High upfront life insurance commissions and instances of non-compliant financial advice have not been accurately correlated by ASIC or the FSI, according to the chief actuary of ClearView, Greg Martin.
“No one’s made a link between cause and effect. Why does a high upfront commission mean someone can’t do a proper Statement of Advice (SoA)?,” Martin says.
“There’s nothing inherently wrong with being paid at the time you did the work…there’s no inherent conflict of interest.”
However, he concedes there are issues where advisers are overpaid relative to the effort expended, or if they are incentivised according to the amount of life insurance they sell.
Commenting on the findings of the Australian Securities and Investment Commission (ASIC) and Financial System Inquiry (FSI), that high upfront commission equals bad advice, Martin says “it’s axiomatic, not cause and effect”.
He spoke with Professional Planner ahead of ClearView’s submission to the FSI. Regarding the remuneration debate surrounding life insurance advice, he says it favours a hybrid commission model over other alternatives.
“Putting aside complex financial planning where you have plan fees et cetera anyway…we find it a pretty challenging idea that your average mass affluent customer would pay an upfront fee-for-service.
Change of name needed
Among other suggestions contained within Clearview’s submission to the FSI, it also suggests changing the term ‘commission’ to ‘adviser service payment’. “If you don’t change the language, people will still interpret it in the old way. Otherwise, you’re just pushing everybody back into the mindset of thinking about sales,” Martin says.
This caps a range of other aspects outlined in the FSI that Clearview agrees with wholeheartedly. Raising the professionalism of financial planning, culture, education standards and banning of bad apples are all supported.
“We’re also suggesting other things, such as advisers being required to be a member of an accredited professional association,” Martin says.
He believes ClearView is “well known for having a go at closed approved product lists, especially some of the big end of town.” Martin says they also have issues with product volume bonuses and shelf-space fees.
“Although they may not look that important relative to upfront commissions, there’s some real potential best interest distorters around those sorts of things as well.”
The Life Insurance and Advice Working Group, run by the Financial Services Council (FSC) and the Association of Financial Advisers, is keeping submissions confidential. While ClearView is not publicly releasing theirs, Martin reveals the above areas are echoed in its contribution.
“I think it’s the right sort of approach. My concern is the FSC still has a lot of members that are large, mature organisations with their own commercial Interests…and a long track record of not seeing the big picture,” Martin says.
Commenting more broadly on ClearView’s suggestions around a new name for commissions, he says: “It won’t change the world, but if you put [the suggestions] all together, it goes some way toward a completely different business model, mindset and culture.”