Losing life/risk commissions would hurt most

Outlawing grandfathered commissions would have negligible impact on financial planner revenue when compared to the impact of outlawing of life/risk commissions.

That is the bottom line of Investment Trends data which has confirmed that grandfathered commission streams now account for an average of 9 per cent of financial practice income, compared to an average 24 per cent derived from life/risk commissions.

What is more, the Investment Trends research confirms that non-risk commissions which were grandfathered as a result of the Future of Financial Advice (FoFA) changes have been in consistent decline for most of the past eight years.

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The data show that non-risk commissions accounted for an average of 30 per cent of financial practice income in 2010 compared to 9 per cent today, while life/risk commissions at that time represented 25 per cent of revenue, very close to today’s number.

What the Investment Trends data show is that asset-based fee for service revenue and fixed price fee for service have been the growth areas when it comes to financial planning practice revenue growth.

The data show that asset-based fee for service revenue grew from an average 22 per cent in 2010 to 29 per cent today, with fixed price fee for service rising from 14 per cent to 32 per cent and hourly-rate fee for service being introduced to reach five per cent.

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Darn right outlawing risk insurance commissions would hurt. It would hurt the clients as much as the advisers who provide ongoing service to insurance clients, such as assisting and guiding the client through the claims process. It would hurt the clients who receive an annual review at no additional cost to the premiums they pay, even when it is recommended to the clients that they reduce cover and cost.

I know that there are advisers who do provide risk advice to clients on a fee for service basis, but this probably will not suit every client. I'm not opposed to fee for service insurance advice, in some cases i charge fees. But those long term clients of mine who have been used to unfettered access to my team & I would not be receptive to being charged a fee going forward if commissions are removed. I have always used hybrid commissions as a way of being paid to provide ongoing service at no additional cost.

I cannot believe that the FPA, whom I have paid membership fees to for over twenty years, would even propose such a change. It is not in anyone's interest for fewer clients to receive expert insurance advice, because they will not pay a fee.

Please feel free to hit me with your comments. i know they will be coming.

Completely agree.

It doesn't matter what Investment Trends research concludes...they are quoting averages and it doesn't identify what their sample size was and the type of respondent.
What matters is that any changes to both non-risk grandfathered pre-FOFA income streams and risk commissions is unacceptable retrospective legislation being triggered as a knee jerk and emotional reaction to the media hype and outcomes surrounding the vertically integrated business models.
As a result of these outcomes, it provides an opportunity for those with a pre-determined agenda against any form of commission remuneration to push for change irrespective of the real analysis of any consumer benefit whatsoever.
In fact, if retrospective legislative change were to be implemented and clients and consumers were to be left worse off, pay higher fees or lose certain grandfathered Centrelink assessment benefits, then the Govt would be liable and effectively negligent in approving such change.
If in fact Investment Trends are accurate in that there is a decline in revenue generated from grandfathered commissions via pre-FOFA products, then it makes entire sense to leave these in place and eventually they will decline further over time to a point of non existence. If clients are not satisfied with the level of advice or service received they can elect to change adviser at any time from any product now, so why force a change that may in fact be detrimental to the client and to the the adviser's business model.
Finally, the calls for the removal of commission remuneration for Risk Insurance is absolutely irresponsible, uneducated and is being perpetrated by individuals and organisations that have a righteous philosophical standpoint.
Standardised commission rates with every company, reduced commission rates over time and an unresaonable clawback system should be well and truly enough impact on the consumer and the adviser.
In combination with adherence to Best Interest Duty, the control parameters are more than adequate.
The removal of risk insurance commission will effectively destroy the independent adviser business and will be highly detrimental to the consumer's need to seek quality insurance advice and strategy at an affordable cost base.
The ASIC 413 Report was entirely obvious as the catalyst for what they are calling for now...ASIC have simply seen an opportunity to use the unrelated outcomes from the Royal Commission to launch yet another attack on what they didnt achieve the first time around with LIF.
ASIC are beginning very much to appear conflicted in the way they go about their business and how they seek to influence legislation to satisfy their objectives, not necessarily the best interest of the consumer or the fabric of the financial services profession.

Well said.

The current shallow, emotional, ostensibly populist [but really politically opportunistic], extraordinarily ignorant of client conduct and needs; methods developed and refined over [in some cases centuries] to provide balanced outcomes for all is incredible.

The "Holier Than Thou", sanctimonious, PC attempts to "Impose ideology on biology" via complicated, convoluted, extremely expensive, vastly bureaucratic regulation is not merely counterproductive; it is destructive - and I don't mean "Creatively destructive".

For anyone with an analytical, rational, knowledge based approach, it is clear that Australia, via the overzealous "Deep State", "Bureaucratic Totalitarianism", and idiot politicians is heading toward a DEEP stagnation and/or economic collapse. This irrationality is unfortunately obvious across multiple areas:

* Obviously, Financial Services "Advice" regulation and excessive bureaucracy;

* The skyrocketing, economy, household, and business destroying cost of energy, based on "Chicken Little", unproven [if anything, disproven], extremely complex, "Climate Change" Watermelon Green, Aging Hippie fantasies and "Follow the Grant Money" academic BS;

* The attempts to legislate a biological impossibility, disrupt TENS of MILLIONS of YEARS of biological and sociological development via SSM [Please note - I am not denying human conduct and needs-I am saying there are better civil and social solutions and structures for accommodations] - I am also saying that a crude, simplistic legislative answer which opens innumerable other holes and cascading conflicts is socially self destructive;

* The burgeoning physical and verbal assaults on free speech, logical thought, and rational conduct, leading to animalistic, violent, "Lowest Common Denominator" social fragmentation; usually by childish, immature, needy, dependent, spoiled, overindulged, over entitled, "Children of all ages";

* An immigration policy which is flooding the country with socially and culturally incompatible, unemployable, uneducated, needy, dependent, violent, tribal, clan and village population, leading the country to inevitable 3rd and 4th World status.

Financial Services are just the sensational, easy to target "Low hanging fruit"...

Australian bureaucrats and politicians are creating a "New Aristocracy", and driving this country into self destruction, poverty, and social fragmentation, after which they will trot off to another cushy Government job or their gated compounds, live on their generous, self anointed pensions and Superannuation, all while evading, delaying, denying, confusing the issues, and letting the "Great Unwashed" fight among themselves for survival.

Welcome to the Australian Civil War - openly violent or not, the "Political Aristocracy'" is subjugating and subjecting the citizenry to poverty and totalitarianism.

Where has any talk of risk trail commissions come from? Risk commissions are not what either ASIC or the FPA are talking about. Commissions on investments products are banned and pre-FOFA grandfathered. ASIC and the FPA want to phase out grandfathered commissions on legacy investment products not risk insurance.
Whilst the LIF has reduced commissions and was poorly constructed both ASIC and the FPA recognise that risk insurance commissions generally work in the favor of the customer and should remain.
I can't see how the same conversation and press has included risk commissions or risk trail commissions as being potentially banned?

On May 1st it was reported that the RC would consider whether Life Insurance commissions should be exempt from the ban on conflicted remuneration, despite the issue NOT being raised during the hearings !!!!
Counsel Assisting the Commission,Rowena Orr QC stated in relation to Life Insurance " should the statutory carve outs to the ban on remuneration, INCLUDING the recent carve-out in relation to insurance commissions be maintained....and if so, WHY"
So, here you have a QC raising matters that was not raised DURING the hearings that is not related to the findings of the RC.
This is because there was an invitation to parties that had leave to appear at the Commission to make submissions on topics including the management of conflicts of interest and the ban on conflicted remuneration.
If you have organisations such as Choice, Consumer Action Law Centre or Industry Super Funds contributing to these debates they will call for the banning of all commissions every single time because for whatever unproven reason they have an abject hatred of them that doesn't fit within their sociological ethos.
At every level, commission is always conveniently referred to as " conflicted remuneration".
This is because those who desperately want commissions to be banned not only on grandfathered investment,superannuation and pension products, but on all insurance, want the reference to demonize the option as being inappropriate, even though it is only conflicted if the adviser places their own interest as a priority to their client.
Referring to commission as conflicted remuneration is in itself a misleading and inaccurate term and only serves to support those who want it removed.
We never hear the term "conflicted fee for service ", because this is the model the ideologues want to have in place, and yet it would happen all the time, where an adviser over charges in relation to the level or complexity of advice received.
But this is kept quiet because this is the preferred model and needs to be proactively promoted as being ethical and not conflicted.
So, there is evidence that risk commissions are being considered and are being lumped in with everything else as it presents a clear opportunity to nail everything at one time and put it all to rest, completely irrespective of whether or not it is disadvantageous to the client, consumer or the financial services industry.

Great comment, sums up the situation perfectly

Great comment!

Your last paragraph perfectly sums it up.

I am currently speaking to a potential client who paid a upfront fee of $6,800 for a rollover to the VI platform and a TTR about 5 years ago with a 0.55% ongoing service fee. The client has not had a review or reset of the strategy. I lodge an Authority to enquire and he has now had 3 contacts from the previous adviser trying to maintain his income.

Yep, thats exactly why grandfathered commissions need to be eradicated and all fee agreements subject to Opt In.. That was reviews and resets are required otherwise clients just wont renew the fee. Simples.

So, Reality...you obviously believe that anyone who is receiving LEGISLATED grandfathered commission and providing service and advice to those clients is conflicted????
Why would that possibly be conflicted if the product or strategy satisfies the clients objectives, the client receives advice and the cost of the product is very competitive? If these clients were not receiving advice or service they can elect to leave and seek an alternative advice provider.
As a sweeping statement that all commissions need to eradicated, how do you propose this occur ??
Can you guarantee the .40% commission will be rebated to the client by every product provider, so the adviser will be able to then be able to charge a .40% fee, so the advice cost to the client is the same ??....answer is categorically NO.
So, if it is not in the best interest of the client to consider an alternative product and the product provider wont rebate the commission cost to the client and the adviser then adds an advice fee of .40%, the client is now worse off than previously.
The sweeping statements made by Choice, ASIC, Consumer Action Law Centre, Industry Super never consider the detail and how it could affect individual clients...they simply have an obsessive drive to eradicate commission because it gives them a warm fuzzy feeling about their own perception in the world.
Maybe Reality, you just need your own warm fuzzy too, hence your thoughtless and unjustified comment.

Any commission is a conflict of interest, its just about how it is managed. If you actually service the client you could easily charge a fee and then rebate any commission from the product and this ban doesnt affect you... That's is you actually service the client and don't just 'offer a review' and send a newsletter. We do this for any clients that actually need to retain a legacy product for a reason, the rest were moved from legacy products long ago as they are horribly expensive and underperform in a big way as we all know.

Stop being lazy.

" any commission is a conflict of interest" ??
What is your opinion of risk insurance commission?
If the commission is stripped from an insurance premium of $1000, it generally will reduce the premium to approx $700.
If the adviser was to currently receive a commission payment of $800 (80% Upfront) for the initial advice and that is included within the premium cost, how will the consumer be better off by paying a premium of $700 and an advice fee of $800, thereby resulting in a total cost to the consumer of $1500 or 50% higher than the current cost ?
At the moment a very small number of advisers who charge fee for service on risk insurance may elect to rebate the full commission to the client and then charge a fee, however, if risk insurance commissions were removed entirely from product, then the example above would prevail and the consumer would be significantly worse off.
The insurance companies are not going to reduce the $1000 premium to $200 and allow the adviser to charge a fee of $800 and the adviser isn't going to be able to provide the service and advice for only $200-$300.
For those people who continually advocate that it is about "educating the client about the value of your advice" , it is unlikely that in the existing environment when insurance premiums are significantly increasing annually to a point of being unaffordable to many clients, it is unlikely that a 50% hike in initial cost will be welcome at all.

I’m weighing in here. If we get away from the term “commission”, and the Fin Services industry and look at a completely unrelated industry that has a similar structure. Tyre sales. My client owns a tyre shop. She is ‘licensed’ that is has purchasing agreements in place with around 4 major manufacturers. She gets a volume discount on her purchase costs over around 200 tyres per month from a generic provider, which reduces her COGS and increases her profitability. The client drives in needing a new set of tyres, they are told the options range from $100-$300 a kick and can choose. They choose the generics because things are tight at home and hey, let’s save a dollar where we can.

See any parallels here Reality? It’s called a market economy and distribution channel. For the record I’m a fee for service planner and disengaged my commission paying clients if they were not happy to come into the new world, but let’s not isolate this industry - it’s common the world over, just scratch the surface...

Purely Fee-For-Service is an unprofitable business model for providing financial advice to average consumers. True or false?

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