Independently-owned dealer group GPS Wealth is calling on life companies to swiftly reveal the size, scope and timing of premium reductions for consumers in order to quantify the benefits to consumers of these significant changes announced under sweeping reforms backed by the government.
Assistant Treasurer Josh Frydenberg today announced the endorsement of a set of proposals by the Financial Planning Association (FPA), Financial Services Council (FSC) and the Association of Financial Advisers (AFA) which include capping upfront commissions at 60 per cent of first year’s premium and trail commissions at 20 per cent with a three year claw back period from July 1, 2018.
The proposed changes will be gradually introduced in three stages starting from January 1, 2016.
GPS Wealth Managing Director Grahame Evans acknowledged the transition period and applauded initiatives which would allow advisers to manage the changes to their business but said it was now critically important for life companies to detail the premium reductions they will pass onto financial planning clients.
“The radical changes being proposed will allow insurance companies to significantly reduce premiums on the basis of lower commission costs, higher write backs and longer responsibility periods and greater persistency among other benefits the life insurance companies will receive as a result of these changes,” said Mr Evans, a former life insurance company director and former head of investments for Tower Australia Limited (now TAL).
“Having been a life company executive for a significant part of my life, I understand the pricing of insurance policies and if life companies say they can’t reduce premiums significantly then I would suggest that either APRA has been asleep at the wheel by allowing companies to write unprofitable business or, as suspected by many, the whole Trowbridge exercise has been about greater profitability for the big end of town.”
While GPS Wealth welcomes changes which are in the best interests’ of consumers and the broader evolution of the advice industry, Mr Evans emphasised that both the FPA, which represents advisers only, and the FSC, which represents the big end of town, are inadequately positioned to represent the interests of Australian Financial Services Licence (AFSL) holders, and particularly non-aligned licensees, which bear the greatest risk of all stakeholders.
“I would encourage the Assistant Treasurer to ensure that the important role that licensees play in the process is not forgotten and is adequately represented at the table as we get down to the detail of these proposals,” he said.
“The industry functions where all stakeholders can exist in a profitable manner. The purpose of this necessary evolution is to provide a more optimal outcome for consumers not to fix the profitability problems in some of the inefficient life insurance companies. For these proposed changes to be really effective, clients will need to receive a greater quality of advice at a lower cost.”
“I hope, like many others, that the benefit does not end up in someone else’s pocket.”
Source: GPS Wealth
