In an email sent to members earlier this week, the AFA reassured them that they “should be in no doubt” the industry body will be strongly arguing for the retention of the existing Life Insurance Framework arrangements.
“We anticipate that some members will have a strong interest in Question 8, which relates to the continuation of life insurance commissions, Question 10 on the direct sale of life insurance and Question 12 on approved product lists,” said AFA chief executive Philip Kewin in the email.
“Other members will have a detailed interest in the issues that are raised with respect to claims handling and insurance in superannuation.”
Last month, the Hayne commission released its insurance policy questions following the conclusion of the hearings.
The questions covered a broad range of topics including product design, disclosure, sales, add-on insurance, claims handling, insurance in superannuation, scope of the Insurance Contracts Act, regulation, and compliance and breach reporting.
The AFA showed concerns upon reviewing the Volume 1 section on financial advice that the report “does not suggest a good understanding of financial advice”.
It also said it is apparent that the Hayne commission doesn’t seem to acknowledge the AFA’s submissions to date.
“They have specifically focused attention on issues related to adviser remuneration, including such important issues as life insurance commissions, ongoing adviser service fees and grandfathered commissions,” Mr Kewin said.
“While we understand the myriad of complexities and issues with adviser service fees and grandfathered commissions we cannot see any justification for a review, let alone removal of life insurance commissions.”
Further, the AFA noted it will have more to say in its submission with respect to the flaws in the interim report’s position on grandfathered commissions.
“We will be working hard to ensure that the level of [understanding] of these issues is improved and that any recommendations in the final report are based upon a real understanding of the issues and the implications for ensuring the best outcome for clients,” Mr Kewin said.
From what we saw in the RC when it came the the dodgy corrupt practices of Direct Sales and also the FSC our industry bodies should be screaming for a review of how corruption by both the FSC and ASIC brought about the LIF. We should be screaming for a review and wind back not begging to keep it!
It is obvious and proven that risk insurance through advice (and yes commissions) is vastly more beneficial to the customer.
[quote=Ian Bailey]No argument for commissions stacks up when it comes to professional advice. I think a simple solution would be for people that want to be paid by the product producer must be agents and can’t use the term Financial Adviser or Planner. Consumers using agents have the right to pursue the product manufacturer,.[/quote]
AGREE!!! Problem solved! (mostly)
No argument for commissions stacks up when it comes to professional advice. I think a simple solution would be for people that want to be paid by the product producer must be agents and can’t use the term Financial Adviser or Planner. Consumers using agents have the right to pursue the product manufacturer,.
Here’s one. Give clients a choice. “Mr. Client, would you like to pay me $X up front and $Y ongoing out of pocket? Or would you prefer I receive $A up front and $B ongoing via commissions? The difference in your insurance premiums will $Z”. I guarantee many clients, including highly successful business people who understand cashflow and amortisation, will choose the latter. I.e. both business models have a place. Anyone who struggles to see that, needs to widen their network.
This is exactly what I do, and about 80% of people choose the commission option. It allows them to get the protection they need at a lower upfront cost, even if they pay higher premiums in the long run. Most people have increased cashflow in the long run as salaries increase, mortgages are paid down, and kids leave home. They want to avoid big one off expenses earlier in their lives when cashflow is tighter.
Fee based insurance advice and level premiums are an ideal long term solution for those who can afford the higher upfront costs. But many people can’t, and they would be uninsured if that was their only option. Those who are pushing to ban commissions are promoting an elitist agenda which would be detrimental to most consumers.
My experience is completely different. I provide commission free insurance advice but also offer the option to refer to a commission based adviser. Majority agree to pay a fee, not only to avoid the stigma of commission, but mostly due to annual savings.
I do agree that both business models have a place though. To be honest, when I first started actually writing insurance commission free, I was surprised how many opted to pay the fee and use the option.
Sounds like your clients must be mainly people with high disposable incomes. Lucky them. Lucky you.
But it would be redolent of Marie Antoinette to try and impose fee based insurance advice on those with more moderate disposable income.
ASIC REP 498 – Life Insurance Industry Review
Findings
Retail (advised) policies vs Direct and Group (pages 18, 44, 53)
– Retail (advised) policies have the highest payout rates, lowest decline rates
Advisers act as advocates for policyholders, resulting in more disputes with Insurers (v direct, group) – page 51
(and hence one can assume better outcome for policyholders given the higher payout ratios under retail)
RC Interim Report or another episode of Dumb and Dumber.. a bunch of lawyers with no real understanding of the industry beating their chests on a mission to destroy an industry and ruin the lives of many.. This country deserves better and cheap political shots is not the answer
Hayne is right to ban direct insurance altogether.
Once again, something many of us in the industry have been saying for a while, but it had to take an RC to make it happen. Deja vu, a-la Storm?