Speaking to ifa, Mr Leggett said it was a case of “when, rather than if, risk commissions will cease to be a feature of the financial services landscape”.
But at the same time, the number of Australians carrying adequate personal insurance is “worsening over time” and the removal of commissions may contribute to it further, he said.
“It is universally accepted that the average Australian carries inadequate personal insurance and this situation is reputed to be worsening over time,” Mr Leggett said.
“If this is occurring in a marketplace where commissions are still a prominent feature, one can only imagine that the situation would deteriorate further should commissions be banned,” he said.
Financial Planning Expert founder Trent Alexander said the abolishment of risk commissions “is long overdue” and while commissions exists so does a “conflict of interest”.
“Commission rates vary between insurance products and this means a risk of advice being in the adviser’s best interest instead of the client’s,” Mr Alexander said.
“[They] also result in higher premium costs. To fund the payments to advisers, commission-based risk products have higher annual premiums, typically up to 30 per cent more than commission-free equivalents,” he said.
Mr Alexander also said that as clients’ needs for insurance are generally longer term, they will “pay much more in premium costs” over the policy term where commission-based products are taken out.
“Paying a once-off adviser fee that covers product advice and implementation (of a commission-free policy) is usually cheaper over the long term. It’s also more likely to be in a client’s best interest,” Mr Alexander said.
Trent,if there were 100% standardised commission rates across all insurance companies, including upfront,hybrid and level options and Dealer group APL’s for insurance products were unrestricted or abandoned allowing advisers freedom of choice to make recommendations based on client’s best interest, product quality, pricing and insurer’s financial strength and management, would you be accepting of this option?
Removal of any commission bias as all rates are the same, removal of any product bias based on unrestricted product options and the provision of choice to the consumer to pay for advice either by way of commission, fee for service or a combination of both depending on which option best suits the client.
Would this be acceptable to you, or is it that despite any rational option that is put forward, it would be rejected simply because the payment of commission on risk insurance still exists even though there is no commission or product bias.
Well said Craig, I don’t reckon he does much insurance…..
Trent,what fee are you charging the client to annually review their insurance cover? If a client does not claim on their insurance at all for the life of a policy,but you annually review,it is assumed you will charge them a review fee? It is also assumed you have charged them an intial advice fee plus the 30% reduced premium for the insurance cover..whereas the client could have just paid the insurance premium which included the initial cost of the advice.
Are you saying that until one of your clients makes a claim,you do not charge an annual fee to review your clients insurance?
For a client with a $1000 premium, you say on nil commission basis, it will reduce the premium by 30% to $700.00. What is your hourly rate charge for a 2 hour review?If it is $250p/h then the client has just paid $1200 instead of $1000(which includes the adviser trail to pay for the annual review.(an increase in cost of 20% for your client?
plus the initial advice fee cost.
Simple really.
Standardising commission rates would be a step in the right direction but a conflict would still exist. Product recommendations would continue to be influenced by dealer group APLs. For me though the effect of trails on premiums is the main issue. I understand the consensus argument – that trails exist to cover the work at claim time but in my experience, the majority of people wont claim over the life of a policy. This means the majority of policy holders are paying for a service they will never need. Id rather save the client up to 30% pa and charge a fee if they claim.
Craig and Matthew I would implore you both to read and digest the accurate comments provided by Steve Crawford. He’s spot on. Individual agendas should not be part of the debate, we all know it exists..
BTW I may be cynical but I doubt insurers would reduce premiums by 30% in any event.. look at the insurers increasing premiums on the industry fund insurance provisions, which are now exceeding retail policy premiums in respect of death and tpd by some 20% +.
Personally I believe hybrid is the way to go, or even a decent level comm to enable continuing servicing of the clients needs. I am pleased to see that insures are advocating this approach.
Thanks Matthew for clarifying exactly what I should be doing.
What I believe Trent Alexander should do is submit a highly detailed client example to IFA of the exact total cost to a client implementing risk insurance when full upfront commission and annual renewal commission is applied versus the identical recommended strategy including the 30% reduced premium cost for a commission-free product,plus Trent’s standard,(not discounted) initial advice and implementation fee, plus his standard,(not discounted) annual client review fee over the first 3 years of the life of the insurance policies.
Trent may well have already completed such comparisons on which to have based his recent statements.
We can all then analyse the data and a robust debate may then ensue.
Raw nerve comes out when you put words in other people’s mouths Craig. Steer clear of that and we can have a robust, respectful debate.
Matthew Ross…the only hinderance created by clarifying Trent Alexander’s business philosophy from his website is the ability for him to push an agenda through commentary that 100% suits his business model.Trent’s position appears to be simply ban all commissions and the client will benefit. In my opinion, this is flawed.
You state that you disagree the client should always have choice,irrespective of whether various models may suit some clients more than others. You appear to therefore dictate to your clients that there is only one option available.
However, I will say one thing…you guys don’t mind dishing out some biased commentary and agenda,but when someone provides a framework and reference around it, the raw nerve comes out very quickly indeed.
As previously stated, everyone is entitled to an opinion and I respect their right to an opinion…..I do not however have to accept or agree with their opinion.
I don’t think comms should be banned. I do support the ban on upfront. Any model that encourages constant movement of clients from one policy to the next isn’t helping our sustainability problems.
I think advisers (and clients) need choice. It depends on your business model as well.
1) if you run an advice business that offers more than risk you should charge a fee for the advice (flat dollar, no %) both for initial and ongoing, and should dial the risk comms out to zero. This isn’t because it is wrong to take risk comms, more because it ensures you and the client get the best combined solution. They get the advice they need, and you get paid each time.
2) if you have a ‘risk only’ business I still think it is very difficult to be fee only. If the clients aren’t getting covered due to medical reasons, they are unlikely to sign up for a fee just to go through an application process without guaranteed protection at the end.
I agree with Darren Joseph too Craig. That makes sense.
However going outside the discussion and dragging information from Trent’s website doesn’t help the discussion, it hinders it.
We don’t allow our clients to choose to pay us 1% of FUM because it doesn’t make sense to us so disagree that clients should always be given a choice (but respect your opinion).
We make it clear on our website what we do and don’t believe in so we don’t waste anyone’s time.
By saying what we believe in these forums, it attracts people to us that believe the same thing – It seems you interpret it as people have a crack at you.
I have only used hybrid commission for several years now as it adds more value to my business over the long term than upfronts.
I also generally use level premiums where there is significant long term savings (in excess of 50%) over the similar stepped product.
As part of my value proposition, I advise my clients that any insurance policy I establish on behalf of a client and that I am retained as the servicing adviser on – I handle the claims process free of charge. How can I offer that? Because I’ve been paid commission along the way.
Should there be a ban on insurance commissions, I would have to charge clients for every action I perform in relation to their policy – from CPI increases up to claims. With IP claims taking so much time, the cost to the client would be prohibitive.
Not sure there is the volume of complaints about risk products to justify the ban but that doesn’t seem to matter to the regulators.
I have had some response to earlier posting. One says that commission can be dialed to zero. The point is missed that some clients cannot afford to pay when invoiced. So if a zero quote is got and accepted,but the client then wishes for the insurer to pay the fee say $2000 on a $4000 premium how does that change the premium and quote. And if the client wishes to pay the annual review fee say 1 hour at $250 how does that change the ongoing premium and if the policy lapses and the insurer claws back the entire fee how does the adviser get paid. There are too many easy poorly thought through solutions offered.So they try to fix what is not broken based on ideology.
I reckon if we all took either stepped, hybrid or level commissions the pressure on risk commissions would disappear somewhat. The 130% upfront risk comms does not rock my boat anymore. We should and are telling our clients we will be around long term for you.
Matthew Ross, that’s exactly right, everyone IS entitled to their opinion In regard to Trent Alexander,I referred to the strong inference he pushes on his website.This inference is clear in that the definition of true independence somehow guarantees the clients best interests are always adhered to, that conflict in advice does not exist and that by being paid directly by the client for the advice delivers value because it is commensurate to the level of advice provided…… and in my opinion ,is an ideology the 1% of your “true independents” may wish to subscribe to,but is not proven.
The client should always be provided with a choice of how they pay for advice which best suits them. I agree with Darren Joseph in that if all commission payments were standardised, the so called conflict of interest regarding adviser remuneration would be removed.
Can’t remember exactly when this was done but when Labor first proposed a survey was taken from 1200 consumers asking the question “If risk commissions for advisers are banned would you be happy to pay the adviser a fee for service then pay again for the insurance premium versus not paying the adviser anything and they receive the commission” Guess what 99.9% of respondents answered!
Robert
Disagree as you can dial down the insurance to Nil, which reduces the premium so you can charge a fee for service if you wish, you just need to invoice for the client no difference than for investments as most FOFA compliant investment products are the same. Just need to change the way you invoice
Clients get no choice where commission is set by insurers. Insurers could create a premium based on zero commission up front or ongoing. They could adjust it to suit the fee arrangements of the client and adviser. This way clients see the affect of commission. If commission was banned they
still have no choice. Investment advice can show fee deducted up front and ongoing from balances. Insurance could do the same. Those against commission for their own reasons don’t want consumers to have the choice.
how about asking the client how would you like to pay for my service:-
1/ A commission from the insurance company which covers you for advice & reviews including claim management
or
2/ A fee services to setup ( even if the insurance is not taken for what ever reason)
Pay for a review and claims management
I give my clients the Choice, i have Nil take up option 2 so far
Banning commissions on risk premiums is ridiculous. If a conflict of interest occurs because different product providers pay different levels of commission then the solution is simple…. STANDARDIZE all commissions on all risk policies. It then comes down to pricing, policy features, claims paying ability etc. That makes for more competitive products & pricing and reduces all the ridiculous red tape.
Craig Yates, you are developing a habit of putting words in other people’s mouths.
Trent says there is a risk of advice being in the adviser’s best interests; he didn’t say 99% of advisers aren’t trustworthy and/or give conflicted advice.
Everyone is entitled to their opinion and to voice what they believe. To call someone else’s opinion ridiculous is disrespectful.
Totally agree. I have argued for some time that insurance companies should produce true nil commission products.
Once these nil commission products are introduced the adviser can then justify the case for either taking a commission or charging a fee. I am sure consumers will choose and the choice may be either.
Currently the nil commission products offered are not reflective of costs.
What upsets consumers? is it commission? Is it cost of insurance? is it access to advice? I just don’t know.
remember the big fires? Hundreds of houses lost. 30% not insured. Was it commission? premium? apathy? I don’t know. Just know that unless someone sells it when predictable disaster comes I don’t want my daughter or grandchildren begging from charity boxes set up in banks. Ban commission at your peril
To Trent Alexander….you claim on your website that of the 18,000 financial advisers in Australia that only 1%(ie 180)are truly independent.Truly independent in your eyes, being financial advisory businesses that do not accept commission payments because it results in a conflict of interest.For someone who represents a staggering minority of only 1%, you certainly do have a very loud voice as to the inference you push on your website that all other advisers who accept commissions for risk insurance and charge asset based fees for client’s investments are untrustworthy and conflicted in their advice. You started off life as an employed adviser of a large bank and wanted to change direction , but please do not make ridiculous, evangelistic commentary that criticises 99% of advisers and promotes the 1% of which you belong.
Solution:
1) have a regulated commission split across all companies (say 75% upfront and 30% ongoing) seeming conflict removed.
2) AMP pay one of the highest commissions and outside if AMP advisers, not many advisers use them, proof that high commissions influences advisers is rubbish
3) what about all the clients that don’t proceed with insurance, will the client still pay for that on a fee for service basis. And at claim time. I spent 2 years once a month helping a client complete income protection claim forms, didn’t get paid for that.
Our current system is okay, except my point 1 above needs to change.
Some people are transfixed about commission paid to agents for selling life insurance. Commission is paid in UK,USA,Canada, Africa, NZ,Russia, China, Singapore (Source R.C.A (UK) QLHI (Canada)
One reference in Australia with no reference or evidence says that insurance would be 30% cheaper if no commission were payable. As commission is the remuneration of the seller every other product from apples to aeroplanes and carpets to cars would be cheaper if no wages were paid.
I am 72 and have worked in the life insurance industry all my life. Even now U spend a day a week mentoring financial advisers about selling and advising on insurance. It is not the commission that stops consumers buying insurance; it is their inability to get good advice and the failure of an education system which concentrates on (how to get it for nothing) rather than why one ought to get it at all
Agree with Mike re making comms even across the board…just go Hybrid to pay for when work is carried out and ongoing will represent the reviewing and continuing compliance… cannot recall how many times I have said this on forums. Seems insurers are coming to the forefront on promoting this avenue in recent times – well done.
Also SOA’s – if your SOA’s are more than 4-6 pages then they are full of copy and paste BS no-one reads and if client does not read and understand it is not compliant. Change dealer group and get with the program. Its not the SOA that produces the workload, its the 3 appointments (often out of office) and all the research and formulating of advice and then implementation that involves the time to get it right so we implement what’s in the clients best interest.
Do you honestly rthink insurance companies like paying commissions? Of coarse they dont but they also know insurance in most cases are sold to clients not brought. So you think a client would like to pay an additional cost on top of the premium for the SoA and time taken to explore all avanues and a fee every time you discuss their insurance? Then there is the fee your going to charge them when they make a claim and you help them with the paperwork as we do now?
I know most people prefer to purchase a airtick and your meal drinks is included thater than paying ticked and then buying food and drinks seperate.
All sounds good in theory but will it work in reality?
amp risk soa 31 pages fact.
I have compliant 4 page SoAs in my client files.
Let’s not overcomplicate the matter – when someone needs (orders) $1million life insurance, 4 pages is plenty.
Before you scream this is not possible, read the Corps Act about what is actually required and don’t just regurgitate what your AFSL has told you need to include.
Or get your own AFSL and give advice the way people want it – simple and without vested interests.
Buying direct is not always cheaper. The companies just retain a higher profit margin. http://www.theage.com.au/money…
Well if they want to ban commissions on life insurance products then they should level the playing field and ban commissions payable to general insurance brokers, mortgage brokers, stock brokers, real estate agents, car salesmen, retail/store sales people and every other type of commission based sales role. That way there is absolutely no “conflict of interest” in any field so the poor and vulnerable consumer will not be disadvantaged in any way even if they buy a liter of milk from the corner store.
Pull your head in Alexander, if (or when) they ban commissions on risk products we will be better off removing them from our APL altogether and focusing on funds management instead that way all possible forms of “conflicts of interest” centered around risk products will be completely removed from our business (in your opinion). I wonder if the removal of risk products from our APL would mean cheaper PI premiums? That was a joke everybody!
Seems that this argument is all based on the supposed theory that because commission rates vary, Financial Planners only use the products with highest commission. Clearly, this is rubbish otherwise all of the insurance would be written with the highest commission. But, if this is really the concern, then make the commission the same across the board, and then the so called conflict is removed !!
I’m fair dinkum about banning SOAs and other lengthy documents of dubious intent. If we’re taking no commissions or anything that might influence our decisions (I’ll even convert all my clients to fixed fees if need be) and working with a legal requirement of Best Interest…why are we still having to generate SOAs, and don’t tell me they’re getting smaller because they aren’t.
Why aren’t our associations pushing for this? Oh wait, lot’s of paraplanners and course floggers and compliance people would be out of jobs….GOOD. They could get jobs as financial advisers because more people would actually seek advice..AMAZING.
Can’t say I agree with much or any of the above. I’m all for the fee-for-service model, don’t get me wrong, but here are my issues:
1) Not sure I understand how removing commissions would serve the under-insurance problem in a positive way.
2) Anybody who actually offers insurance advice knows that the difference in commissions between companies is completely negligible, and therefore there is virtually no conflict.
3) The end result is the same. Businesses are not going to take a cop to their revenues. So they’ll kill the commissions, charge an upfront and annual review fee (which will still be linked to the policy premium in all likelihood) and the client will be nonethewiser, nor better off.
Comments made by Mr Leggett and Alexander show their lack of understanding of the needs of ordinary Australians. If insurance commissions are banned larger numbers of poorer Australians will be more poorly protected.
Wayne, nice theory but, how will the life companies get product to the market place with no adviser network? They tried this in the UK and it did not work and reverted back pretty quickly. I am sure my clients will pay $1000 fee and $1000 premium no problem- not. Plus the $4,400 to handle the insurance claim? I agree with Gerry no SOA’S.
This is an irresponsible comment based on self interest. Insurance via advisers is cheaper than going directly. No other country outlaws insurance advice being funded by commissions. It is a sustainable practice as proven by the last 100 or more years that leads to a sustainable,competitive and efficient model.
Gerry, as long as you pay your FPA membership each year, pay for your 30 or 60 points ongoing education AND let’s say you pay for a little course that covers some obvious things around commissions that really serves no purpose to anyone. Sound ok to you? Should only be $900 roughly and it’s all online. Ok? Now, what’s your credit card number. A quick expensive course fixes everything Gerry, haven’t you figured that out yet?
I’m happy to rebate commission and take a one-off fee, no problem…..provided 60 page SOAS, 30 page CDFs etc are banned also. How’s that for a compromise?