Leading independently-owned financial advisory group Fortnum Financial Advisers will dump upfront risk insurance commissions and adopt a new remuneration model in a bid to self-regulate and ward off further legislative attack.
Fortnum advisers will charge a fee for service on insurance advice, or receive hybrid or level commissions from July 1, 2015, in a move similar to that announced by AMP last month.
Fortnum executive chairman Ray Miles said changes to adviser remuneration were necessary to ensure a sustainable insurance industry although advisers and AFS licensees were not to blame for the industry’s problems.
“Advisers are price takers not price makers. We don’t set the terms for upfront, hybrid or level commissions nor do we set the policy terms or premiums yet most of the blame for the industry’s sustainability issues are directed at the minority of advisers who churn,” he said.
“There are advisers who churn and they’re known to the insurance companies who continue to accept business from them so perhaps part of the problem is how executives are incentivised to deliver new business growth.”
Miles commended AMP’s recent decision to abandon hefty upfront commissions but warned the rest of the advice industry to follow suit or risk legislation which would make it difficult for advisers to profitably provide insurance advice and ultimately reduce the number of Australians who could afford insurance cover and advice.
Under recommendations made in the Trowbridge report, upfront commissions will be replaced by level commissions set at a maximum of 20 per cent of premiums and potentially an initial advice fee limited to $1,200. The initial advice payment would only be paid for personal advice not general advice, direct sales or group insurance.
“If the industry is capped at 20 per cent with a maximum year-one fee of $1,200, many advisers will simply treat risk insurance like health insurance and tell the client that they need it but that they need to arrange it themselves,” Miles said.
“In many cases, advisers who derive the bulk of their revenue from risk will exit the industry altogether. The end result is that fewer Australians will receive insurance advice.”
He urged the regulators to focus on the wholesale or group life market, particularly sub-par underwriting practices and automatic acceptance, if they wanted to create a more sustainable, profitable industry.
Source: Fortnum Financial Advisers
