In a statement, director of the non-aligned dealer group Don Trapnell said the final amendments released last Friday by the government represent a significant improvement on the original proposal.
“Now that the government has spoken, all parties – the Association of Financial Advisers (AFA), the Financial Planning Association (FPA) and the Financial Services Council (FSC) – should embrace the changes and work toward meaningful outcomes for consumers,” he said.
The AFA and FPA had issued statements on Monday welcoming the final LIF. However, the FSC said it believes more refinement will be needed in the longer term to improve consumer outcomes.
Mr Trapnell said Synchron advisers had made it “abundantly clear” that the most serious challenge facing their business was the proposed three-year responsibility period on commissions.
“We are delighted to see that the Assistant Treasurer Kelly O’Dwyer has acknowledged the unfair burden a three-year clawback policy would bring to bear and has conceded to a two-year clawback,” he said.
Mr Trapnell added that Synchron would be seeking clarification on behalf of its advisers as to which insurers will be passing on the full commission and which will be discounting earnings by not paying policy fees and frequency loadings.
“Some life companies currently pay new business commissions on auto increases and we don’t see any impediment to this practice continuing. In fact, Synchron believes there should be greater pressure brought to bear on life companies to pay them,” Mr Trapnell said.
Mr Trapnell reiterated the warning issued by Ms O’Dwyer that ASIC has been charged with the responsibility of conducting a review in 2018 which will see the introduction of a level commission-only remuneration model, should this revised framework not produce significant improvements.
“The FSC has also said it expects all advisers to move towards a fee-for-service model over time,” Mr Trapnell said. “As underinsurance is likely to be an ongoing problem, we believe a fee-for-service model could only result in poorer outcomes for consumers and for advisers.”
The changes make the proposals better than they were. In reality an existing risk insurance business should be able to make them work however a new entrant would not be able to sustain their business over the initial establishment period. In other words adviser numbers will decrease over time. Upfront commissions are also not sustainable so the only issue is whether 80% or 60% is fair with my personal opinion being that the process can be worked through at currently proposed levels.
In relation to the 2 year clawback period, it is better than 3 and I can understand the logic of this timeframe from an insurer sustainability perspective. Again the method of implementation (ie) percentages involved are debatable but overall the 3 year period originally proposed was not realistic so a reduction is a strong positive.
The worst part however is that no improvements will be found in 2018 as after all the changes do not make advice easier to obtain with no real changes going to be made by ASIC, product manufacturers or licensees to make the advice process more efficient. This therefore means fees will be implemented which will stop people seeking advice which will increase the underinsurance problem which means that level commissions will come in, which will definitely destroy the industry. A cynical view is that this was always the intention of these current changes.
Now that the advisers have taken the force of initial moves it is time for the other participants in the industry to show how they will assist in fixing a perceived problem of underinsurance and industry sustainability and if they do nothing then this will definitely highlight their original intention.
Love the phrase “…a review in 2018 which will see the introduction of a level commission-only remuneration model, should this revised framework not produce significant improvements.”.
It is debatable whether the alleged problem – churning – actually exists. But – even if we accept that this is a problem – the “solution” forced on us by the FSC will not fix it – it is not even designed to do so in reality.
Since the solution cannot possibly fix the non-existent problem, there cannot possibly be any “significant improvements” by 2018.
We will therefore have level commissions from that point on. The FSC has stitched this (and all advisers) up nicely.
Don you are sounding like a Dealer Group Principal now than as a Financial Planner, your annual dealer fees to advisers will not be reduced will they.??
What a load of rubbish, the three year claw back is the most important issue. The advisers I speak to tell me the issue is the massive reduction in commissions and changes to cash flow the clawback is in the background.
I think if advisers were surveyed the majority would be 100% against the changes to commissions. Unless they are past of the handful surveyed by Zurich.
I am also a very proud Synchron Adviser and member of the AFA, but I cannot agree with you Don, the LIF reforms do nothing to assist the consumer and are just another step in the Banks and Insurance companies efforts in wiping out the Independent Financial Advisers, the only change we have is that we have a two year claw back not a three year [ I wonder if I can send my new car back to the dealer in two years time just because there is a new model available ]. No other small business in Australia would accept a 50% pay cut so why should Financial Advisers. The Life Insurance Reforms do nothing for the consumer or the advisers, all it does is INCREASE the PROFITS of the BANKS.
We are virtually on level commission when you take into account the clawback structure and half commission, what I find most interesting of all this is why we have had to sacrifice our earnings in the consumers INTEREST and the Banks/Insurers have had to do nothing other than halve our commission, where is the point of this LIF or should it be called ACF advisers commission framework.
I’m a very proud Synchron adviser as you know Don but these reforms are still very unfair to ‘riskies’ like me so I’m still finding them very unpalatable to swallow.
They could have all been avoided if not for the of the insurance companies and the extreme minority of advisers out there who chose to rort the Upfront Commission model.
As for the FSC…….phhhht! What a disgrace.