Current levels are 60 per cent for upfront commissions and 20 per cent for trailing commissions, with a two-year clawback, with the government’s first tranche of legislation in response to the Quality of Advice Review, released last week, confirming commissions are set to remain unchanged.
Namely, the government last week presented draft law for recommendations 13.7 to 13.9, which relates to obtaining consent for life insurance, general insurance, and consumer credit insurance commissions.
The draft legislation proposes to retain all of the current caps on commissions and seeks to enshrine in law the requirement for advisers to seek one-off consent from their clients, in writing, to receive a commission.
Speaking on the matter on Wednesday, Financial Services Minister Stephen Jones said an increase in life insurance caps is “not something that is on our agenda”.
“It’s not even in the in-tray,” the minister added.
“Look at what is in the in-tray, and there’s a lot.”
The retention of current commission levels was called for in the QAR by reviewer Michelle Levy, who said at the time that an increase would only up costs for insurers and would therefore have an impact on premiums.
Speaking to ifa on Tuesday, Adam Crabbe, risk strategy specialist at Zurich, said that while he is aware that advisers would prefer a boost in commission caps, by reducing the regulatory burden on advisers, the QAR should reignite interest in life insurance advice.
“With that reduced complexity, it’s a reduced cost to serve, so there’s perhaps a greater willingness to re-enter [risk advice],” Mr Crabbe said.
Numbers don’t worry the minister
Mr Jones, however, doesn’t appear too concerned about the exodus of specialist, life insurance-focused advisers.
On Wednesday, he told the media that there’s been a pattern in Australia regarding the decline in retail-driven life insurance.
“It’s not my job as the minister to tell life insurers how they go out there and promote their products and increase their market. It is my job as a minister to remove obstacles that make no sense and provide no consumer protection and that’s what I’m focused on,” he said.
Specifically on the large exodus of advisers, including from the risk advice space, he said: “We talk a lot about the 10 or 14 thousand advisers who have left the industry, it would be a mistake to assume that every single one of those was a national tragedy. The world has changed, we’ve had the royal commission, and we’ve had several inquiries.”
Regarding the regulation that has contributed to this exodus, the minister assured he is “looking at it” to discern how much of it is pro-consumer.
“That’s what I’m focused on, it’s not my job to go to anyone in particular and say, ‘This is how you promote your products to the market’.”
According to recent data from Adviser Ratings, the total pool of advisers who wrote life policies stood at 6,373 in the six months to 30 June 2023. However, pure risk advisers are said to number 150.
Wasn’t one expecting lowering of premiums paid to the consumer for lowering of comms to advisers? mmmm looks like premiums have gone the other way and not many people can afford cover anymore.
This guy is completely ignorant as to the state of the insurance industry, the level of underinsurance in Australia, the proceeding burden on welfare and quality of life, all because he has some ideology about commissions. Remember when he wanted to ban them altogether? He is out of his depth.
He seems to think a move towards fees has less conflict but even fees are conflicted.
When is the election?
LIF Review to evaluate if commissions should be re-instated, was commissioned to be part of QoAR now is disregarded by an ignorant Minister who can’t be bothered. His plate is full because he not doing anything to progress policy.
Risk will remain dead. Group is awful and definitions are deteriorating year on year, with costs sky rocketing. Direct risk is not worth it because you cant be remunerated for the hassle and fear of clawback, underwriting shifting covid climate etc. This is also a completely baseless and unresearched position. But blind freddy can see the correlation in commission rates effectively halving for the same work, and new policies dropping which the affects the risk pool and raises premiums. Just so dumb and uniquely Australian in its stupidity too. UK did this first and swiftly went back to prior commission rates and their polices stabilised. When it comes to Financial Planning regulations Australia is the the most embarrassing developed country in the world. Stephen Jones only cares about industry funds paying his party kickbacks and jobs post political life, at the cost of the country not being able to seek IFA or protect themselves through appropriate insurance.
This all started with the Trowbridge report where life insurers got greedy and thereby shot themselves in the foot. Minister Jones has now taken advantage of this to his advantage. End result is underinsurance and grand parents now holding the risk.
Yep.
John Trowbridge.
What a legend.
Looking across the spread of Law Makers, how many have been to study in a Business School in University about competition dynamics? Ask them if they know Professor Michael Porter’s (1980) 5 forces competition model? Buyer Power versus Supplier Power versus threat of New Entrants versus Threat of substitution, in the context of Competitive Rivalry. Before LIFA, it was competitive rivalry between suppliers that gave competitive premiums (in the best interests of consumers) and good commissions (in the best interests of advisory businesses), for retail life insurance products that is at world best competition practices standards. Hence, it now appears that LIFA intervened to likely dumb down on commissions while business costs and compliance obligations increased, that put the squeeze on small business viability and exits from national advisory efficacy. As I have pointed at Treasury before, it appears to have neglected to do grounded research direct with financial advisors to generate misleading policy prescriptions (anti-commissions selection bias) that were formed by Law Makers. I am writing a PhD in International Financial Law that advocates horizontal coordination (without Politicians) towards Industry Regulatory Governance in a Microprudential Framework, because vertical hierarchical Macroprudential Law fails to function with vital industry factors for effectiveness and economic efficiency in the national interest. Retail life insurance suppliers are dominated by multinationals ownership and who cares if they pay higher commissions to Australian advisors? Ask Minister Jones by rejecting life commission cap increase, how are financial advisors going to pay his 2022-23 Financial Advisors’ $46 million IFM levy?
Labor, Liberal, the insurers, the regulators, and the fake “consumer associations”, are all united in their view that personal insurance does not need the involvement of an adviser. It can be purchased online or over the phone by self directed consumers, just like car or home insurance.
It is clear from the tone of Stephen Jones that he simply doesn’t care about professional insurance advice. Nor does anyone else, except professional financial advisers, who can see the looming disaster of massive underinsurance and denied claims.
Of course it’s not on his agenda.
It’s of no benefit to his masters in the industry super funds.
So I inform a “new” client who is seeking life insurance recommendations that a fee of $880 will be needed to be paid due to the lowering of the comms not covering the cost of this advice, I am still waiting for him to call me back. Looks like another under insured individual in our community who will not seek advice.
IFA….if you guys are going to continually censor my opinions and comments to your articles, don’t bother sending me your emails! It happens time and time again.
I don’t swear, I am not sexist but I have an opinion. It’s not YOUR opinion – it’s mine.
Not happy.
It’s not a question of the commissions paid, but the amount of compliance, including SoA, that dictates whether we can afford to provide the advice in a cost effective manner. There is far too much red tape for a relatively direct process.
Here we ago. Another person who blames the cost of advice on SOA’s….
The consumer does not like the 100 page SoA to insure their mortgage. If it were to become a 3 or 4 page customer advice record, there would be a benefit for both consumers and advisers.
It should be part of Minister Jones’ brief to ensure against moral hazard where people dont take account of their own circumstances to prevent them falling upon the various safety nets that are provided for them.
Every person that doesnt have adequate life, tpd, trauma or income insurance, is one or more people (depending on who that one person supports) that ends up claiming from the public purse instead of being supported by an appropriate level of cover that they have been advised to take out.
And everyone knows the paltry levels of insurance offered as ‘default cover’ in industry super funds is desperately inadequate & actually gives members a false sense of security. Until they need to claim….at which point it’s all too late for them & their family.
Is it just me – or does Minister Stephen Jones -seem to communicate and sound like Mr Daniel Andrews?
Insurers begged you muppets to reduce commissions & increase clawback and you readily acquiesced by inventing statistics about churn and sustainability of insurers and their products.
Now, advisers are understandably fed-up and showing the insurers their middle finger… hence the massive drop-off in new life business.
Correct…50% reduction in adviser numbers cannot be wrong…
Stephen Jones will forever be known as the minister who helped grow Australia’s under insurance problem by not acting upon what those at the coal face were telling him…
Were we expecting any different? Seriously?
None of these politicians have a clue about this industry and the NEGATIVE impact each and every one of them has caused the last decade. They put their heads in to it for 5 minutes, have a quick look around, are lobbied by whoever best massages THEIR backs (and pockets) then PRETEND to know what the industry requires and make changes that act to do the opposite of what we need to get it back on track.
“Mr Jones, however, doesn’t appear too concerned about the exodus of specialist, life insurance-focused advisers.” Wow! as the ‘Minister for Financial Services’, I would have thought that the very low levels of Insurance advice being provided would have to be a fundamental issue that needs prioritising under his portfolio? No??? What am I missing…
What are you missing….Industry Super Funds
Control by industry funds of the insurance industry the first step to reduce the competition and take away choice.