Life insurers should collect life/risk advice fees for advisers says FPA
The life insurance companies should provide consumers with flexible mechanisms including fee collection mechanisms to cover the cost of life/risk advice, according to the Financial Planning Association (FPA).
While calling for the retention of commissions within the context of the Life Insurance Framework (LIF), the FPA said it believed “life insurance companies should provide consumers with flexibility in how financial advice is paid for by creating new fee collection options and new products that offer transparent and commission-free options”.
However, it said that many FPA members had ceased providing life insurance advice to their clients at current commission rates as they do not remuneration the financial planner sufficiently.
The FPA said in a submission on conflicted remuneration that it believed the LIF had worked, together with the Financial Planner and Advisers Code of Ethics and the best interest duty to have “disincentivised inappropriate cover recommendations, churning of policies and improved life cover outcomes for the clients of financial planners”.
“This is evidenced by improvements in EDR claims through AFCA, conduct investigations by ASIC and the outcomes of ASIC’s review of life insurance advice (seen in significant reductions in both instances of advice failing the best interest duty and leading to significant consumer detriment) and the limited number of regulatory enforcements taken off the back of this review.
“Importantly, the LIF has allowed consumers to choose how to pay for their life insurance advice in a manner which provides them with choice and flexibility. Further, the professional standards framework has ensured there is clear disclosure and client acceptance of the remuneration model.”
“There are significant issues with just relying on the group super market (including the best financial interests test super trustees must comply with) in terms of appropriate life cover for individuals and there has been a significant decrease in the advised life market over the period LIF has been in operation,” the submission said.
“A combination of policy measures (LIF and ‘Protecting Your Super’) has led to an increase in underinsurance which decreased the global level of cover of everyday Australians. This creates significant social hazard and a notable risk to the government in needing to fund lifestyle shortfalls through the NDIS and social security systems.”
While supporting the retention of commissions in the context of the LIF, the FPA expressed its disappointment with “the lack of transparency in relation to the results of ASIC’s life insurance advice review” saying it was unable to comment at this point on whether the existing remuneration limits are appropriate or not.
“Many FPA members have ceased providing life insurance advice to their clients at current commission rates as they do not remunerate the financial planner sufficiently. Current commission rates fail to adequately compensate planners for either the work required to advise and implement insurance recommendations,” it said.
“There is additionally ongoing risk in relation to providing continuing service and support for the client given the risk of complaints and legal action in the event of an issue occurring at the time of claim (i.e. the cover having lapsed, the cover no longer being at an appropriate level, or the claim occurring in a policy exclusion areas) through no fault of the planner.”
“Given these risks, many members of the FPA have chosen to cease offering life insurance advice services to their clients and instead refer them to others or scope out risk from their advice.”
Nice try FPA. But time to give up and move on. Professional insurance advice is dead. Regulators, insurers, union super funds, the media, and so called “consumer associations” are all united in trying to kill professional insurance advice. It’s a battle that cannot be won.
Saying LIF has done good things to the Life Insurance Advice Industry is like saying Hitler was effective at uniting Europe…
I’m sorry FPA, but you’re becoming as relevant as the FSC with CALI coming on board.
To say that LIF has worked means you agree with the ‘outcome’ of LIF for advisers and clients.
In case you haven’t noticed:
Premiums are ridiculously high now – there was no reduction in premiums despite distribution costs going down substantially.
We’ve lost around 40% of advisers in our industry who relied on the Insurance commissions to subsidise their expenses, cover the costs of clawbacks, proving work, and uninsurable clients who couldn’t get cover in spite of the best efforts of the adviser.
No, FPA, the LIF did not work.
And that’s why we need to get rid of the FPA…
“improved life cover outcomes for the clients of financial planners”
Do they have rocks in their head? The insurance pool is lower, policy holders premiums are now through the roof, new business is dead, quality of product (IP) declined massively, APRA intervention, reduction in revenue for advisers, and huge accumulated losses for insurers. Nah LIF has been a real “success.”
These comments from the FPA are offensive!
Hear hear
And that’s why I oppose the AFA merger
So when lawyers charge a % commission for a class action, is their payment held by the courts until they can demonstrate informed consent has been provided by every client?
” LIF has allowed consumers to choose how to pay for their life insurance advice in a manner which provides them with choice and flexibility. Further, the professional standards framework has ensured there is clear disclosure and client acceptance of the remuneration model.”
This is the sort of BS statement that the AFA also makes, as does funnily enough, the FSC. It’s as though both organisations have forgotten completely that they are primarily functioning to represent advisers and the needs of advisers to conduct a profitable business while providing service. Risk clients do not want to pay additional fees. Risk has always been a grudge purchase and no one wants to pay an advice fee over the top of whatever commission is payable, simply because the client has had to be convinced they have a problem with their risk coverage, whereas if they have half $1 million cash from an inheritance burning a hole in their pocket, they KNOW they need investment advice, and they’ll pay for it.
Both the AFA and the FPA have this altruistic philosophy that they should also be doing the very best for the consumers – a greater good, to the benefit of those who aren’t advisers. Hence the bowing and scraping when the FSC proposed LIF. Consumers are frankly overrepresented in the debate around life risk commissions and it’s time both organisations, or one organisation after 2023, get it in their minds to model their service delivery on that of the AMA, the most successful trade union in Australia, who always represents practitioner members first, while keeping one eye on consumer protection, not BOTH EYES
FPA & AFA “working for advisers”? What made you think that? Never have & never will. They are leeches sucking the life out of advisers.
I happily provide no life insurance advice now. That part of the industry is dead; ironically killed off by the insurers and regulators themselves..
Sadly your comments are 100% correct