When ASIC conducts its review of conflicted remuneration relating to life risk insurance products and the operation of the ASIC Corporations (Life Insurance Commissions) Instrument 2017/510, ASIC should consider further reducing the cap on commissions in respect of life risk insurance products, commissioner Kenneth Hayne said in the report.
He doubted that a complete ban on conflicted remuneration in respect of life insurance products would lead to “significant underinsurance”, noting that, as at August 2017, more than 70 per cent of Australian life insurance policies were held through superannuation funds.
“While it may not follow that every Australian who holds a life insurance policy through a superannuation fund has the same level of cover that he or she would be advised was appropriate on consulting a financial adviser, I am not convinced that a move away from commissions for life insurance products would see large numbers of Australians without an appropriate level of life insurance,” Mr Hayne said.
However, Mr Hayne accepted that the best way to be sure of the effect of lowering or removing commissions for life insurance products is to assess what happens as the levels of those commissions are reduced over the next few years.
He also acknowledged the financial advice industry will need time to absorb a number of changes over the next few years, and that there may be some benefit in deferring the implementation of further changes to arrangements for life insurance commissions.
As a result, Mr Hayne encouraged ASIC to take all necessary steps to ensure that it conducts its post-implementation review in 2021 “as expeditiously as possible”.
“If that review indicates that the cap on commissions has not contributed (or, at least, not significantly contributed) to underinsurance, then I would urge ASIC to continue reducing the cap – ultimately, to zero,” Mr Hayne said.
“Unless the reduction in life insurance commissions can be shown to contribute significantly to underinsurance, I can see no justification for allowing this form of conflicted remuneration to continue to be paid.
“While the decision will ultimately be one for ASIC, any decision that commissions should continue to be paid and received in relation to life insurance products should be based on clear evidence that the harm that would flow from abolishing commissions would outweigh the harm that already flows from allowing this form of conflicted remuneration to continue.”
INSIGHT: Alex Whitlock, director of Momentum Media, shares his views on what the Royal Commission means for Australian borrowers and competition.
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We went to a FFS insurance model, thereby reducing premiums by 30% 12 months ago. As I’m sure no-one will be surprised by, we have not written a single piece of insurance since that time.
This is all just gravy for industry super. Get group cover underwritten at claims and burn the whole industry of advisers down.
After 35 years in the financial planning industry one can only be DISTURBED by the continued silence of our Associations, Licensees and Product Manufacturers. Have we not learnt anything from our silence since the Industry Funds started their ‘compare the pair’ campaigns over 10 yrs ago?
We now have RC telling us that Commissions will be banned on contracts/fees previously agreed on by clients when contracts were effected!
A simple case, while commissions are still available at say the 60/20 rate ….
A client takes out $2,000 pa in life insurance policies in one form or other. As an adviser I will soon be receiving $1,200 upfront and $400+ each year thereafter. While this will cover approx 75% of my overall costs I accept them and continue to place this type of business – the longer the business remains in force the more I hope to recover my overall costs and God forbid make some sort of profit and increase the sale value of my business.
Enter the new world where commissions are now banned ….
My client gets to enjoy a 20-25% savings on premiums presuming that the insurers claims don’t blow out because they are now taking on more direct business, their expenses have gone up because advisers are not selling these products to the same degree etc – the Actuaries wont take long to work this out – get the picture guys ….
Well the $2000 premium is now say $1,500. And then I charge my client $1,495 for the FNA, SOA, Application Implementation etc – it now costs my client $2,995 (almost 50% more) for the same insurances.
Renewal comes around and this costs the client another $750 (say 3 hrs of work) minimum as I now do the Review FNA and ROA that my Licensee wants to make sure that I’m still acting in his best interests.
The client is now paying $1500 + $750 = $2,250 (12.5% more). Let’s not make the situation worse if a new SOA has to be produced!).
So my simpler question is – how can scrapping commissions where a client is faced with (50% first year + 12.5% subsequent) HIGHER total costs be better for my client?
There is no doubt that there were a number of great legal minds at the Royal Commission – unfortunately none of them have ever worked in our industry, dealt with our clients, made a difference to clients and their families at a time when it mattered most etc.
The Royal Commission was formed following revelations in the media of a culture of greed within several financial institutions. The issues were within these institutions and how they and their employees acted.
It had nothing to do with non employed financial planners or mortgage brokers!
Rant over.
I like you summation, however you forgot about the hours and hours of chasing your Invoice. It won’t really matter because you won’t have a business
It is obvious that Comrade Hayne owns shares in junk direct insurers, union funds and of course his best friends the banks.
Who will bother with life insurance? Sure if you deal with HNW clients who are happy to cross-subsidise your time in recommending, applying for and following up on the proposed cover.
Apart from that, it’ll be a quick Insurance Needs Analysis telling them how much they need and leave them to their own devices. When everyone has crap cover from Real Insurance that’ll get underwritten at claim time or crap cover from Industry Super Funds, it’ll costs governments (read taxpayers) buckets in additional social security & hospital spending. Nothing like socialising an individual expense onto the public purse….
Wonder if Commissioner Hayne will head off with his cheque to buy a new Bentley … but only from a car yard that employs salaried sales people with no conflicted remuneration?
I believe there is a recommendation in Hayne’s final report suggesting to ASIC, regarding whether LIF has been successful or not should be based on “Underinsurance”. WHAT THE!!!. When did underinsurance become part of the debate??? I thought LIF was to increase the “Quality of Advice”. Why aren’t Life Companies and our Fearless Lobby Associations ranting and raving about that…seems to me this is clear cut evidence that Hayne has no idea. PLEASE EXPLAIN!!!
At this stage, I have not yet seen one comment at all from one Life Insurance company supporting the work that advisers do for their clients and fully supporting the continuation of Life Risk commissions as the most workable, appropriate and affordable method of adviser remuneration.
Where is the support from the product providers that have benefited greatly over many many years from the advised business channels providing quality risk business ????
Perhaps we should be flooding their inboxes with this question?
The insurer’s silence has been deafening…….why should they complain or support us – Lower Commissions, Extended “write back” periods, Premium increases…….Happy Days!
It’s not a great slap in the face, but I do get a small amount of joy in that every 3 months when a new BDM comes on board and wants to meet, I answer the phone by saying that we’ve given up this unprofitable and administration heavy part of the business and please take us off all mailing lists.
I’m very sorry to say the writing is on the wall guys adapt or perish.
Wasn’t the Royal Commission formed in response to complaints about bank’s ruthless behaviour that led to people losing their homes and farms and their greed for charging dead clients ? Where were the complaints that mortgage brokers or insurance brokers did a poor job ? On what basis then were comments on insurance and mortgage broker commissions included in the findings ?
That was the ‘behind closed doors’ discussion that took place between the banks and the RC before the commencement of the circus,
How is it that one man is allowed to arrogantly argue against commission payments and mask his personal views as a Royal Commission finding ? How about we have a Royal Commission into the bias in the questioning used eg There is no ongoing value offered by mortgage brokers is there ? How about we review the legal costs charged to the Royal Commission to assess whether they were fair and reasonable or a gravy train for the lawyers ?
Because ‘its a big club and you aint in it’ – do yourself a favour and listen to this George Carlin video. Says it all . . . talks America but same here. Life companies, govt, regulators, industry associations – all out for themselves with ‘client best interest’ a catch phrase used like a defence shield by those who couldn’t care less about it. Watch this vid and enjoy the genius of comedian Carlin, rest his soul . . https://www.youtube.com/watch?v=_7U5JVk_y7U
There’s no evidence of bias in the report.
love the sarcasm
Once again, officials with absolutely no idea, training or experience relating to the life insurance industry making recommendations on changes! This will go around in circles for years and end up back right where we are, with commissions payable for insurance as there is NO other reasonable solution. If it aint broke don’t fix it!
that’s been the exact case in the UK.
Josh Frydenburg has responded to the reaction to Kenneth Haynes recommendation regarding the removal of commissions for the Mortgage Broking industry.
Frydenburg has stated that making customers pay would benefit the big banks !!!
” In effect you would putting the mortgage brokers out of business and giving that business to the big banks” he said.
” We don’t want to give the banks a free kick” he said.
Can you believe this!…….there is no difference at all in the flow on effect from the reduction or removal of Life Risk commissions to either direct insurers or the banks and we haven’t yet heard or seen any main stream media response to defend our position.
How is it that the Mortgage Broking industry is already quoting Moody’s in respect to consolidating mortgage power to the banks and have the Treasurer agreeing that it will cause major problems and we
are silent?
Finance Brokers Managing Director Peter White is already being quoted in the mainstream media outlining the devastating effect the proposal would have on the consumer.
Where are our associations and the media ?
We need to have a profile quickly in the debate and if not very soon, the momentum will be lost.
The reason Friedanegg has made that statement is because the MFAA have actually been lobbying against this. The CEO has had over 20 media interviews since yesterday am. Have you heard from AFA and FPA? Our industry groups have been the banks personal lapdogs for years, they are a disgrace and being working against IFA’s for years.
Absolutely!!!!!!!!
Where are our associations?????
This is insane. It’s some sort of bizarro pro-bank socialism.
Hayne says “reduce comm to zero” and I say “Hayne needs his head read”! I’d say I’m more on the money than Hayne is! Bloody socialist!
All these comments are accurate and relevant however why is it that this is not being discussed or reported in the media whereas have a look at how mortgage brokers are getting all the media attention!!
What are our Associations that we all pay actually doing to get this in the mainstream media and advise people that the job we do is arguably more important than the job of a Mortgage Broker!!
Having tea and cookies with the big 4 banks….
I think it is now clear that Kenneth Hayne has been a Labor voter all his life and is a strong supporter of Industry Super funds.
He quite obviously sees any occupation such as Financial Advisers, Real Estate Agents, Mortgage & Finance Brokers or General Insurance Brokers as bottom dwellers who are corrupted through the receipt of commission.
He also appears to have an ideological objection to any form of commission payment as a form of remuneration even if exceptional advice, service and client care is present and regularly demonstrated.
This isn’t about logic, this is about a clash of ideology and someone in power exerting their own bias and lack of knowledge as a basis for change.
Kenneth Hayne would not be able to document exactly how he believes the consumer would benefit form a reduction in existing commission, let alone the ridiculous notion of eliminating commissions entirely.
The reason he would not be able to identify the advantages is because they don’t exist.
This is a disaster in the making and it is now time for the industry and the representative associations to stand up and challenge this position effective immediately.
and he was employed by the chardonnay socialst, Turnbull
Hayne = bloody idiot
I have had 3 cases over the 3 over the last 4 years where an insurer has declined a clients insurance claim. As a result of my advocating for the client the claims were paid. I received no direct payment for working on the claims which were time consuming other than the ongoing commission payment i received which is my client service package . ASIC and Mr Hayne please consider the full picture and understand the full scope of service we provide before you say commission is a conflict.Dig deeper in your enquiries and don’t accept half truths anymore. If i hadn’t stepped in the insurers would have won and where is the fairness in leaving a client stranded in their darkest hour. To charge an hourly rate for the time would have been huge and eaten into the payout they needed. We do this job to generate income but we also care about the clients and the end results. I wish i could say the same the same for insurers. God help clients making claims if their are no advisers to help them. They are vulnerable and at their weakest at claim time.Please remember this in 2021 .
The relevant text of the final report in relation to commissions (pp 179 to 189) is embarrassing. Not only for its confused drafting style but for its errors and it’s shockingly superficial analysis of the subject.
Granted, there was a lot to get through in 12 months, but this level of analysis is something you’d expect from a first year law student.
The consumer and the Australian taxpayer will suffer as a result of this document’s influence on half-wit policy makers.
probably written by a first year graduate …. there was an army of lawyers in the back rooms drafting all this …. would have had a meagre outline or a few bullet points from Hayne or one of the senior counsel then they churned out the words hence the garbage outcome.
Well said!
I agree
I have just spent 12 months on an Income protection claim with a 30day wait and they are still charging the client he is lucky he still has money in the bank… they are trying to bleed clients until they can’t afford premiums and then stop paying and then opps not insured anymore due to non payment most clients would fall into this trap if they stopped being paid wonder just wonder how many cases like this exist and from out beloved AIA.. Pushing group insurance through SunSuper AONHewit and gods knows who else watered down junk insurance is the future people…
Ok. So Hayne acknowledges that the insurance held in super is insufficient.
Does he understand that the sales representatives who work for these super companies are not allowed to advise clients on the level of cover which is appropriate for them as they operate under general advice? Does he understand that the majority of insurance advisers will leave the industry due to FASEA?
Does he understand that no one who is coming into the industry after compelting a 3 year bachelor degree will want to be an insurance salesman?
Does he understand that the direct insurance sales model has produced all the negative results which lead to the probs uncovered in the RC?
Does he understand that people dont go out of their way to get insurance advice and always believe that “she’ll be right” and often just cover their mortgage with Life and TPD cover which will still leave them and their famailes destitute if something happens?
Has he asked the question of what happens when the 2 year income protection benefit runs out?
With the elimination of risk advisers already under way from FASEA, coupled with no commissions, Insurance advice will become almost non existent. General Advisers are not allowed to recommend levels of cover!!!!!!!!!!
Who will be able to help clients assess the correct levels of cover? Institutional advisers working for the product providers getting paid bonuses instead of commissions and limiting their advice to their product providers products.
How will the removal of access to independent personal advice do anything other than lead to further underinsurance?
Ask the insurance companies. The reduction in commission has already lead to a decrease in business in flows.
Please explain you actual agenda Kenneth Hayne and disclose all the payments the banks have made to you
Why would he do this? he has been paid his dues . its up to the government to decide now .
this whole thread raises many valid issues. Hayne is breaching compliance severely if i read this as reported. He is so far off the mark that if he were in the industry and making recommendations, then he would be under remediation!!! And should be banned.
Why is insurance in super the only solution? he doesnt know jack siht! there are many cases of validity where insurance from a adviser is a premium result.
Outside super for those with no beneficiaries
Outside super for business needs etc
TPD with regard to taxes for those outside preservation age
No trauma consideration
Poor quality products in comparison.
No level premium options for those seeking to meet longer term needs. (unless by enduring rollover to external product)
Im sure there are 20 more if I had the time. Super restricts insurers quality offering due to trustee obligations
Commissioner Hayne may well have met his greatest challenge of which he wasn’t quipped for or had the knowledge to review it competently
I know i will not be able to carry on after over 30 years. Im saddened by this more than anyone can grasp (maybe)
This is what happens when you skim the surface of an issue and don’t dig just one layer deeper to uncover the actual facts. Sure, let’s say that 70 – 80% of working Australians hold their life policies through superannuation (that figure seems reasonable so I’ll go with it). What insurances though? They will generally have Life, TPD & IP. However if we go a bit further, this is where the facade starts crumbling.
Most policies held in super are ‘default’ policies and are not underwritten. Life cover is much of a muchness, as it pays on terminal illness (most now using the 24 month definition) and when someone dies. A dead person is not a burden to their family or society (not trying to be harsh here, just stating facts). However looking closely at the policy wording regarding the terminal illness, a high quality policy will state “IS LIKELY TO lead to death within 24 months” whereas the default policies normally say “WILL lead to death within 24 months”. It is much more probable for a medical professional to say that something is [i]likely[/i] vs [i]definite[/i] in these situations. In my experience, the benefit amount is normally insufficient for most people (after running through their needs), especially those in the eastern states with large mortgages.
TPD ‘any occupation’. Many default policies are a restricted version of any occupation where the insurer requires the insured to go through ‘reasonable retraining’, with no specificity around what ‘reasonable’ means. The likelihood of someone being paid on one of these policies is near zero. Again, even if they were to be paid, a person who is TPD is likely to have more costs, not less than before they were TPD. As with Life cover, the benefit amount is usually a considerable amount less than what the insured would need.
IP: Underwritten at time of claim (uncertainty), single tier definition of disability (vs 3 tier for high quality products), capability and offset clauses to name but a few. These are not ‘luxuries’; they are the bare necessities to allow someone to maintain an income when they cannot work due to illness or injury.
Trauma: One of the most claimed policies and yet not available in super, so the majority of people that hold this cover will be advised clients. This cover is a godsend for families when the worst happens; i.e. one of the breadwinners is severely ill or injured, but not TPD, not terminally ill and not dead. I’ve seen on more than one occasion trauma cover helping to ensure people stay afloat in incredibly difficult times.
People in Australia already see insurance as a financial burden. Given the increased compliance requirements that are seemingly increasing every day, advisers will have to charge a fee (be it the difference between the reduced product commission and what they need to break even, or a larger fee if commission is removed). This will mean that only the wealthiest people will be in a position to pay for cover, and it WILL increase the [b]already significant underinsurance problem![/b]
Maybe next time there’s a royal commission into the legal industry, they should get a financial planner to run it.
Mr Hayne clearly doesn’t know or understand, with the commission structure currently in place there is ALREADY an under-insurance problem in Australia. So what evidence allows him to believe it will not become an issue if eventually comms become zero? There will still be or great under-insurance issue regardless of comms or no comms.
To all of you. Heads up. The UFAA (United Financial Advisers Association) has been founded to address all the issues covered here. Look us up. Register. And together as one voice we will make our point of view stronger and credible – to those that need to hear it. Our clients and the consumers of Australia. p.s Pete or Sue please contact me to discuss.
Insurance is sold not bought. The cover in corporate super is insufficient. Dying without the proper cover ultimately places pressure on Centrelink.
Very true. Bankrupt insurance business owners will also place a burden on Centrelinkl!
…as well as those suffering from clinical depression…
Given the fall in new business life risk policies has already begun to bite, i am somewhat surprised that Commissioner Hayne hasn’t bothered to check the numbers….. or has he and they don’t bother him? .
I do wonder if him and his ilk have considered reducing legal fees so that the man in the street can more easily afford advice? as someone who has spent the vast majority of the last 35 years specializing in Risk Insurance, my practice is now focusing on fee based financial planning, we may eventually include fee based Risk advice BUT not get involved in the implementation unless an additional (and reflective of the costs associated in getting a policy on the books) fee is charged.
as an aside, i believe that some research was done on thew sums insured paid out from Industry super funds (life cover) vs advised life cover to victims of the Ash Wednesday bush fires, I believe it was a significant multiple putting advised lives insured ahead of default super. these facts may need checking as my memory on the actual numbers is now a bit vague
Mr Hayne, we all know that this was the predetermined outcome from the start. You only needed the facade of the Royal Commission to deliver the result. The consequences are huge for the industry and for Australians. I hope that clients who are underinsured at time of claim receive a copy of your Royal Commission Report when they are financially destitute and queuing up Centrelink for a benefit!!!!
And is Hayne planning on refunding his payment for time as Commissioner to his clients (ie the Australian people)? Because dialling down insurance comms to 0% would be the same thing – Advisers doing hours and hours of work sometimes over many months, but receiving nothing for that time. Not to mention what it will do to the underinsurance problems in Australia.
Orchestrated, designed, manipulated and delivered to wipe out independent advisers from the very beginning….this has been going on for the last 10 years and now Hayne is the delivery device.
There is an a very obvious mandate that has been designed over a period of time.
The flawed ASIC 413 Report was the catalyst in which they hoped would nail the industry then, but then LIF delivered a different and ridiculous outcome that would have incensed those looking for blood to eliminate commissions back then.
The vacuous and repetitive claims by Kelly O’Dwyer and her best friend Sally Loane from the FSC crowing that lower commissions would enhance consumer outcomes without any evidence were and still are utterly negilgent lies.
This is wrong in every sense and the lack of understanding by Hayne is culpable.
Thanks, your correct and so are 99% of of what i have read in these 2 pages of comments. Maybe this whole thread should be sent to Josh, AFA, FPA (and other associations) and of course Scott M.
This RC was about misconduct … how much evidence was presented of misconduct in the aquisition process of risk products? Of that evidence how much of that misconduct was that attributed to the existance/ size of commission … pretty much chirping crickets