Calls for insurance commissions to be banned

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Industry Super Network (ISN) has welcomed ASIC’s guidance on conflicted remuneration released on Monday, but says remaining commissions must still be removed from insurance.

David Whiteley, chief executive of ISN, said the advice industry needed to transition towards “professionalism”, which would require advisers to adopt charging practises with no bias, to better align the interests of advisers and their clients.

“The Future of Financial Advice reforms represent an important step in this direction, but over time, the industry must continue to remove the remaining commissions on insurance and percentage based charging on investments, which replicate the same conflicts as commissions.”

ISN also said the Government’s release of draft regulations which clarify grandfathering arrangements for the ban on commissions and other forms of conflicted remuneration, will allow for the transition towards a “true profession”.

“The draft regulations strike a good balance between allowing an appropriate transition for the financial advice industry to comply with the Future of Financial Advice reforms, while ensuring that all new financial planning clients will be afforded the higher protections that the reforms have been put in place to deliver,” Whiteley said.

The network plans to make a submission to Treasury to support the drafting approach, which it says “balances generous transitioning to assist existing financial planning businesses, while ensuring that all new  clients will benefit from the higher minimum professional obligations established by the FoFA reforms”.

  • Jamie Forster on 13/03/2013 12:00:21 PM

    I have just read with interesting GAB's and Pat's discussion.

    It raised on key issue for me. When a professional provides advice, they are typically expected to not only put their client's interests first but to also be responsible for that advice. In accepting responsibility for your advice you are taking on professional risk and are entitled to be remunerated for that risk. This is something that the medical profession had to address in a hurry some years ago.

    Just as there is more risk associated with a $4m portfolio than there is a $100,000 portfolio, there is more risk associated with a $4,000,000 insurance gap than with a $100,000 insurance gap.

    It is entirely your business if you (a) do take responsibility for your professional advice and (b) expect to be compensated for taking on that professional risk.

    I also think that it is ironic that your average surgeon has a greater appreciation of risk than some 'risk specialists'.

  • Jamie Forster on 13/03/2013 11:39:33 AM

    I'd really like to see what solution David Whiteley proposes that will remove "conflicts".

    The "tyranny of the billable hour" has long been acknowledged. The conflict in charging a set fee is very obvious and has long been acknowledged particularly in the medical and dental professions in relation to over-servicing.

    WRT insurance, commissions will generally reflect very well the complexity of the advice and the work put in. Commission also aligns very well in remunerating the adviser for the professional risk they accept when the provide advice.

  • GregF on 7/03/2013 3:09:43 PM

    Hey Pat, I follow GAB's argument better than I follow yours. I'm not sure what cogent means, but I find them convincing, forceful, strong, well-argued, logical, rational, coherent and sound. See ya

  • Pat on 7/03/2013 12:48:45 PM

    GAB...your inability to construct a cogent argument is tiresome. See ya.

  • GAB on 7/03/2013 11:43:28 AM

    Pat...i call it how i see it. None of my clients subsidise anyone else. My poorer clients are pretty much treated as pro bono work....that's because i'm a good bloke and i won't let excess regulations shut them out of getting some advice. You stick to your way of charging and I'll stick to mine. Funny how the fixed fee became more popular when the markets were falling...protecting revenue or claiming to become more professional, which was it? A concerted effort to boost revenue for dealer goups and some non-aligned advisers i suggest.
    You see, whichever way one charges it is open to abuse or self interest. I'll charge a fixed fee if it suits or a percentage, depends on the market i'm servicing. Case closed....had enough of this argy bargy.

  • TG on 7/03/2013 11:07:35 AM

    It's quite simple, a fee for service on risk insurance never worked in the past, will not work now & will never work in the future! This new framework has apparently come to the surface to serve the best interests of the client. In my 6 years of risk advising, I have not had 1 client complain to me about the current commission payment structure. The government already realises that a ban on commissions will only increase the publics dependancy on disability benefits going forward. As advisers it is common to spend several hours advising, recommending & trying to implement cover on behalf of a client only to find out that they are uninsurable or ineligible for cover! Do you expect a client to still pay a fee for our time even though we were unable to find insurance cover for them? Commission payments on risk insurance is the only logical solution for all parties whether it is liked or not!

  • Pat on 6/03/2013 4:37:44 PM

    GAB: You seem to make a lot of comments on what a professional is not. That's fine; I don't have to agree with you. And your name calling suggests you are not a professional.

    I may have referred to large premium payers subsidising smaller premium clients. Advisers who charge commissions or percentage of FUM commissions are in the same position - do you tell your $4m client that they are subsidising the $10k client?

  • GAB on 6/03/2013 3:51:16 PM

    Pat...couple of things. Your set fee pricing does not guarantee a good job done. A perecentage FUM does not guarantee a good job done, and neither does commission. I don't write risk. My income is predominately from managing client investments ongoing. I have a client with $4M i look after and I have a client with $10K i look after. The big client pays me more than the small client...small client is probably unprofitable but i won't turn them away. You make far too many assumptions for a professional. You hold yourself up as the messiah...but i think you're just a trumpet blower.

  • Charles Pillay on 6/03/2013 3:13:27 PM

    A revenue protection measure by the industry super funds - most make a load of undisclosed commission money out of their members by overcharging on insurances.
    The bottom line for insurances that are provided within superannuation policies often jus comes down to cost. For almost all of my clients the cost of insurance I recommend is cheaper OUTSIDE the industry superannuation fund. Only reason to keep the insurance going within the industry fund is if they have medical issues.

  • Pat on 6/03/2013 3:00:55 PM

    Mushroom - the policies we use allow us to strip out the commission so the client pays a 30% cheaper product for the life of the policy.

  • Pat on 6/03/2013 2:59:26 PM

    Let's Get Real: why?

    GAB: I wouldn't be able to charge fees if my clients didn't trust me. Regarding your first point, have you never heard of accountants/lawyers/doctors being critical of their colleagues, or do they all always sing the same tune? Tell me, do you tell your clients who pay the highest premiums for their policy that the commission you receive and will continue to receive subsidises your work you do for smaller clients?

  • Mervin C Reed FAICD on 6/03/2013 2:31:45 PM

    The ISN should also include a ban on profit share with group life programs and any over-rides recieved by ISN members. Why do the ISN not disclose this to their members and also disclose the fees paid to Trustee's. We await a level playing field with the new Government.

  • mushroom on 6/03/2013 2:24:37 PM

    The client pays. They pay by fee or they pay by commission - but the client pays. The underinsurance problem has developed over a long period of time where the cost of distribution has been tied into the cost of the product. This needs to change. Unbundle the pricing of insurance contracts from the comission. This allows the adviser to choose how they will be remunerated and provides transparency to the consumer

  • Buddha on 6/03/2013 2:08:01 PM

    Is the argument that commission is set at such a level to be commensurate with the value of the services offerred? In other words, it is really the adviser providing a financing method to their client to allow them to smooth payment. I actually cant see any other valid argument in favour of commission (except that it is a necessary evil foisted on the adviser and fully offset against the fee for service). Are there other arguments?

  • GAB on 6/03/2013 1:31:19 PM

    Pat...Professionals don't slag on their own kind. Professionalism is as only as good as how your client sees you...a bit like trust actually....takes years to really develop and is earned, not bought with cheap shots on others.

  • Let's Get Real on 6/03/2013 1:27:48 PM

    Pat, please post your fee schedule on this website

  • Pat on 6/03/2013 12:19:16 PM

    Buddha: that may often be said, but it doesn't make it right. Commissions have done nothing to solve the underinsurance issue.

    We have been charging fee for service on everything for almost 8 years, rebating commissions into cheaper products that the clients receive the benefit of every year. That includes helping clients manage claims processes.

    I guess many advisers find it easier to try to maintain the status quo that benefits them rather than actually adapt to a more professional structure that will benefit the client.

  • PETER CORRIE on 6/03/2013 12:16:30 PM

    INDUSTRY SUPER NETWORK ISN ARE THEY SOCIALIST ORGANIZATION AS WELL.THE SOCIALISTS IE LABOUR PARTY IN THE UK BANNED COMMISSIONS AND GUESS WHAT IT FAILED AND THE INDUSTRY WENT BACKWARDS AND A LOT OF PEOPLE BECAME UNEMPLOYED.COMMISSION HAS SINCE BEEN RE- INSTATED. CONFLICTED REMUNERATION IS A SOCIALIST TERM TO TO TRY TO STANDARDIZE AND CONTROL PRICING BUT IT DOESN'T WORK ,AS WE KNOW ,INSTEAD IT GUARANTEES REDUCED INCENTIVE ANY GROWTH AND PROSPERITY. IN OTHER WORDS IT INTERFERES IN THE MARKETPLACE THAT IS SUPPOSED TO BE FREE.

  • Alan on 6/03/2013 12:15:12 PM

    So Mr. Whiteley has popped his head up again, the self professed guru of morality and all things financial. Who the hell cares what he says, the ISN are just a bunch of leeches living off union super funds. How about concentrating on YOUR responsibilities and stop dictating what others should be doing. You have no idea about the risk advice industry so just shut up. I totally agree with Fedup, come the election and the riddance of the shambles in Canberra, the ISN will be a non issue. So go away and mind what you should be doing because you are not doing it very well.

  • Buddha on 6/03/2013 11:57:31 AM

    It is often said that if the cost of setting up insurance were passed on then many would not take out insurance. The truth of the matter is surely that they are passed on but not in a transparent way. Put another way, this is simply saying that no one would pay us if they knew what we charged isnt it.

  • Raj on 6/03/2013 11:52:10 AM

    Will, I totally share your thoughts. Banning commissions would definitely have an impact in people being underinsured where the figures are already alarming. At current stage, Advice cost is being funded from Insurance companies which the clients won't be happy to pay. Also, this won't change client's attitude when making a decision to purchase right level of protection covers. I believe ISN is only looking after their interest and not Industry interest at whole.

  • Dave on 6/03/2013 11:21:14 AM

    Will - very well worded, great thoughtful response, sticking to the client as the main concern - as they should be. Shame the ISN or should that be USN don't do they same. It is them that have true conflicted thoughts on there mind when they make these comments. I wonder if they have looked into the case in point in the UK - where comms were removed from insurance and then returned when insurance levels plummeted.

  • Fedup on 6/03/2013 11:20:58 AM

    In time,once we get rid of the current bunch of morons at the wheel of our country, the ISN will become a non issue. Certainly not be given the status of adviser and legislator pontificating about the benefits of socialism. Unions and union funds telling us we are corrupt now that is hard to swallow. Not much history of corrupt unions in this country other than the screamingly obvious ones.

  • GS on 6/03/2013 11:07:54 AM

    These people never give up. Does the banning of commissions mean the ISN will stop taking conflicted payments (Bonuses) from the provider of their Super Fund Insurances based on the volume sold by the Fund? Are they also calling for the banning of General Insurance commission paid to General Brokers and others such as mortgage Brokers? No, it is one sided. They are hell bent on dominating the Financial Planning and Insurance space at any cost. It is easy to attack Planners, and disguise the conflicted payments they receive,so they can justify their position. The sooner we get a change of Government the better.

  • Phil Torres on 6/03/2013 11:07:43 AM

    What a joke. ISN are a network for industry super funds, they aren't a professional body for financial advisers. Why do they get to dictate what a 'true profession' is for a profession they don't even represent? And they want to talk about conflicts of interest? They are only pushing this because they stand to win financially from killing off competition in the market. To kill an incentive to place business elsewhere. They also make it very hard for an average person to employ a financial planner because they can't afford upfront fees. This whole thing is an anti-competitive, anti-business, anti-consumer joke.

  • Will on 6/03/2013 11:05:46 AM

    It concerns me that a ban to commissions would result in 2 things:
    1. Less policies being written (insurance advice is costly.. providers need to be researched, their definitions need to meet the client's concerns, applications need to be done, medicals etc etc etc) this is not an automatic acceptance type policy.

    2. if the cost is passed on the client, then chances they would not seek insurance advice.

    3. the adviser's most cruicial role usually occures at claim. The client or the family call the advisor, often very distressed, and the advisor's role would be to ensure they take care of the paperwork so the client can focus on themselves. Often, the adviser does not charge for this service because they have been remunerated and it is expected of them.

    So all in all, there needs to be more consideration.

    I am all up for fee for service- but lets be realistic here- someone has to pay the fee- and with insurance- people need to be insured, so we don't keep relying on government funded services to pick people up because they did not have insurance. This is a social issue, not a FOFA issue.

    Cheers

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