Prominent Liberal MP and former financial adviser Bert van Manen yesterday lent support to the insurance advice industry’s push to retain commissions, saying he doesn’t have a problem with them “at all”.
“I think they’re a perfectly valid form of remuneration,” van Manen said at the AIA 2021 Adviser Summit digital conference. “There’s a number of industries that have that commission model as well, insurance shouldn’t be exempted from that.”
The MP’s comments came less than an hour after Labor party shadow assistant treasurer and shadow minister for financial services Stephen Jones reaffirmed his view that insurance commissions are inherently conflicted and should be banned.
“Conflicted remuneration is a problem, that’s the position I start with,” Jones said, before explaining that he was open to having his mind changed by the impending ASIC review into the Life Insurance Framework reforms.
Van Manen referenced the 2013 commission ban in the Netherlands, which the Dutch Financial Markets Authority subsequently found led to a decrease in advised insurance, increased underinsurance and only a marginal increase in the quality of advice.
“The Dutch regulators showed that if you, in the life insurance space, move to a fee-based model, people aren’t going to pay for that,” van Manen said.
“We know already that there is a resistance of people paying fees for advice with insurance, so we need to make sure there’s a remuneration model in place [so] advisers get paid for the very important work they do, and I think commissions is a key part of that.”
A July 2020 ‘CALI’ whitepaper sponsored by major insurers and advice associations noted that the Dutch market had the benefit of “strong integrated base and social insurance layers as well as other access options”.
In Australia, the whitepaper warned, a commissions ban would do even more harm to consumers and industry.
“An outright ban on commissions can be expected to accelerate the decline in life risk adviser numbers and coverage. As a result, its likely find is everyday Australians will not be able to afford to pay for advice…” it states.
Policy on hold
Van Manen’s endorsement of insurance commissions wasn’t given as Liberal party policy. Asked to comment on the MP’s stance, the Minister for Superannuation, Financial Services and the Digital Economy, Jane Hume said the government is waiting for the outcome of the LIF review.
“The Government will make a decision about life insurance commissions based on all evidence made available,” Hume told Professional Planner. “We will respond to the ASIC review once it has been completed and carefully consider alternative distribution and compensation models as well as look toward successful overseas examples.”
It should be noted that van Manen holds the position as chief government whip in the house of representatives – the person responsible for ensuring other coalition members vote according to leadership desires.
Much will likely depend on the outcome of the LIF review, then. Unfortunately for industry, ASIC hasn’t given an indication of when a report will be published after the pandemic’s early bite forced it to to delay data collection.
Given the six-monthly data requests were postponed until early 2021, it’s likely neither side of politics will find out whether the LIF reforms “have better aligned the interests of financial advisers and consumers” – ASIC’s stated intention – until the second half of the year.
There are no ivory towers. A volumes-based commission is a conflict. Pure and simple. Why on earth should an adviser get a perpetual revenue stream for one up front piece of work and a cursory review of cover levels once a year if the client is lucky?? The claim that commissions help advisers to push insurance out to an under-insured community is a strawman argument. If you can’t make insurance advice viable without commissions, scope it out. Otherwise charge for it upfront. If the client baulks then they don’t get insurance. Explain the consequences. FFS. Advice market does itself no favours pushing back on this stuff, education standards, best interests etc etc. Imagine clients reading this..
We will cease to provide life insurance advice if commissions are completely removed and have already scaled down advice on stand alone Risk which is below a certain annual premium threshold. IMHO Life commissions need to rise, and they need to rise substantially, the closest we got to a viable alternative to the old pre LIF rates was the 80/20 rate. However, governments are notorious for making absurd decisions which seem to be made simply so they are seen to be doing something.
Bert is totally correct with his summation that Commission is the only viable remuneration model and he clearly can see that the vast amount of Australians, will not pay a fraction of what it costs to provide the work required for Advice practices to do this vital service.
Jane Hume is showing her ignorance and total lack of knowledge in this area, though she is not alone.
ASIC, from day one, have never understood how Australians perceive Life Insurance and that it is a completely different world to Investment advice.
Why is it, that the Government is waiting for a report from an organisation, that to this day, has got it wrong on just about everything it has touched or spoken about with regards to the advised retail Life Insurance Industry and whose very actions, around their false submissions around churn, has led to the calamity Australia faces now.
Commission is just one of 6 things that the Government needs to consider and consider quickly.
Rearranging the deck chairs and the band playing soothing music, did not prevent the Titanic sinking.
Correct action prior to, what was a totally avoidable situation, was all that was needed.
ASIC to this day, have never got it right with regards to how Life Insurance advice should be structured, so what is different now?
Well said Bert. Nothing like a dose of practical common sense from the work room.
One worries when those – classically schooled in ‘Ivory Towers’ emerge in positions of power like Stephen Jones. More so when they try to foist their ideas, born of impractical academia and perhaps an affiliation towards a union background and big super fund masters.
The old adage comes to mind: It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so. ~ Mark Twain.
Having done fee for service insurance for many years I never cease to be amazed by how little it is is appreciated and how quickly it is forgotten.