ClearView Wealth Limited (ClearView, ASX: CVW) calls for a properly considered study into the impact that proposed changes to adviser remuneration would have on the independent financial advice network.
Key points
– ClearView responds to FSI Report, PJC (Fawcett) Inquiry and Trowbridge Report in its FSI Submission.
– ClearView supports proposals focused on lifting adviser education, improving culture and ethics, and making financial advice a profession.
– While the Trowbridge Report attempts to address issues with vertically-owned licensees, more can be done to limit their sales culture including fully opening APLs and restricting distribution-based management structures.
– Proposals to legislate level commissions (FSI), or heavily restrict upfront payments and overall commission levels (Trowbridge) go too far and threaten the sustainability of independent advisers. These proposals will likely drive further consolidation in to vertically- owned groups.
In its submission to the Financial System Inquiry (FSI), ClearView warned that recommendations made by the FSI and the recent Trowbridge Report, which proposed mandating level commission payments and/or heavily capping initial advice payments and commissions, were excessive and would lead to undesirable outcomes for consumers and financial advisers.
“Changes to adviser income structures must be carefully assessed in terms of their likely impact on incomes and how advisers can or will likely respond,” the submission stated.
ClearView also said care was needed to ensure that those parties with a commercial interest in discouraging all policy replacement did not use concerns about policy ‘churn’ as a stalking horse to reduce industry competition and argue for reduced adviser remuneration to drive further advice industry consolidation into vertically-owned AFSLs.
ClearView Wealth Managing Director Simon Swanson urged the government and regulators to end their misdirected and narrow fixation on policy ‘churn’ and instead focus on the key issues of turning financial advice into a profession, lifting adviser education standards and banning subversive practices employed by some advice licensees (AFSLs) in vertically-owned groups.
“Level commissions are not the answer. Nor is a restrictive and inadequate initial advice payment allowance and ongoing commission. In fact, they are both well wide of the mark,” he said.
“Any remuneration design should support quality advice. While it should discourage over-selling and churning, it must foster competition and take into account the real and tangible upfront costs associated with delivering life insurance advice, the validity of appropriate replacement business, the need to adequately support new client acquisition and the entry of new advisers into the industry.”
ClearView’s FSI submission suggested that remuneration policy needed to continue to allow for some upfront payment at the point of client acquisition and product placement. It highlighted that a level only payment structure which excessively defers adviser payments, if otherwise adequate, would only increase the cost of providing advice and cover, making it more expensive to consumers.
While the submission applauded the Trowbridge Report for exposing practices involving AFSLs that sway advice, including leveraged volume rebates; unreasonably narrow approved product lists (APL); and shelf space fees charged to insurers for a place on an APL (which the FSI completely overlooked), ClearView said the Trowbridge Report didn’t go far enough on these issues which were a large part of the problem.
ClearView pushed further, recommending that AFSLs include all of the 13 life insurers in the Australian market on their APL, and that management structures of vertically-owned AFSLs should not be allowed to come under product distribution.
“If licensees are only required to have seven insurers on their APL, there would be continuing opportunities for vertically-owned licensees to restrict choice and competition, which is not in the client’s best interest. Any claims that having 13 insurers on an APL would significantly increase costs are nonsense given most APLs feature hundreds of investment managers without issue,” Mr Swanson said.
Among a raft of other proposals, ClearView also urged the industry to drop the term ‘commission’, which had a product sales connotation, and adopt new language such as ‘client service payment’ which better described and encouraged a professional advice relationship.
Leave a Comment
You must be logged in to post a comment.