The fee-for-service model for risk advice is not the holy grail and will not necessarily be a more professional way to charge clients than a commission model, according to Synchron.
The risk advice firm’s director, Don Trapnell, said there was an argument that it was more professional for advisers to charge a fee-for-service or a fee to compensate for a curb in commissions.
“For the life of me, I can’t understand how charging a fee is viewed by some as a hallmark of professionalism and I can’t understand the argument that says receiving a commission translates to being less professional,” Trapnell said.
Trapnell argued that charging commissions might be more professional than a fee-for-service model because advisers only received commissions if they were able to achieve a result for the client.
“Within Synchron, advisers charge as they wish — fee-for-service or a commission model — with no impact on their professionalism,” Trapnell said, adding advisers would still get paid under a fee-for-service model for trying to achieve cover whereas they would only receive commissions if the policy remained on the books.
“Would clients be happy to pay a fee-for-service then find out they don’t actually get insurance cover because they haven’t been accepted? Or because the premiums were too high and they couldn’t afford to pay them?” he said.
He cited the example of the UK, which removed commissions on investment products but not life insurance because it recognised life insurance was a grudge purchase.
However, he did not suggest reversing policy on commission disclosure or to lobby for changes to the Life Insurance Framework (LIF).
“Let’s get the legislation bedded down first. It’s four years before the 60 per cent cap on upfront commissions comes in,” Trapnell said.
“If we can get the legislation bedded down now, we will be able to refine it and maybe then we can look at reviewing the cap in line with what it actually costs to run a risk advice [business].”
