Let’s take a step back for a moment and consider a debate that has erupted in the past week on the issue of no-commission life insurance.
To recap briefly (and to get the acronyms out of the way early), the Financial Services Council (FSC) and the Association of Financial Advisers (AFA) formed the Life Insurance and Advice Working Group (LIAWG) to inquire into some concerns raised by the Australian Securities and Investments Commission (ASIC) about how life insurance is sold.
Professional Planner flagged early on its concerns about the nature of the inquiry – the fact that submissions to the inquiry were not going to be made public – and about the terms of the working group’s inquiry – specifically that it would not even consider the issue of no-commission insurance.
A debate has kicked on three broad issues:
a) Should no-commission insurance have been included in the inquiry’s remit to start with?
b) Is no-commission insurance is actually possible in practice?
c) Why should advisers be told how to charge their clients?
If you’re a bit strapped for time, here are the answers:
a) Yes
b) Yes
c) Because doing things the professional way can sometimes be harder than doing them the non-professional way.
Better to be transparent
If you’re going to have an inquiry into a subject that affects the public – and this one does; it goes to the issue of individuals’ understanding and control over who they’re paying, how much they’re paying and what they’re paying for – then unless there are, say, issues of actual national security at stake, it’s better for it to be open and transparent than for it to be seen to be being held behind closed doors.
If no-commission insurance is a poor idea, explain why. Put it up to be examined, and let it be shot down. But if it’s an idea that has merit, then let’s be hearing it. To not even put it up for consideration looks like a pre-emptive decision has been made to bury it.
Then the question is: who, and why? So that’s what we now need to get to the bottom of.
As to whether no-commission insurance is possible in practice, well of course it is. It already happens. There are advisers who do it. If you want to see how they do it, phone one up and ask them.
An adviser who says “I can’t do it” or “it can’t be done” is really saying “I don’t want to do it” or “it’s going to be really, really difficult.”
It’s not meant to be easy
Well, guess what? Being a professional is supposed to be difficult. It’s supposed to demand of you a higher level of ethics, education and standards than a non-professional. That’s kind of the point. And if you still don’t get the difference between “being professional” and “being a professional”, you’ve got a bit of catching up to do.
No-commission insurance should at the very least have been considered by the LIAWG. It is demonstrably possible to offer a no-commission life insurance advice proposition to clients. And professional financial planners – or professional risk advisers, or whatever – should be actively looking for ways to make what they do open, transparent, free of conflicts and to conduct themselves as professionals.
This emerging debate about remuneration in life insurance is long overdue. It was neatly sidestepped in the Future of Financial Advice (FoFA) debate, but it can’t be ignored for ever. the debate has many of the same characteristics as the argument that raged six or seven years about about the issue of commission in investment and superannuation products. The upshot of the debate back then was a realisation that even if change is considered radical and can be painful to adjust to, in the longer term it’s ultimately for the best, as trust and confidence in the financial planning profession improves, and greater numbers of people begin to see the value in financial planning services – and in paying for those services.
