Sentry’s national life risk manager, Danny Maher, told ifa that while the government’s announcement that a clawback policy will be enforced over two years instead of three represents “a step in the right direction”, it still exposes advisers to many potential liabilities.
“This is still an unacceptably long time not to be sure of one’s revenue earned for services provided up to 24 months earlier,” Mr Maher said.
“It would be hard to imagine an individual employed as a salaried adviser agreeing to a clawback, even though the sales process, the SOA, ongoing service and the commission paid by the insurer to his/her employer is exactly the same.
“[This is] hardly a level playing field for the self-employed and small business life risk specialists who are the champions of the life insurance industry,” he said.
Executive director of GPS Wealth, Grahame Evans, said a two-year clawback period is better than three years, but stressed more clarification is still needed.
“It’s a good step forward but the key additional issue here is what will be classified for clawback in the two-year period by the insurance companies,” Mr Evans said.
Director of non-aligned licensee Now Financial Group and director of advice practice Dunsford Financial Planning Mark Dunsford stressed that a clawback period greater than 12 months will have adverse effects, both for small licensees and small business owners.
“The clawback policy in principle is wrong. It means that every financial planning business is going to have a contingent liability on their balance sheet … it’s just not sustainable,” he said.
Peter Johnston, executive director of the Association of Independently Owned Financial Professionals, said Assistant Treasurer and Minister for Small Business Kelly O’Dwyer’s decision to amend the clawback policy was a “positive step” but was still “not enough”.
“We will be continuing our ‘behind the scenes’ political campaign to get the other issues sorted,” Mr Johnston wrote in an email to his members.
When is the government going to wake up and realise that the harder they make it to write insurances by making it unaffordable for advisers to advise on the more its going to hurt them in the long run
There will be less people that will take out insurances and those that do in most cases will be under insured, so when disaster strikes – these people that would have had insurances that now don’t will head straight to the social security offices and claim benefits – by this time it will be too late and we will no longer only have a problem with an aging population, but also the population claiming benefits
Have the politicians thought of this???
MG, I do agree with what you are saying to a degree. My thoughts are that I understand the basis of a clawback but not reducing commissions at the same time.
I have never used an upfront commission structure but really don’t see the basis for reducing the hybrid structure to 60/20 when an additional clawback is being put in place also. Statistically hybrid is fine.
In terms of charging fee for service it depends on your client base. I offer both commission and fee for service options. Higher net worth clients generally opt for fee for service whilst everyday Australians (the ones who need the cover most) opt for commission as they struggle to justify both a $2,000+ fee as well as premiums. On a 60/20 structure ill be charging every risk client a fee and many more clients will not proceed with the advice because of it.
I just think that choice for the consumer is important. When I speak to BDMs from insurance companies they all know who does the churning. It could be easily stopped via other means.
With the risk of being very unpopular, I don’t IFA advisers are doing themselves a service by not acknowledging what any basis for clawback.
All commissions paid above level commission, is essentially discounted cashflow of future level commission payments. If the payments stop – the commission payments stop. -Why would only one party to the “contract” bear the cost?
If you are a self employed adviser, working on only commission, you being compensated for putting in place on-going payments to insurance companies, as a commercial relationship.
-Why make comparisons to salaried employees or talk about service provided to the client, if you haven’t charged them a fee (which isn’t clawed back)?
Insurance companies have also considerable cost in establishing the contract in addition to funding up front commission models.
If however strongly agree that insurance companies are much better equipped to handle these bumps in the cashflow and that a pro-rata basis is necessary.
I do however think advisers are doing themselves a disservice by not acknowledging the commercial nature of the relationship in the debate and simply make reference to the “old days”.
If you provide a good service to your clients, charge a fee for this service, otherwise you are essentially only working for insurance companies on a contractual basis.
In a time when competition on product performance and cost is marketed to your clients every day, why wouldn’t advices want to embrace it! Because the insures don’t want you to. If your client comes to you and says “hey Im been seeing these commercials on T.V which could offer a better price or commercials say call us to “compare the market”, so could you get me a better price. And you say” sorry buddy you’re locked into 2 years we carnt change providers. You know he is going to call them himself to compare and then leaves you to save money. At the end of the day he is not going to stay with you because you send him a birthday card, get real advises.
People lives change and when money is tight, Life insurance is the first to go. I have ben in the risk industry since 1998 and people cancel not because they don’t want it, It’s because they can’t afford it.
What is wrong with clients able to move when ever they want. There are business models which would work with NO clawback rule. Great for the clients, but terrible for the insures s it would make the insures more accountable to there price changes Ie TAL over the last few years.
Why can’t clients choose when they want to review the market, why does it have to be when the insurance companies make there revenue targets (after 3 years) then they let you review the market.
Dave, I haven’t had many cancellations within 2 years either, but I think that under LIF clients will actually be much more likely to cancel.
The aim of LIF is to move clients from advised policies which pay most claims, to junk policies which don’t. The insurers will be significantly ramping up their direct marketing of junk policies. Many people will be duped by this advertising and switch to junk policies thinking they provide the same benefits for lower cost. The media will assist in this deception because of the revenue they get from junk policy advertising.
And insurers will be even more likely to sharply increase premiums in the second year of a policy if they know the potential revenue lost from lapses can be partially recouped from adviser clawbacks.
There will also be a proliferation of scavenger advice firms who will target your clients, by offering to switch them to cheaper fee only insurance without providing service or advice, after you have done all the initial hard work.
Once LIF is fully established the only clients paying for professional insurance advice and good quality products will be the top 5% of the population who appreciate the value and can afford to pay for it. Everyone else will have junk insurance or no insurance. And this is an outcome the consumer associations are supporting.
We’ve just had a client cancel their policy that they’ve had less than two years because they circumstances have completely changed.
They had a lot of debt and now have none (due to sell of some properties). So, it does happen.
Insurance policies are a product of life companies on which they make significant profits. The key issue is how much of these profits should be used to fund the cost of advice and service to clients in these policies. The inadequacy of the insurance review is that it does not consider the total cost to advise and service clients and who should wear that cost. The consumer or the product provider ? If the regulators want to limit how much is paid to financial advisers by insurance companies it is not unreasonable that they also limit the profits made by the insurance companies. If they don’t, all they have achieved is greater profits to the insurance companies. If the argument against this idea is the difficulty in deciding how much profit is reasonable then one must all question on what basis is it determined that a commission amount is unreasonable ?
This whole issue is over ” churning” which its never been disclosed as a major problem in the industry. If there are advisers that churn – identify and ban – why completely destroy the competitive advantage for new product development by allowing competition ? If a new carrier wants to grow market share by offering discounts and upfront commission / hybrid or level – what’s the problem ? its a win win – we get innovation and competition to place business with that company. Like FOFA – it will KILL competition in a race for the lowest cost dogshit super fund for ignorant lefties to protect the stupid. No innovation and basically a risk product and super one size offering. Great news. Advice matters – ask Australian super as its sets up its inhouse financial advice division.
2 years is a joke – one missed point is that the adviser writes insurance and gets paid, pays tax and GST to the Govt. The advisers IAS alters year on year so the impact of the claw back could conceivably take 3 years to have the income tax offset returned to the adviser. Credit to the others in this forum for hitting back at PRODUCT and DEALER as we don’t have to eat the shit sandwich dreamed up to help their bottom lines.
Dont think ive ever had a policy cancelled within 2 years (apart from through claim) and i wouldnt be churning so who cares?
If the advice and service is good, there’s very few instances where the policy wouldnt still be in force 2 months later…
Or am I missing something?
Why any new university graduate or young person would consider this profession is beyond me. I wouldnt wish this industrys compliance and regulation burden on any business.
Well done FPA you have created this mess out of trying to look good and sell courses.
I applaud every comment made and thank you for finally having the fortitude to come out to the press and say it. How the AFA feel proud that they so call it a win is disgraceful. The ASIC report was flawed and they admitted it and said publicly that it wasn’t advisers that were the issue, it was the big end of town. There is no other business in the world that operates with this system, even in Australia, so why should we?? We only do the good for consumers and deserve to receive a remuneration for our profession and what we implement just like every other working Australian and the comments made by Ruth Liew from the Financial Review were so far from the truth its a joke. The sooner everyone stands up to the FSC, AFA and Govt and show how it is, we might finally be able to show Kelly O’Dwyer how her actions are non-liberal and un-Australian and unsustainable.
We now have a opportunity to remove the noose life insurance companies have on clients with the clawback period. Clients want freedom to choose. Clients are currently looked in to a 12 month responsibility period(i have a class in our statement of advise that if they cancel within 12 months we will bill them the commission which is clawed back. We are commission only risk insurance firm) and now it is moving to a 24 month period! Please explain to me our that is better for the client? It is 100% better for the insures! Please explain how the client will get better advice in a 24 moth responsibility period?, it is only better for the insurers. Please explain how reducing the commission paid to clients will NOT drop the clients premium, it is a money grab by the insures,(AIA have stated at conferences they will not be reducing premiums). This whole process is corrupt. There is no public campaigns saying, great news mums and dad your advisers will now have you looked into a 24 month responsibility period instead of a 12 months.
Why do advisers need a large upfront in the first place? Under FOFA I charge monthly retainer. Commission should be payable monthly on policies remaining in force. Once a book has been built life offices could provide advances against the book at a reasonable rate of interest. This could operate like a revolving line of credit up to say 50% of annual commission income. The advisers job is to recommend and implement cover along with keeping the cover in force. Under such a system no clawbacks would be necessary and the advance balance could be reduced or cleared at any time at the discretion of the adviser.
Will the Dealer Groups be reducing our annual fees by half so that we can afford to be part of them or are we expected to work 3 times as hard for the same money with increased cots of operating. Alternatively are the Insurers reducing premiums by the amount of the reduction in our commissions that would be fair wouldn’t it, then the consumer would really be receiving this so called benefit of us having reduced commissions and clawbacks, hmmm I don’t think so.
Can someone please explain to me why, if the responsibility period is 24 months, there isn’t a pre-rata ‘claw-back’ applied to the whole period. If I am responsible for the imposition of a clawback amount at any time through out the period it should be reduced by 4% per month. Hence if the client is no longer in month 24 I am only up for 4% NOT 60%. This is just lunacy…