ASIC said that it would not seek any changes to life insurance commissions until at least 2021 when it conducts its review.
The Hayne final report recommended that the risk commissions cap should “ultimately be reduced to zero” unless there is a clear justification for retaining them.
But speaking exclusively to ifa, Lifespan Financial Planning chief executive Eugene Ardino said reducing commissions to zero will mean that the vast majority of advisers who advise clients on insurance simply won’t. In addition, a significant portion of clients both current and potential will simply go the direct route.
“They’ll go online and select something and just look at whatever’s the cheapest. That’s what will end up happening,” Mr Ardino said.
“Less people will get advice, there’ll be far less advisers, probably there’ll be enormous consolidation and only the advisers that have diversified into other areas of advice or that specifically deal with high-income earning professionals will survive.”
Risk advice will be unaffordable and inaccessible, Mr Ardino argues
Mr Ardino predicted the cost of advice will go through the roof because, in the absence of a recurring income stream, advisers will need to be paid for every minute that they put into the initial piece of advice.
“That can be enormous for insurance. Insurance advice is highly technical if done properly, especially if it’s not a clean-skin client,” he said.
“If the client has any kind of medical issues or if they’re large sums of insurance, it can be literally weeks of work. Work out what the hourly rate is and you could be talking tens of thousands of dollars in some cases…it will have an enormous impact on the industry.”
Perhaps most concerning, according to Mr Ardino, is that consumers will be unable to access advice. “It’ll be a disaster for in terms of wanting to get people insured,” he said.
“You eradicate misconduct by putting every everybody out of business quite effectively. But is that what you want? Is the misconduct so bad that we just want to take the option for advice away from most people? That’s the question you have to solve for, but we’ll see what comes out in the report.”
Premiums and volume major factors to future affordability
When it comes to the future affordability of risk advice, Mr Ardino says there are two issues at hand. “One is an issue of premium. With younger clients, their premiums, even though the premiums are going up, the premiums are still reasonably low so they can afford the premiums,” he said.
“What the issue with those clients is because the premiums are low and commissions [have] been cut in half, advisers can’t commercially service them anymore. It’s a $1,500 premium and the commission is at 60 per cent so that’s $900. If the client’s prepared to pay, how do you position the fee? Often, you’re positioning it as a fee for advice, but a lot of these clients are really not after advice. They’re after a piece of insurance.”
As a result, Mr Ardino said a lot of these clients will end up going the direct insurance route and be sold a policy over the phone.
“It may not be fit for purpose because the person at the other end of the phone is really just trying to sell a product and they’re a sales person. I don’t have an issue with that in principle, but wouldn’t it be better if these people were getting advice rather than getting sold? In terms of making premiums more affordable, it really just comes down to the quality of cover.”
The other issue Mr Ardino points out is that, like any business, insurance is essentially a volume game.
“When you’ve got advisers who are directing clients to the better value policies, it forces the insurer to be more competitive, whereas when they’re using other marketing strategies that don’t involve advisers in directing clients to the best products, they can explore other strategies rather than having to be competitive,” he said.
“For advisers, intermediaries perform a very valuable function when it comes to helping consumers get what they need rather than just get something that they think they need because it’s being sold to them.”
If the gov’t want to ban Risk Commissions and impact existing Risk books, then I hope they are prepared for the biggest class action they have ever seen.
Like ASIC actually cares about the public and their needs
Keep all commissions the same, an up front an amount for the advisers cost of providing the advice ( around 60% up to a capped amount of $5,000 and an amount to review, and assist the customer with claims, maintaining the right amount of cover*( around 15% up to a capped amount of $500 per annum plus an amount for assisting with claims )
The cost of advise is prohibitive any other way than the current system , the floor of the past was the difference in the upfront amounts between insurers and the fact big premiums of say $25,000 were paid $25,000 or sometimes more than 100% of first year premiums
Cap it at $5k and you may as well ban it altogether
15% yeah right, good one. Sounds like you work for Choice. Also, the bigger the premium the bigger the risk to the adviser, so why can’t they be paid more.
Can you provide some commentary around your arbitrary figures? Why $5,000 and $500?
Do you think theses amounts should index with CPI or be fixed? and who would manage that? or determine if CPI was too generous or not generous enough?
If a cap of $5,000 @ 60% was to apply, why not a $5,000 cap @ 100%?
I also wonder why 15% capped at $500, why not 100% capped at $500 for renewal or a flat amount of $500 on all policies?
The FLAW of the past was not big premiums paying big commissions, as those types of cases are much harder to find, underwrite and maintain. Without the reward for effort, why put in the extra, when i could probably see and complete 5 $5,000 premiums in a similar timeframe. The FLAW of the past was people not understanding Insurance and the amount of work required to complete a $25,000 premium having an input in the discussion around remuneration at all.
One thing we’ve all seen in this industry, is that we have had everything but common sense prevail from the regulators. The reality is ANYTHING but 80/20 & the industry dies. We all know it, but when incompetent ASIC runs the show, expect anything.
70/20 can work in my view. 60/20 or lower can’t but I think we are on the same page with slightly different calculations.
Its not just that commissions have halved, its also the 2 year clawback. With all of the compliance a 60% comms is simply not covering the costs. And then even at a nominal rate of 1 in 10/15 customers not making it past 2 years we are actually loosing money writing business. The LIF is a disaster for everyone.
the only way commissions will stay is if the big insurers band together to lobby… it’s when their inflows dry up will be when they start to consider planners in this debacle
He assumes ASIC cares or is competent, neither of which are accurate.
If they have learnt anything from the past couple of years (no guarantees) they should be bringing comms back up to at least 80/20 to stop the disastrous slide of reduced insurance coverage and reduced profits by the insurers and planners. We are facing an underinsurance cost blowout to welfare funding.
…any more importantly, why does ASIC think we should be paid nothing for everything we do? If you think you can do a better job ASIC….you go insure Australia! You seem to have the answers.
I continue to find it absolutely staggering that experienced people in this industry, who know exactly what they’re talking about, people like Eugene Ardino above, can clearly articulate to the media, the Government and the regulators what’s going to happen to consumers, life insurance companies and the insurance industry here in Australia if the relentless assault on financial advisers income continues – yet no none seems to be listening or cares.
What in God’s name is it going to take for these stubborn fools to realise what they’re doing? I don’t get it – but why also would any adviser stick around now too?
Even those who say that by weathering the storm, massive opportunities will come, I simply ask…how can risk advisers make money in this industry anymore with the amount of overbearing paper & compliance work and lingering threat of hair-splitting litigation when all the industry is prepared to pay now is a meager 66% – less GST / licensee fees / PI insurance / compulsory ASIC funding fee / trumped up Tax Practitioners Board fees / mandatory research software and ongoing online education fees? Why would you bother?
[i]”What in God’s name is it going to take for these stubborn fools to realise what they’re doing?” [/i][i][/i]
Class action? Against those who intentionally create and defend unfair, unreasonable systems of over-regulation which are crippling/have crippled and will continue to impede an entire industry. What else do you do when matters of logic are ignored. Continue to lobby against those that don’t really care?
[color=gray]”class action” lawsuit is one in which a group of people with the same or similar injuries caused by the same product or action sue the defendant as a group. Other names for lawsuits brought by a number of people who suffered similar harm or losses are “mass tort litigation” and “multi-district litigation” (“MDL”).
There is no exact number of individuals that you must have before you can file a class action. However, as a general rule, less than 20 individuals is not enough for a class action and more than 50 individuals is almost alwa[color=gray][/color]ys enough.[/color]
I’m in
Eugene Ardino makes a lot of sense. If the commissions go, the advisers go – it would be interesting to know how many advisers submit new policies before LIF, after LIF and this year. It is already uneconomic for most advisers. Any more changes and the market will crash.
Good piece, well put Mr Ardino. Look at the experience overseas, rather than be guided by some ideological concept.
Everything you say is totally correct Eugene. You have to think that amongst the people in ASIC there are some who understand the simplicity of what you are saying and why Commissioner Hayne did not understand the logic of what he said, or he meant to say more.
I’m fairly confident Commissioner Hayne, as a lawyer, preferred a model where you indeed bill the client for your time. However being a lawyer he would have been aware that the consequences of that is that people without money don’t get legal advice when maybe they should. i.e. the amount of people without wills, PoA’s etc.
So if you want to see what a failed user pays advice scenario looks like, Do a survey of Australian with a house and mortgage, super and dependents, and see how many don’t have a valid will or EPoA in place. The number will be staggering.
Michael solicitors have found ways to gauge clients who can’t pay hourly rates They are called class actions and they help themselves to over 50% of the winnings. Hayne has been quiet on this practise.
Thank you for continuing to highlight these very twisted outcomes of the Royal Commission Adrian. Is very hard to have faith that any commonsense outcome will prevail in all this as the people making the decisions really do not know the impact of what they do. Direct to user insurance product continue to get worse and worse in quality and value. Our no-win no-fee lawyer friends have a lot to answer for that alone, yet the govt seems to take no notice or concern of their ”profession” or their professional standards or ethics (seems they are not required)
That’s because the majority of politicians are ex lawyers or failed lawyers
It is laughable to think that insurers would rely on advisers do all the work to bring clients on board for free and charge a fee direct to the client for this onboarding. It is more likely that the adviser will help clients evaluate their insurance needs for a fee but leave the whole application process up to the insurance company. They will have a huge gap to fill.
I said when LIF started that there was more chance of commissions going back to 100% than zero and nothing that has transpired has changed my mind.
The client may NOT be after advice , and just a piece of insurance, however we are NOT allowed to just provide product advice without considering the client’s situation first. so they get advice whether or not they want it.
yes I know we can do client directed SOA’s. BUT , do too many and watch the regulator zero in on you. unless we see a return to at least an 80/20 model, we will still be very selective who we will take on as a risk only client.
I hope he’s right! Problem is he is speaking common sense which is not something ASIC is known for. ASIC are run by lawyers who despise commissions and i’m sure they are licking their lips for 2021 when they can get rid of those pesky ‘commission salesman’