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.
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.”
