Claw-back a business threat - AIOFP
The Association of Independently Owned Financial Planners (AIOFP) has released its own submission to the Government on life insurance commissions rejecting the suggested three year claw-back provisions labelling them an ongoing threat to business.
Instead it has suggested that first year commissions should be set at 70 per cent of gross premium with a two year claw-back period and a 20 per cent ongoing commission.
Advisers would also retain the first 20 per cent of the first year commission if a policy is terminated prematurely with the remainder of the commission retained on a ‘time on risk' formula based on the two year claw-back clause.
The AIOFP suggested this approach would recognise the upfront acquisition and administration costs of advisers in processing new clients and that advisers deserve to be paid for this time and effort, particularly when a policy is terminated by events outside the adviser's control.
"Our prime concern embodies the three year ‘claw-back' proposal which we perceive to be impractical and believe threatens the solvency of small business. How can any business or any person trying to make a living operate with a 3 year ‘threat' over their income for circumstances out of their control?"
The submission stated there was a "disconnect between the reduction in commission share and the 3 year claw-back proposal" and the latter would make sense if the current commission regime of 120 per cent was retained.
It also stated that to impose a heavy up front premium reduction and three year claw-back would destroy small business operators and was "an over-reaction to a soon to be redundant excessive commission culture".
As such it suggested imposing level commission restrictions on any adviser suspected of policy churn with the adviser needing to prove they had not engaged in the practice before the restriction, which would be applied by all insurers, was lifted
The submission also suggested an immediate 10 per cent reduction in 2015 published premiums from the start of 2016 and called for a $3000 per annum maximum tax deduction on life/trauma premiums for low income earners.
The submission stressed that it had been compiled by the AIOFP Board in conjunction with its members and questioned the level of consultation undertaken by the Financial Planning Association (FPA) and the Association of Financial Advisers (AFA).
"We are unaware of what consultation the FPA or AFA conducted of their members prior to ‘reaching an agreement on an official policy for risk adviser remuneration', but having consulted our members, they and we are exceptionally concerned about the effect the proposed recommendations will have on small business operators - institutionally independent operators in particular."
The statement echo comments made earlier this week by AIOFP executive director Peter Johnston who stated advisers had been sold out by these associations and the Financial Services Council with the interests of institutions placed ahead of advisers.
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