QAR proposes client consent for life commissions
The Quality of Advice Review (QAR) has canvassed retaining life insurance commissions but only on the basis of financial advisers gaining their client’s informed consent.
The proposal is contained in a QAR paper on conflicted remuneration and has been welcomed in general terms by life insurers.
The QAR proposed approach would see the retention of the existing exemption for benefits given in relation to life risk insurance products, but require financial advisers who provide personal advice to retail clients to obtain their client’s informed consent, in writing, to receive a commission.
It said that in order for the consumer to be able to make an informed decision, the adviser must disclose details of the commission and the nature of the ongoing service the adviser would provide.
MLC Life welcomed what it described as the considered proposals in the latest Quality of Advice Review paper, to support consumer choice and access to life insurance by maintaining LIF commission levels.
“Consumers should have choice as to how they pay for financial advice. A sustainable advice sector supports everyday Australians having access to much-needed financial advice during key life moments. Otherwise, financial advice risks becoming the domain of the few who can afford it,” MLC Life Chief Retail Insurance Officer, Michael Rogers said.
“Critically, this must be seen in the context of the enhanced protections proposed by Michelle Levy, including commission disclosure and requiring financial advice, based on the personal circumstances of the individual, being ‘Good Advice’. These changes as a whole will deliver for all Australians.”
“Many years of changing laws and compliance requirements has resulted in financial advice becoming unnecessarily complex and as a result, expensive for consumers and practitioners. The industry has been haemorrhaging advisers for some time now, significantly reducing the advice capacity available to serve Australians. By maintaining commissions at their current level, while making changes to reduce the cost of advice, we can ensure that more Australians can access good advice.”
Is she joking, how many times do we have disclose what we earn, does she have ( or any other profession ) have to disclose what they earn. Yet another piece of paper that clients have to sign, FDS’s for Investment/Superannuation has been a joke, clients know we get paid a simple up front engagement agreement should be enough, explain it before you commence any work for a client, no different to an accountant, lawyer, or any other profession. We need LESS paperwork not more.
and yet do mortgage brokers have any optins / FDS / annual disclosure for the commission they receive on a $1m loan??? Without any doubt, this will be the nail in the coffin for the Life Insurance Industry.
Here’s the Real Adviser stitch up.
1) Levy proposed………..requiring financial advisers (relevant providers) who provided personal advice to retail clients in relation to life risk insurance products to obtain their client’s informed consent, in writing, to receive a commission in connection with the issue of a life risk insurance product.
So Life Companies, Banks, Union Super Funds, etc that provide Call Centre, Uneducated, Unqualified, Unlicensed and Unregulated Sales of Life Insurance will NOT have to get Consent to be paid Commissions. But of course Real Advisers will need Consent.
2) And the question that needs clarity, is Levy referring to initial SoA consent or does Levy really mean Annual FDS/Optin/Adviser Commissions Consent signed off annually and lodged with the Life Insurance company ?
Exactly and unfortunately
Let’s get some clarity about commission acceptance initial ongoing
Way to obscure for me
A step in the right direction, but still believe the the FoFA recommendation of 80:20 commissions is the most sustainable solution for all stakeholders. Perhaps the eventuale reducing of red tape will make the process more efficient and therefore more profitable, however, if it remains unattractive for financial advisers to focus on Risk than the shrinking premium pool issues will only continue placing upward pressure on premiums.
The only way to improve the situation for insurance companies is to make it more attractive for advisers to bring in fresh blood. With the shrinking adviser force, lower commissions and higher responsibility period, this is not happening, and this measure makes it more unattractive..
How is this a step in the right direction?!? We already disclose this and until anything changes with the code of ethics, nothing will change. Are you actually in our industry??
Thanks Adam – you must work for ASIC.
isn’t this in the SOA already ?
Yes, what is the Authority to Proceed section for which, amongst other things, says the client understands the fees and commissions section and gives free, prior and informed consent to proceed with the advice?
But the proposal is SoA is no longer required so hopefully this is just written consent at commencement (as with mortgage brokers)
Correct, so you have already met the consent requirements
It is disclosed in the SOA, both upfront and trail commissions. Has she bothered to read one, oh, that’s right nobody reads them
Yep here comes the QAR Adviser stitch up process.
Regardless of the SoA disclosure, Ms Levy seems to be proposing ANNUAL FDS ON LIFE COMMISSIONS.
But she is also not actually saying it in full clarity.
Yes the QAR to Reduce Red Tape Cost will most likely INCREASE RED TAPE COSTS. No doubt Government will screw Advisers yet again.
Where does it say annual FDS on life insurance commissions? You might be jumping at shadows. It only says client consent- it would be assumed that this has already been met in a previous SoA or RoA surely
God here we go…. The advice review with the intention of reducing red tape, recommends the introduction of more red tape. If clients don’t want to pay with commission then that is their choice, why do we need more paperwork?
I see why insurers support this. There will be some commissions they will no longer have to pay. Did insurance premiums reduce when commissions were reduced?
We already get consent in the engagement letter, SOA discloses all commission/ fees etc and authority to proceed signed off. The FSG also details this. So I am unsure where this is actually coming from???? We already obtain consent for this, did I miss something??
Nope, you hit the nail on the head. If anyone isn’t disclsoing and getting client sign-off now, they have been in breach of the law for a very long time mate!!
What a joke, more admin red tape for our business. Another reason for advisers not to recommend personal protection. For most insurance only clients the amount of commission is small, and is disclosed at the time of presenting the SOA. If this is to be an annual requirement, well, it will not cover the additional admin costs and time required to follow up all clients to have them sign the “informed consent”. Another nail in the coffin of Life Insurers.
For heavens sake !! The idea of having the client sign off on yet another FFS document beggars belief.
Its not minimising and” red tape” ? just adding a bit more complexity to an already broken system. The clients know we get paid via commission. It has already been explained at least a dozen times that clients will not pay the fee for the service provided. It is shown in the current SOA which even if disgarded in its current form I have no doubt that licensees will require something to support the advice given and it can be stated in there and covered off on when the client signs. WE MUST BE THE ONLY PROFESSION OR BUSIESS THAT HAS TO DISCLOSE WHAT WE EARN. DOES A DOCTOR TELL YOU HOW MUCH HE RETAINS WHEN HE “BULK” BILLS YOU ??
Giving advice without some supportive structure is asking for trouble. How about some real attention to the “crutch” of the whole matter. Commission payments increased to support the work done and to get advisers back into writing risk insurance that is not at a loss. 80/20 minimum and 1 year responsibility. After 2 years of COVID and a loss of over 10,000 advisers the insurance Companies are “bleeding” money with claims accelerating and new business diminishing even faster. I simply do not believe the changes made in October 2021 have suddenly turned this all around The insurers continue to tell us how well they are going at the same time increasing premiums as their only way out { or so they think ?} Get the industry back to profitability by getting new business! How? By making it attractive and profitable to write. I wonder how much the report is costing ? Ask the advisers they know what works and what does not.
End of Rant.
Anyone would think the idea of insurance is to create a bigger pool to spread risk and reduce premiums. Someone (government, lobby groups, even insurers, etc) seem to have forgot that!
No other Advisers in the World have the ongoing disclosure requirements Australians do
Commission is paid to adviser by the product providers. Why do clients have to give permission ?
Who will assist clients when claims arise?
The lawyers….for a significant percentage of the claim proceeds…who made these arrangements? Oh, yes…the lawyers who stand to benefit – so ethical!
What about orphan policyholder clients? They haven’t had an adviser for years, but I wonder where their commissions have been going?
If they no longer consent to these commissions, will their and/or other client’s premiums reduce?
I’m pretty certain none of the other reforms provided by government regulation have made a scrap of difference to the extraordinary rates of increase, so I’m betting against this obtaining a positive result.
I thought that LIF was supposed to ease pressure on premiums….?!
I agree with all of the posts here. Asking a client to consent to the ongoing fees is paramount to financial suicide for Risk only advisers. As a simple example, a client that is paying say $4,000 annually in insurance premiums provides the adviser with $880 over the course of the year (or $73 per month via brokerage). Most licencees take 10% so the business is receiving $720 (minus GST). The obligation for the business to construct, send, follow up and then forward to the insurance company a signed Fee Consent could take upwards of 2 hours annually. The adviser to receive this grand sum would then need to meet with the client to ascertain their position and then review the cover. Life insurance is already a lost leader. Further the adviser would need to meet their duty to ensure that the advice is in the clients best interest. With insurance premiums increasing every year, the adviser would be obliged to review the ongoing costs, more than likely recommend a new, cheaper product (although the original waiting periods and exclusions ie suicide etc are now back in play).
The adviser then would receive any upfront commission and then be castigated for “churning”.
What a mess…..seriously the more woke the world has become the more unworkable the industry has become.
Our industry continues to be transparent with fees being levied yet we have an industry leader who genuinely seems like she has never been through the advice process or even read an advice document. Disgraceful
…and here is the elephant in the room that these insurers are NOT disclosing or talking about.
They stiched up the advice community with lower comms to the point where very few advisers are writing life business. The new business results have shown dramatic falls…as premiums continue to rise astronomically.
Already, in my practice, we no longer offer new insurance for new clients. We’re merely helping existing clients. No new clients means no new money to the risk pool right across the industry.
Healthy, lower risk individuals are opting to self-insure at least part of their risks to keep premiums affordable. Those who are ‘unhealthy’ and ‘more likely’ to claim are retaining their cover…anti-selection is not being spoken about. But it is clearly happening. Premiums will continue to rise unabated if the FSC and Life Insurers don’t fix this mess urgently…soon, all they will have left is high risk clients, unsubsidised by healthy lives…
This just beggars belief, its not a nail in the coffin its a cremation. The reason I haven’t written one insurance policy for 18 months is I simply can’t afford to survive on 60% upfront. I have better yielding super and investment clients and refer risk elsewhere. Like others have commented here, isn’t it enough in a FSG, SoA, remuneration disclosures (by law) for upfront and ongoing. Watch all those engaged clients go to daytime TV -insurance policies and don’t read the fine print about being underwritten at time of claim..There’s no Lazarus for us.
That would be just about it for me. Simply ridiculous. I thought the point of the exercise was to reduce costs and red tape ????????
I think people are interpretting this incorrectly. I read it that clients need to provide consent and not an annual fee disclosure statement. In most cases the adviser would have already obtained the clients consent in the SoA/authourity to proceed. Where consent might not exist is from purchased client books where the client has never consented to the new advisers services and commissions.
It does say existing arrangement grandfathered and also states the consent required for new policies (can’t see annually note anywhere?) This is under the pretext of the other QoAR recommendations i.e. no SoA. So I read this as informed consent at commencement of new policies where an SoA not needed seems reasonable? Probably ethical outcome under fasea
Two question for Mike Taylor
Are these comments forwarded on to Ms Levy. If not why not. What not just bundle them up and submit them to the QAR
And Mike did you get a comment from CALI ? Let’s see if they’ve got any kahuna’s
They must be joking. Many people in our industry do not even understand the commission structure and the benefits to consumers. How in gods name will clients begin to understand how commission payments to advisers benefit themselves and the actual amount what is reasonable.
Does anyone else think that MLC doesn’t like paying advisers? Advisers already disclose their fees to clients, does Michael Rogers not know this? This seems like a paid bit of publicity for a greedy insurance company. Calling it as I see it. If the QAR and MLC really cared about financial advice outcomes they’d actually work harder to improve insurance products and educate Australians about the benefits of wealth protection.
At the end of the day ( sorry that’s a worn out old statement ) advisers will not get the benefits and support they need and want from insurance companies
We get called partners ? ( really ) I don’t remember getting a financial benefit from an insurance company for me efforts
At one stage our business was in the to 6 in Australia for new business !! Now it’s hard to even get a meeting with a BDM who only wants results before they go past that imaginary line that apparently starts around Hornsby
Well done Dave that is why we support you and know that you and your company support us and our clients
This is hilarious – if this one gets through there will be no advice industry.