O’Dwyer points to commissions and churn

7 December 2015

The existence of 120 per cent upfront commissions was the reason for "a huge amount of churn" in the life/risk sector, according to Assistant Treasurer, Kelly O'Dwyer.

Explaining the reasoning behind the Government's exposure draft legislation relating to the Life Insurance Framework (LIF) in a radio interview, O'Dwyer referred directly to the impact of commissions and made clear that the majority had actually been banned.

"With the changes to financial advice, the majority of commissions have actually been banned which means that you can't get an upfront commission if you're providing that advice," she said. "The disclosure requirements for how payments are made have been strengthened and for those people selling life insurance we recently also made some changes to give effect to reform within that industry."

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"In the life insurance industry you were able to get an upfront commission of 120 per cent of the premium — upfront. Which is why we were seeing a huge amount of churning within the industry," O'Dwyer said.

The minister said this meant that in the last 12 months [of a policy] people would be sold a new life insurance package "and that would be because sometimes their life insurance advisor would be getting a direct financial benefit from that".

"So we've made changes to that. We have announced those changes and we have said that that is simply not going to be on," O'Dwyer said.

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Oh stuff me we have people making these decisions that make comments like this. """" The minister said this meant that in the last 12 months [of a policy] people would be sold a new life insurance package "and that would be because sometimes their life insurance advisor would be getting a direct financial benefit from that""""" THE LAST 12 MONTHS of a policy? What the? What at age 65 when the policy expires, or age 98 rewrite for upfront when client turns 99? Really? Dosent even make sense. Shakes head.

Who is actually representing us at the table with Government? If this is level of understanding by the responsible Minister, then, we have a real problem, as our industry is & will continue to suffer based on ill informed ignorance of this nature.

What the hell is going on, we have people making statements on rules they create who don't even know or understand what they are talking about , what a joke and now the same bunch want higher Education Standards. I think we should be calling for the people running this country to have qualifications that should be of the highest order , as it is clearly not happening at the moment .

Had to laugh at the "last 12 months of a policy" bit. Last I heard a policy can be renewed until age 65 or later in many cases!!

There hasn't been any conclusive evidence of churn. Whilst I don't disagree that it happens i.e. I have heard BDMs mention it and I know that at least AMP has an adviser sanction or 'black' list - I do think it is blown out of proportion. I'd like to see the numbers. Also, if AMP has a black list, don't they have an obligation to provide it to ASIC? In fact this article in Money Management in Nov 2009 has research from Onepath themselves saying that adviser recommendations were around 15% of attrition. 45% were due to affordability - what were the other reasons? http://www.moneymanagement.com.au/news/insurance-property/life-insurance...
Perhaps Minister O'Dwyer ought to back her statements with facts?

To my knowledge, no life insurance company has ever quantified the amount of churning which occurs and most financial planners believe it is BS to suggest it is practiced by any more than a handfull of fringe dwellers. If Kelly O'Dwyer is 'seeing a huge amount of churning within the industry', can she please release the data because we would all be very interested to see it!

Spot on Ben. Its like saying all pollies don't know anything about the subject matter of the portfolios they manage. Apparently the AFA and FPA have been speaking to her so I am suprised she would make such a generalised unfounded comment in this announcement, unless she was only talking to the FSC then I can understand where she got this from.

So she's just proven to be as stupid as her predecessor! "High amount of churn" - there has never been a high amount of churn. There has been churn, from a select few advisers, and all the insurers have admitted they know who the advisers responsible are. The higher upfront commissions was to compensate for the amount of work involved at that stage of the process, no more, no less.
These are the idiots that are put in charge of running this country. One day (hopefully) people will learn that Government is over-rated and not necessary

Lower Premiums On the Horizon? If churn is such a massive issue and LIF will be the silver bullet then we should expect to see an equally massive reduction in premiums - don't hold your breath.
All that this policy is fixing is life insurance companies interests - once again demonstrating how impotent FPA/AFA are in raising a voice and how effective the insurance industry lobby are.

More rubbish. I would have hoped she would spend the time to understand the issue before running her her mouth about an issue she clearly does not understand. WHERE US THE EVIDENCE !!
By the way, does she have a relevant degree to do what she does. ??

I think it should be compulsory for Ms Kelly to undertake a Diploma in Common Sense before being allowed to open her mouth and allow such rubbish to flow forth. It is because of inexperienced people such as her that this country has a problem in the way it is being governed. If you don't know what you're talking about, then best not to say anything lest you confirm your ineptitude. As the government spokesperson on the matter, the lights are squarely focused on her and what she says. You think she could get her comments checked to be factual before coming out with blatant incorrect responses. We all know what she means, but does she know what she is talking about???

Far out another external "expert" making calls on the future of this industry.... this is a disgrace.

These comments are so mind bogglingly factually incorrect, ignorant of the methods and structure of Risk policies, and outrageously stupid that to me, it is simply an additional confirmation of the venality, stupidity, dishonesty, mercenary cynicism, and corrupt incompetence of the modern Australian politician. This is addition to (of course...) their sheer general ignorance, lack of broad education, and inability to think conceptually within the philosophical framework of a modern democracy and economy.

1. Kelly O'Dwyer is using her current position just like Frydenberg and Billy "BS" Shorten did - as a short term platform for publicity, self aggrandisation, and a stepping stone to political advancement by flogging the "Low hanging political fruit" of the Financial Advice community, and taking the side of the (financially supportive) "Big End of Town". Since the political weakness of Wayne Swan and even Joe Hockey, this situation has gotten worse.

2. I reiterate (due to having lived in a number of countries, under a number of political and economic systems, and "Seen this video before"): TOTALITARIANISM IS COMING to Australia, through: a) Politicians seeking power and easy wins through populism, sensationalist declarations about non existent problems, or corrupt subservience to the affluent and powerful (and corruption does not have to have a direct quid pro quo); this is also due to their inability to understand, formulate solutions, and solve larger problems; b) Bureaucrats seeking ever more control and intrusion into areas that they don't yet control, through both their natural drive to control as much as possible, their personal prejudices; and a belief they are "improving society"; c) An apathetic, ill educated, and easily manipulated population, largely driven by journalistic sensationalism and its incompetence and shallowness in research and sourcing material ("...120% upfront commission..."; "...widespread churning...").

3. WHY ARE WE NOT seeing a blizzard of a) DEMANDS to see the research and fact based documentation on which these "policies" are founded; b) WIDESPREAD REFUTATION of the BS of "120% upfront commission" by the LOUD DECLARATION about the fact that "!20%" includes Stamp Duty, Policy Fees, Monthly Payment Uplift Factors, and Commission Splits - none which get to the Adviser, and is gross, not net income; and an explanation of CLAWBACK PROCEDURES which compensate for the high upfront "Costs of Acquisition" (and are a great incentive to give good advice and increase persistency!);

4. The CEO's of the Associations need to be removed from the political process; they are too beholden, desirous of political "access", and are too accommodating. There need to be temporary Member's Committees that manage the negotiation process, are willing to be hard, factual, aggressive, and willing to walk away from the never ending demands of the Banks and Insurers. Banks and Insurers are like sharks; they will tear away at the wounded prey until there is nothing left; then they will cannibalise themselves, until they can find new prey.

To paraphrase Reverend Neimuller: "First they came for the aged and young, as they are the weak and unrepresented; I did nothing because...; then they came for the free, entrepreneurial small businesses, because they were too independent and too many to control directly; I did nothing because...; THEN THEY CAME FOR ME, BUT THERE WAS NO ONE LEFT TO DEFEND ME..."

BEWARE the venality, ignorance, stupidity, short term thinking, and drive for power and control of "Type A" politicians, bank and insurances company executives - they will take as much as possible, until there is effective totalitarianism, (even if camouflaged) aristocratic political dictatorship, and a subservient populace feeding their power (just look at the level of bloated, inefficient, multi layered taxation, payment to Government owned utilities, and "stealth taxation" through Government fees).

Democracy is not a natural state of affairs; nor is it a spectator sport. Politicians need to be aggressively held to account, and constantly reminded that THEY WORK FOR US!

The usual uninformed rubbish from a clown seeking to boost her electoral standing.
No wonder the financial services industry is in chaos and confusion. We have ministers making pronouncements and decisions based on absolutely no understanding of how the industry operates.
This is the only sector in Australia where deriving an income for a service is frowned upon. The government intervention now borders on nationalization.

Wednesday, Thursday, Friday!!! Ok lets address the pandemic Churn issue. I recommend that we clawback commissions on ALL unlawful Churned business only. Not Lapses. If we advisers have performed due diligence and are able to satisfy all compliance rules and Client Best interests duties, then NO clawbacks should apply to ""non churned replacement business"!!

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