According to Association of Independently Owned Financial Professionals (AIOFP) executive director Peter Johnston, when the Delivering Better Financial Outcomes Act was passed on 4 July, the changes to fee consent forms were “snuck through”.
“Another example of politicians not understanding their brief and blindly voting on legislation that negatively affects consumers with the cost of advice,” Johnston said.
“This is also another example of the Minister’s Treasury bureaucrat advisers having no idea about our industry, and more importantly, not listening to those at the ‘coal face’ with keeping down the cost of advice and operating a profitable business.”
The AIOFP had previously signalled its concerns with the additional impost on risk advice from the fee consents ahead of the act being passed.
“With all the noise around 99FA and CSLR, the next calamity for the industry and consumers has been temporarily muted,” Johnston said.
“The proposed s963BB legislation demanding fee consent forms for risk cover will only increase the cost and complexity of advice with no real benefit for consumers.”
The struggles of the risk advice sector are not new, with the reduction of both upfront and trail commission levels drastically impacting the number of advisers writing risk. Indeed, Adviser Ratings revealed earlier this year that just 480 advisers were responsible for writing half of the new business during 2023.
AIOFP chair of technical services Lionel Rodrigues said the “decline in the number of lives insured and a corresponding substantial increase in premiums all evidences a failure of policy”.
He added that, in many respects, the recommendations on life insurance in the Quality of Advice Review (QAR) are “contradictory”.
QAR reviewer Michelle Levy, in her final report, acknowledged that both the cost of providing advice has increased and the number of risk advisers has declined, however said “this alone is not reason to recommend that commissions continue”.
Levy also acknowledged that many consumers would opt for a commission to be paid rather than an advice fee, adding that there is a “real risk that fewer people would get that advice if commissions were banned”.
Despite this, Levy recommended that the current level of commissions would be retained, as well as the addition of a fee consent form for life insurance.
“There is sufficient evidence demonstrating a direct link between underinsurance, the increasing cost of insurance, the increasing cost of advice and insufficient compensation for the risk adviser,” Rodrigues said.
“This is acknowledged by the reviewer. Nevertheless, the recommendation is to maintain the status quo for remunerating the professional risk adviser, whilst simultaneously increasing the compliance burden, and cost, by the introduction of a fee consent requirement.”
According to Johnston, this is another example that Financial Services Minister Stephen Jones and Treasury officials have “forgotten about who they are meant to be serving”.
“With exception of the education pathways legislation, the minister has only increased the cost of advice during his tenure by creating more red tape – a very disappointing ‘hot mess’ outcome,” he said.
“It is now critically important for the future of the risk industry to keep all sides of politics aware leading into the next election of why the policy settings over the past 10 years have been disastrous for all stakeholders and what must be done to revive it.”
Wouldn’t only people churning insurance policies and not disclosing the commission be worried?
Bang on!
You have to use your words carefully. If everything is disastrous, then nothing is disastrous. A commission consent form is a nuisance, but when understood in the context of the whole Levy report that recommended doing away with SoAs, it’s not unreasonable. If the main disclosure document is removed, then having a simple new one is fair enough. Now, if they don’t remove or materially simplify SoAs, then it’s a fair gripe about another form. Either way, it’s not “disastrous.”
What is a disaster is that the insurance sector is dying because 480 advisers are writing half of the new business. Talk about “key person dependence!” The reason it’s dying is because commissions were halved. Criticizing Levy for recommending the status quo on life commissions, even though she received high-quality advice and submissions explaining the causal relationship between commissions and new business, is fair game. She deserves all the criticism coming her way on that issue.
But making that point within a “disastrous” form argument is silly and diminishes the subject and the AIOFP. Let’s prosecute the important arguments better for everyone’s sake.
Commissions of even 80% will not be enough to revive things. All things considered (compliance, regulatory over-reach, changing goal posts regularly et al) I’d intelligently calculate that 100/20 would be the minimum most advisers who have left would need to see on offer to consider returning. Actually, most who’ve left sold their businesses, as did I, so they won’t be coming back. maybe a few new recruits would be interested at 100/20 but in all reality it is far too late as the experience to really help season the newbies is gone. Too sad for words really. We are paying these politicians who caused this with our taxes and the other guilty parties – life company execs – are still getting their bonuses.
This is a bit of a beat up and this old school thinking distracts from making genuine progress… and instead of making noise about every little thing just to keep himself and his merry band of advisers in the news Johnston should focus on the big ticket items that will deliver genuine change. His voice gets lost in too many small gripes and just sounds like a whinger… we’ve seen other industries unite behind the big issues with success. Your voice is being lost in the constant whinge about every little thing.
Risk commissions are already disclosed and agreed to by clients in SOA and in applications docs. Sure the format might change slightly but it is hardly a big impost and good advisers and products will very quickly adapt. Should we have to adapt? Probably not. Are there much bigger ticket items to focus on… definitely.
Sorry, but you cannot know NOW what form the agreement for advisers to be paid commission wiil take
Can I remind you that the last time ASIC was involved in preparing a model life risk SOA the commission was disclosed on the very first page in 18 point bold print
Yes it’s true we have to disclose Life riskcommission and we all do. Secondly most clients don’t care, it’s expected.
But if ASIC is let loose on this one then we won’t know the detail until they announce it, and then it’s too late.
When the $$$ sign is sitting there glaring at the client like a boil on a backside, that can only be distracting!
Old Risky, there is no mention of a prescribed form and no role for ASIC to prescribe a form for life insurance client consent. The law does not even require that the consent be provided in writing, although the consent (or a record of it) needs to be provided to the client. This is consent process is already the case through the client signing an ATP. The transition period is 12 months, so we have heaps of time to prepare. Let’s not make a mountain out of a mole hill.
Problem is my friend I’ve seen a few more mountains that you have.And some of them indeed started as molehills
ASIC will not be able to help themselves, it’s in their DNA. Remember they would prefer there were no commissions for life risk and if you start from that position you won’t be disappointed.
And like I said, do a search on Google for that ASIC model risk SOA from nearly 10 years ago. It was a frightener.
Arrivederci
I’m happy for the Insurance companies to reap their rewards. Thanks for nothing: reducing commission, reducing product features, increasing premiums, increasing responsibility periods, increasing claim hurdles.
This story provides no context and only creates unnecessary fear. The new consent requirement as part of DBFO Tranche 1 for the payment of commissions is a once off (not inconsistent with the current practice of clients signing the Authority to Proceed), does not need to be provided to the life insurer and remains valid even when a business or a book of clients are sold. It is making an existing business practice a legal requirement. Neither is it prescriptive in terms of how it needs to be completed. Doing this through the ATP would remain valid. This should not require any large change for advice practices. What is the “Disastrous” problem that is being suggested in this story?
Yes, yet another example of taxpayer funded lawyers expecting life agents to work for free. The victimisation against life agents & advisers must stop.
Life “AGENTS”…..really????
I understand what you are saying, but at present, there is no such thing as a Life Agent & hasn’t been for some time.
There may well be into the future when the life Insurers appoint tied Advisers who only represent one company’s range of product ( ie. back to the future) as they still do so overseas.
How this strategy gets around Best Interest Duty will be interesting but should be no different to Super Funds appointing so called “Qualified Advisers” to recommend a single Super Fund to their membership and prospective members ??
Yes, a reasonable person would expect the CEOs, who attend the CALI lunches, to understand that yet another bureaucratic impediment to making a profit from life risk will occur with even morecomplicated disclosure.
NAH !
The CEOs of our friends in the life insurance manufacturing industry think they can survive another couple of years on LIF by gouging out existing policyholders. Eventually, even the sleepy ASIC might choose to act.After all, they’ve successfully convinced Mr Jones said that they should be trusted to provide “Limited advice” to the policy owners we’ve introduced to their business
What sort of Philistine would, these days, refer to an independent specialist risk advisers as a “life agent” – sheeeesh! This is part of the problem where even advisers can’t drag themselves out of the past and closed ideas. This rates right up there with, but even worse than, calling our valued clients ‘customers’ (!) as, sadly, some advisers, life office execs and politicians continue to do. This pervasive mindset makes me think this industry will NEVER make it to being viewed as a profession before it goes extinct completely, the risk advice side anyway, most definitely this decade and more than likely by 2026.
Just wait until the Qualified Advisers get going that will really do your head in Peter!