that there is a very carefully thought out long term strategy, that I’m not smart enough to understand, playing out in front of our very eyes here that someone or some party is clearly conspiring to use for own their filthy greed in the future – after our industry has died a long painful death.
There just has to be because these people, these parties who have been charged with managing this industry simply can’t be that stupid and ignorant with their actions when so much writing is on the wall, right in front of them.
They absolutely must know what’s happening yet are doing nothing about it because they are the very parties that stand to financially benefit from it in the end. If that’s not conflicted and totally UNETHICAL, then I don’t know what it is. Advisers and consumers will be the losers in the end, that’s 100% guaranteed.
we will end up with what the regulator and Government of the day thinks will paint themselves in the best possible light, this will be an abject failure but will in time be rectified , (see the IUK experience) but not before many families are directly harmed through the loss of potential benefits they might have received under a (fair and reasonable) commission model and the sudden realization (by Government) that the public purse will now have to pick up the tab where (unaffordable) life insurance left off.
LIF was a disaster and many of its members lied about their support for the changes to commission rates mainly to prop up their own broken business models. the biggest challenge for me / us is to try and survive this additional upheaval and wait for “normal transmission” to resume.
History lesson.
ASIC reviewed 202 files of targeted advisers at a time they needed funding. They went to the insurers and asked them who their biggest lapsing advisers were and hey presto got the result they wanted. The FPA and AFA at the time did nothing about this.
The FSC knew the real lapse data but specifically used the situation to create the LIF rates purely for profit. The FPA and AFA did nothing about this.
After the LIF was passed ASIC admitted they got it wrong on churn AFTER the same FSC members were forced to provide lapse data. The FPA and AFA did nothing about this.
Since the LIF has been passed the same FSC members have been increasing premiums for existing customers by as much as 50% plus over 2 years. They have also been reducing premiums for new business for the same products and trying to encourage a churn issue that was not there in the first place.
The result of the LIF and the actions of the FSC members has resulted in higher lapses (less customers insured), huge reductions in new business (less customers insured). And risk advisers leaving in droves (less risk advice for customers).
ASIC are responsible partly for this but the main corruption lies with the FSC who should be held accountable and at best disbanded. They are simply a profit grabbing lobby group.
However we still have the same issue as 2 years ago. The same FSC members are still funding the FPA and AFA and so its impossible for FPA and AFA to act impartially for the benefit of customers and advisers. THEY ARE FINANCIALLY CONFLICTED.
If they were not financially conflicted why would they not be screaming about what has happened and the results??
The FPA and the AFA are our only support. They have their faults but the UFAA and the others will make things much worse. I agree they both failed here partly perhaps because most assumed that churning was rife.
However, your description of the FSC/Insurers serial shooting in their own feet – with us getting the shrapnel and a few direct hits as they are really shocking shots – that description is spot on. What a way to damage your business and bite the hand that feeds you (the advisers providing your new business).
The current situation with massive price differences for different insurers and heavy up-front discounts is dog-eat-dog with the predictable consequences. How do you work with a 25% first-year discount? For a 40+ year old client it means a 50% premium increase (adding 33% as no discount, 10%+ for age and 5% for increased benefit) in year 2. What is the point of that and that is just one discount.
The point is simple….Insurer gets to recover 100% of the comms they paid YOU – they retain 100% of the premiums for a one-year term policy…then their retention department kick in and offer YOUR ‘healthier’ client something a few months / years down the track since YOU kindly gathered all the information for the insurer at YOUR expense…and they don’t have to pay you a dollar for doing so…
Kenneth Hayne had no right and no supporting evidence or data on which to base his recommendation that risk commissions should ” ultimately be reduced to zero “.
His recommendation was based on his own ideology and not fact, assessment of impact or pricing of product.
To make a blanket statement such as this is irresponsible at best.
What is Hayne really trying to suggest ?
Is he suggesting that being paid a commission for risk advice is detrimental to the consumer outcome ?
Is he suggesting the lower the commission goes, the higher the quality of advice received ?
Is he suggesting that to strip the entire commission out of risk advice will directly decrease the premium cost by the same amount ?
Is he suggesting that advisers rebate the commission amount or is he suggesting this will not be available and
the adviser will invoice the client from which the client will then have to pay the fee from post tax income rather than paying the adviser from within the product ?
Is he suggesting that if the consumer will have to pay more for the combination of the advice and the product, it is a better outcome for the consumer despite the fact that either the commission based model or the fee based model both satisfy the best interest duty ?
Is he suggesting that the consumer should not be provided with any form of choice as to how they pay for risk insurance advice. At present, the consumer has choice. Is Hayne recommending consumer choice be removed ?
The sweeping statement made clearly illustrated just how uneducated not only Hayne is in regard to just how the risk insurance business works, but how uneducated the majority of those in power making legislative decisions really are
in relation to the intricacies of this area.
The Mortgage Brokers stood up and fired a shot that made sense to all and was accepted because by implementing a ban on commissions would hand power to the lenders, reduce competition and be detrimental to the interest of the consumer.
This is no different whatsoever and any association that sits back and tries to state that ” this is different ” is simply avoiding the fight and lacking courage.
One individual should never be given the power to make blatant statements and opinion because that very opinion may be the result of a conflict. A conflict of ideology versus consumer benefit and industry impact.
The Royal Commission became an ecstatic finger-pointing exercise, something lawyers excel at and they well and truly had a target-rich environment to work with. A substantial proportion of their recommendations, though, were rushed and ill-thought out and the one issue that is at the heart of all the problems – salespeople being allowed to call themselves advisers – was explicitly allowed. 3 out of 10. Hayne gave no reason why life insurance commissions should be reduced and certainly had no time to investigate that issue.
Well said ‘Customer’! I concur with each point and it is indeed a travesty that ANYONE is placing any credit at all on Haynes risk advice comments. It was clear that he was indeed speaking his own personal ‘ivory tower’ ideology and that is disgusting AND beyond conflicted. How on earth do these creatures get away with such things? Lapdog media and life companies not prepared to challenge it – that’s how, mostly.
MMMMM was Hayne suggesting that receiving a commission may encourage a higher than necessary risk cover? Methinks so