Upfront risk commissions not the problem
On the eve of the official release of the Trowbridge Report into retail life insurance remuneration, a key chief executive has argued that planner remuneration and upfront commissions are not the problem.
Indeed Clearview managing director, Simon Swanson has gone further in suggesting that even if the Trowbridge Report, to be released tomorrow, were to ban up-front commissions then level commissions or fee for service would not be practical replacement options.
Addressing an Australian Securities and Investments Commission (ASIC) forum, Swanson said that while some advisers currently operated under a fee for service and/or level commission model for at least some clients, this tended to be as part of a larger package of services delivered via holistic advice.
"I don't believe these options are viable en-masse, and especially not for specialist life insurance advisers where the principle relationship and activity is life insurance advice and implementation," he said. "If level commission was the rule, we'd see large scale opt out of ongoing commission payment as it became known one could cancel commission for a reduced premium, or client takeover tactics would become de rigueur."
Swanson said that he believed that forcing advisers to accept level commissions would likely see:
- An inevitable rise in commission costs reflected in premiums (level commission already costs insurers more than upfront);
- Independent advice businesses struggling under this structure. Only large institutions would be able to fund the costs/revenue mismatch, forcing the majority of advisers to align themselves with an institution to survive.
He said that history had shown that attempting to regulate prescriptive forms of remuneration often failed as other ways of transferring economic benefits were invented.
Swanson said the only changes that should be made were those focused on fixing the main concerns such as over-selling, unjustified policy replacement and possible under servicing.
He said that he was therefore suggesting capping or limiting adviser payments on large premiums, reducing payments on policy replacement, but only to remove windfall gains, implementing a reasonable responsibility period of around three years and allowing additional servicing payments linked to client reviews.
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