Jury still out on life/risk commission realities

Further work needs to be done on understanding the role and appropriateness of commissions in life/risk advice, according to the technical manager of wealthdigital, Rod Lavery.

Pointing to the renewed debate around life/risk commissions generated by the final report of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry Lavery suggested that a question mark still hangs over the issue of whether commission-based remuneration models represent a conflict of interest for advisers.

Pointing to overseas experience and research including the experience in Holland where commission-based payments for mortgage advice were banned, Lavery noted a range of differing opinions.

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He pointed to the Dutch research which had found that in the wake of the banning of commissions the proportion of clients seeking advice had dropped from 67 per cent to 55 per cent.

Lavery also pointed to European, US and Canadian research which suggested that commissions could work for the benefit of clients if those clients were appropriately informed.

Having looked at the various pieces of research Lavery said he believed the debate around commissions was far from settled.

“The conclusions drawn by the research conducted to date are still debatable, and further independent studies are essential to inform the direction of the industry, particularly in Australia,” he said. “History shows that, just because something sounds true, doesn’t mean it is.”
“It is important to keep in mind that studies only represent trends, averages and means. Adviser-client interactions occur every day, and the quality of advice provided is in the hands of each individual planner,” Lavery said.

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Lets just make this whole issue a whole lot more complex and complicated than it really needs to be shall we.?
A never ending unhealthy obsession with adviser remuneration models with an equally never ending line up of commentators, analysts, consumer and self interest groups just continue to muddy the waters because all of them want their say and many have an agenda.
Many of them don't have the adequate knowledge, experience or understanding to be given the voice they want to be heard, but they still continue to chip away.
The basis of all this surely must be what is the best model to deliver sound, affordable advice in combination with quality insurance products that can allow Australians to access financial protection for their families and businesses.
Commission paid on a basis that allows the consumer affordable advice and rewards the adviser and their business for the often complex and complicated process of insurance recommendation and placement is often the most cost effective model.
Yes, REWARDS the adviser and their business for the work undertaken.
If adviser's businesses are not profitable, then there will be no business and therefore no access to quality insurance advice.
At the end of all this, it is not commissions that should be made mandatory, just like fee for service should also not be made the only mandatory model.
The consumer should have a choice as to how they elect to pay for their advice and product.
If the adviser elects to delete commission and charge a fee, then so be it.
If the adviser wants to charge the full commission and a fee for advice on top of the commission, then so be it.
If the client is made fully aware with full and clear disclosure requirements and the client accepts they have received value for the advice and service delivered then so be it.
There are too many snouts in the trough feeding off the commentary cycle proposing to be experts.
Many of these people are unaffected by anything to do with adviser remuneration and yet repetitively feel an overwhelming need to contribute to the complexity of the analysis.
In a world governed by more compliance requirements than just about any other, the obsessive nature of focus in this space is becoming evangelical and idealistic and not based on reality.
If a Real Estate agent sells a home worth $2mill in 7 days and shows 3 interested parties through and charges 4% commission......the remuneration for that work is $80,000......at 3% =$60,000 and 2%=$40,000.
Is that commission commensurate for the level of work undertaken ??
If someone spends that level of money on a property, it is not considered advice.....even though the agent knows and discusses the benefits of purchasing the property as an investment and produces data to illustrate average demographic yields in that area and comparisons to other investment properties.
They most likely will also throw in commentary surrounding how many of their recent buyers have been purchasing through their SMSF !!.....not a recommendation, but a strong comment.
If the buyer then decides to take a Life Insurance policy for their debt on that property for $1,000,000 and the premium costs $5000, the adviser may earn $3500 at the current rates and $3000 from the beginning of next year.
The work involved in securing the insurance may possibly take 10-15 hours over a period of 3-4 weeks.
There is something very, very wrong here.
Its time to leave the obsessive focus on adviser remuneration at the door and to move on.

Looks like Rod misses the point that in Holland that it's mandatory to take out insurance when you take on a mortgage, with only 10% receiving advice. Due to the fact its not mandatory in Australia, Risk Insurance needs to be sold. Commission facilitates the client being able to access good financial advice, and for it to be paid via the Insurer instead of having to try find the money to pay for advice.

The debate is already over. Anyone sitting the FASEA Exam will already know by now that life insurance commissions fail Standard 3, so they are dead from 1 Jan 2020. FASEA have clumsily attempted to allow life insurance commissions via Standard 7, but Standard 3 is still there and it bans ALL conflicts of interest. So game over.

What are you saying Jack , that you can't possibly act in the interest of or the best interest of the client when you receive commission payments because they are deemed to be conflicted???
The advice is only conflicted, if the advice is actually conflicted !!
Receiving commission does not prove or support that you have placed your interests before those of the client.
If that were the case, then reducing the commission to nil and charging nothing at all for the advice would be considered to be nil conflict or no possible possibility of conflict ??
Could conflict still be present if the adviser received nothing at all......potentially, yes.
Where's the conflict if all insurers are forced to only offer standardised commission models across the board therefore eliminating any conflict between the remuneration basis ???
Or are they now going to state that because one company's actual premium may be slightly higher than another, the adviser would be paid slightly more commission from one company versus another, even though the analysis and justification of the recommendation in terms of client need, objective and policy features and definitions must be substantiated ?
This is just crazy, convoluted and over complicated garbage.
With all the conflicted negotiations and emotional and business capital that eventuated from LIF and the outcome that resulted in reduced and standardised commission structures going forward, it is insane in the extreme this is still being discussed and butchered to death.
It is riddled with skewed agenda, market share greed, righteous ideology and complete nonsense.

Don't shoot the messenger Agent 86. Just pointing out what a farce this FASEA Code of Ethics is. Everyone has been so consumed by everything else, the CoE has slipped through almost unnoticed. Those studying for the exam will also be discovering that general advice and intra-fund advice is banned too (Standard 5). What a debacle! Any wonder the banks are dumping their advisers and heading for the hills!

Without the detail of Standard 3, I don't think it is clear that insurance commissions are not acceptable.

The full detail was published some time ago 'Bozo'. It is crystal clear. Here it is:

Standard 3 - 'You must not advise, refer or act in any other manner where you have a conflict of interest or duty'

Further info from Explanatory Statement:

'The primary ethical duty in this Standard is that, if you have a conflict of interest or duty, you must disclose the conflict to the client and you must not act. If the client wishes, you may refer the client to another relevant provider if neither you nor your principal will receive any benefits from the referral.'
'You will not breach Standard 3 merely because you recommend to a client financial products offered by your employer or principal. However, you will breach Standard 3 if a variable component of your remuneration depends on the amount or volume you recommend of those products, because your interests will or may conflict with your duty to act in the client’s best interests'

So while we are on the topic, you can forget about BDM's sponsoring conferences or taking you out to lunch (Education and the $100/$300 rule is out the window now!) and those advisers who accept referrals from super funds, will need to find a new source of clients

Thanks, but that still doesn't say taking a commission is a conflict in ALL circumstances. I'm self employed and get paid a salary and a profit share, the client will pay irrespective of how - I'm not conflicted by the fact they choose to pay me via insurance commission and I don't receive volume payments.

Bozo - life insurance commissions are a legally permitted form of conflicted remuneration. Read Regulatory Guide 246 if you have any doubt about our regulators view on commissions being conflicted. But as the Code of Ethics clearly articulates, the 'code imposes ethical duties that go above and beyond the requirements of the law'. Why do you think the big groups are dumping their advisers and selling off licensees at firesale values. Their lawyers would be all over this and any attempt to change FASEA's mind has clearly failed.

Yep, but still don't agree - RG246 allows commission subject to caps and clawback from Jan 18. You are arguing the Ethical code will always state Nil commission - but is it ethical to deny a client insurance potential when they can't afford to pay you an upfront fee to do the work? I think you are jumping at potential issues, but they are not tested legally or ethically, but that's your call.

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