Speaking to Risk Adviser, PEG Young & Associates owner Phil Young said in his submission to the LIAWG independent chairman John Trowbridge that if a level commission structure were to be introduced it would have significant negative consequences both for advisers and consumers.
“If it does become level, we’d lose a tremendous amount of advisers,” Mr Young said.
“I’d say 80 per cent of advisers would have to drop out and the person who is going to suffer in the long run – while the advisers will suffer – is the client [because] the advice is not going to be there.”
Echoing Mr Young’s comments, Harman Financial Services managing director James Harman told Risk Adviser that in his submission he said the introduction of a level commission structure will “devastate” the industry and many advisers will walk away.
“I just think that long-term, or even short-term, [level commissions are] non-sustainable,” Mr Harman said.
“A lot of the guys will drop out because it is not sustainable and everyone will just go to the banks and the banks do not have a great record when it comes to compliance.”
Mr Young added that Mr Trowbridge is not taking into account the effect a 20 per cent level commission structure will have on the industry.
“He is supposed to be an actuary, but a simple man can sit down and come up with the [calculations] that an adviser will not survive on 20 per cent,” Mr Young said.
“If it went on 20 per cent commission – say the average guy is earning $150,000, so therefore on 20 per cent commission that would make it back to $30,000 – that wouldn’t even pay his dealership fees.”
Both advisers also pointed out the “way to go” for a change in remuneration structure is by using a hybrid model through which advisers can be paid 60 to 70 per cent up front with a 25 per cent ongoing trail commission.
Mr Trowbridge is expected to release his much-anticipated report on Thursday.
Sorry Paul but I am confused! Firstly you talk about on-going bi-annual reviews then you talk about a review fee every few years then you infer that you run a Risk Business but you are then talking about My Super. I hope your clients are not as confused as I am or you will have no hope of getting any fee from them.
Dear Paul, have you considered what happens when your clients eventually need to claim on their insurance and they are on a fee for service model? When this discussion was had with me by my adviser, I understood clearly that I would likely have little to no money at that stage and choose the commission option. In the end I was buying peace of mind that everything will be ok financially if something went wrong.
I certainly did not want an unwanted distraction when I’m trying to concentrate on getting better. Having been on claim I can tell you I had no time or money to pay for anything, let alone the adviser to help me get what they had promised when they signed me up to the product. I was undergoing
cancer treatment, my income and entitlements had ceased from the hospital and I still had a $600,000 mortgage, I had a family wondering if I was ever going to get better and I didn’t know what to tell them. The best thing that happened to
me over that tough period was that I had a great guy come and take care of everything and ensured I got paid my benefits on time every time. This kept my mind at ease and I eventually years latter went into remission. Please consider giving your clients the option as you may find they reconsider the fee based model. Yours sincerely Dr Blyth
Roger, I run a real life practice that now fully rebates commissions and charges clients a reasonable up-front fee for their holistic insurance needs assessment and implementation and then a review fee every few years. The total income is less in the short term but more in the longer term. It doesn’t seem to deter my clients. Not inane: fact.
Great point Louise. I have observed price gouging under the MySuper roll-out, where advisers lost their 20% and the fund administrators increased their take from 8 to 12% for ‘Administration’ and the premiums rose anyway by about 30-40%. I don’t think the industry should make advisers the problem. They created it.
Harvey, as usual sound well thought out comments! Unfortunately the Pareto Principle is at work again?
Paul
I would have thought that you may have learnt something over the past 27 years – obviously not much by your inane comment!
Is the industry confident that the insurers will pass on the lifetime discounts in the form of reduced premiums once a level commission structure becomes the norm? My guess is that they will maintain the premiums at the current level and reap additional profits as a result whilst paying advisers 20%!
If the premiums are kept the same and life advisers must charge a fee to be adequately compensated for their expertise, the cost of insurance simply becomes unaffordable for many Australians.
Journalist commentators and hopefully not Trowbridge, think
the adviser pockets the upfront commission, which includes GST.
In reality the take home margin is very small after paying
computer costs, Professional Indemnity, wages, rent, insurance and other
expenses, most of which are payable upfront.
And who pays advisers the upfront on zero premiums when the
cover falls through after months of research and work, when the client is
declined or changes their mind? Let alone the time spent on getting the client
to the starting line.
The general ignorance of our job and products is appalling. NOTE
any reduction to adviser income will exacerbate the already dire under
insurance that exists in Australia. Any change in the commission
structure will remove all of the fringe players and most of the independent professionals from conducting Life Risk
business. To be paid on a drip feed basis over say six years for work performed
upfront is not viable and you don’t have to be an actuary Mr. Trowbridge to work
these sums out.
It will be interesting to see next week whether Trowbridge
bows to the massive volume of bank-owned insurers and dealer groups, or whether
he will heed the quality of logical submissions not to do away with upfront
commission. Let’s face it the problem is immoral churning, which can be easily
controlled by insurers.
Oh dear. It is possible to write risk on a fee for service basis if the benefits are spelled out for clients, e.g. lifetime discounts on premiums. They just agree to an on-going bi-annual review. After 27 years in this business, on all sides of the fence, I am suggesting that it’s time to move on with this silly debate. Level commissions only OR none at all.