LIF opponents risk total life/risk commissions ban

Those noisily fighting the implementation of the Life Insurance Framework (LIF) and the retention of the current regime are risking the total abolition of commissions with respect to life insurance advice, according to specialist financial services lawyer, Claire Wivell-Plater.

In a blog published on her firm's website, Wivell-Plater warned that those opposing the new LIF need to be careful what they wished for.

"…keep the existing regime, allow the existing practices to continue, and you face a very real risk of complete abolition of commissions for life advice," she said.

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Wivell-Plater referenced the "volume of noise emanating from the vocal group of life advisers who seem to believe they can push back the tide on life commissions caps" as being "a truly remarkable phenomenon".

"There's no point fighting it [the LIF]. It's inevitable, not least due to the inappropriate advice practices of the past," she said.

"In my view, the real risk to life advisers is not the change from upfront to level or hybrid commissions. The real threat is the complete abolition of commissions for life advice."

"The industry should see the opportunity to move to level and/or hybrid commissions as an olive branch and a chance to assist to clean up the churning practices that have so bedevilled the industry in the past," Wivell-Plater said.

"It's the chance to ‘encourage' life risk advice practices that have a shot of universally being in clients' best interests, without throwing the commission based remuneration baby out with the bath water."

"Anyone who thinks otherwise is living in a parallel universe that ignores the evidence of widespread misconduct that has so conclusively been presented through numerous industry studies, FOS [Financial Ombudsman Service] determinations and ASIC [Australian Securities and Investments Commission] reviews," she said. "They're also ignoring the trend towards client determined remuneration models that are already in place for investment advice and are currently under serious consideration for mortgage broking services.

"I think advisers whose business models depend on 100 per cent to 120 per cent upfront commissions and 10 to 15 per cent trail demonstrate short-term thinking. Recurring income models based on, for example, a 30 per cent ongoing commission will result in much higher overall valuations. After some initial transitional cash flow challenges, the numbers will speak for themselves. And the staged introduction of the changes will assist with the cashflow challenges.

"It's not as if life brokers have to do an awful lot to earn the ongoing commission. Stay in touch with the client, review their insurance needs periodically and only make a change when it's really needed. Contrast this with general insurance brokers who, at best, earn 22 to 25 per cent level commission and potentially have to completely re-market their non-automatically renewable policies year on year."

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Comparing work that goes into general insurance policies ( where you do not need to provide any comparisons, any SOAS, hardly any paperwork at all) to life or trauma or IP policies and the compliance burden, ownership strategies, tailoring, stepped versus level, etc etc and work that comes with them show a total lack of knowledge of this subject matter!

Evil is never inevitable. We are allowed to tell the truth. The less often we surrender to evil the better. If the politicians want to ban commissions they should say so openly. We say openly that the commission system has virtues which help the people of Australia. If the Labor party and the Liberal party are so committed to the industry super funds that they want to destroy the rest of the insurance industry then they should stand up and be counted. As for us, we stand with our customers. We do not pretend that evil is good.

This article is factually incorrect. The 30% commissions, which are claimed to result in better valuations, will be scrapped by LIF, reducing to just 20%. Some life insurance companies have already begun cutting them in anticipation. Asteron for example cut them from 32% to 27.5% last year. Thats a 14% cut in adviser income. I would also like to see the conclusive evidence of misconduct that is referenced in this article. I have never seen any numbers around churn. The closest evidence, was a small study by ASIC which was targeted solely at a small number of advisers suspected of churn. This doesn't support the claim of widespread malpractice suggested in the blog. It would be helpful if we could all just stick to the facts.

Ban Commissions and Industry Funds would have to charge a fee for Life Premiums. What a good idea, Claire! Yes I am in favour of that! Complete disclosure of fees by Industry Funds would be excellent.

Nothing personal Claire but why is it lawyers are consistent in advocating low or NIL commissions for risk, but continue to buy & sell property using the commission system . When rolling over the next BMW or Merc, please ask the salesman or dealer principal to forego his commission and charge a fee. I find it very interesting that there are many lawyers in ASIC, in the ACCC, and so called "consumer "representatives " organizations who are the strongest advocates of the ideology that says "commission is bad " The only winners in "nil commissions for risk sales " mantra are the banks. Consumer Lawyers should be extremely concerned that consumers WILL be dudded by the NIL CLAIM risk products the banks will flog in the branches to unsuspecting Mums & Dads once LIF eliminates the only people capable of advising Mums & Dads that their bank-sourced life risk policy is crap - self-employed advisers acting, as we have always done, in our clients best interests. Mums & Dads will not pay fees that self-employed advisers need to charge to recover costs in our compliance over-burdened industry. Plenty of work for lawyers there in compliance! And the plaintiff lawyers will have a picnic

I think Money management should advise the industry wise lawyers who produce this utter crap and call it a editorial that imagine if there huge fees were reduced by 50% and told to suck it up on top of all the other costs of operating and I'm sure Claire would agree.????

I'm no fan of the direction of the article, but you can see what Claire is talking about. The more it is resisted, like some of the comments, the more the policy makers will think it needs to be changed. You don't have to like it, but if you're smart you need to plan your business around possible outcomes, and one of them clearly is now nil commission insurance products. They are starting to grow in terms of availability in the market, then consumers become aware, then they want them - you either address it in your business model or potentially perish, we all have choices, that's what I take from the article.

Another day another lawyer commenting on our industry. Shall we advocate that all lawyers work for a flat fee rather then gouge people on overly inflated hourly rates, or billing hours of work that never actually occurred? The lawyers level of understanding of the industry is pretty poor, so I'm not sure why MM would reference her opinion at all. On a final note, Claire should check the FOS statistics in relation to people who received advice/product from an Adviser V's the crap obtained through Industry funds, and better yet, the rubbish General Insurance policies.

An interesting view on the whole thing Claire, but I doubt any government would be so stupid as to instantly destroy the whole life insurance advice industry by having no commissions at all. What a mess it would create when all the financial planners that currently provide risk advice just stopped, because it is not financially viable.
I'm wondering if the specialty in Financial Services Law is in suing financial planners, not in having a good understanding of the public's buying habits. I don't think that comparing the change from upfront investment commissions to fee for service is valid, as people want investments as it will make them money. They don't want insurance, as it is hopefully a waste of money.

Oh well; it has given her legal firm plenty of publicity.

My blood was boiling and I then counted to 10 and all my swear words have been used off screen. Then I wondered if this article was published to entice feedback.

I have now found my "high horse."

I am a self employed Financial Planner who also provides risk advice. I do not rely upon 100% of my income from upfront commissions. I am damn angry that do gooders with "half arsed" research tell me that my income will drop. I do not churn. I believe the churn issue is not a pandemic. If I need to replace a client's insurance policy that I recommended 18 months ago, it will be in the client's best interest to do so. I do believe that there needs to be changes, but they need to be considered and in the best interest of Australian consumers.

Here....someone else can use my high horse.

Yeah, a 30% ongoing commission reducing to 20%, then 10%, then NIL. It's a trap. Practicing advisers can all see it but the "industry experts" can't.

Experienced advisers always knew that if you selected a 30% level commission, the responsibility period was one year and only applied to the previous years commission. In other words, once the first year tipped over, that commission was safe. In the second year if there was a lapse it only impacted on the second years commission. Newer advisers should check with their insurance providers to ascertain the impact of the new rules introduced, in one case, over 2 years ago, by an insurer that wants NIL commission. Its also apparently part of the formulas in the LIF legislation

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