Advisors sound off on why a move to capped commissions would be disastrous.
The latest skirmish in Australia’s battle over capped commissions has Canadian advisors -- worried about a similar proposal coming here -- cheering from the sidelines.
"I could spin a chocolate wheel and come up with better suggestions than that," Mark Draper, advisor with GEM Capital said to the Sydney Morning Herald, of proposals that would see commissions capped at $1,200.
He pointed out it would cost more than $1,200 to have multiple meetings with clients and prepare a statement of advice for their policies.
"It would simply not be profitable to write the business," he said. "This form of insurance largely requires advice to determine correct levels – in my experience I find that people's view of how much insurance they need is well below what they actually require.”
Former member of the Australian Prudential Regulation Authority, John Trowbridge released a report with proposals that included the cap on upfront commissions and a limit to trailing commissions of 20 per cent of the policy value for the duration of the contract.
Regulators are looking to fix Australia's troubled life insurance industry, with any developments Down Under being watched closely by the same Canadian regulators backing CRM2. The fact that Australia has already led the way on fee transparency in financial advice lends added weight to concerns that proposals affecting life insurance would also find their way to Canada.
Advisors in both markets are worried any cap on initial payments would fail to cover the costs of providing the advice.
"An advisor would need to be subsidizing the costs to give that advice – that money has to come from charging a fee," said Jason Bragger, director of planning group Dolfinwise, to the Sydney Morning Herald. "The structural problem to all of this is that vertically aligned groups such as banks, who sell their own product, will be able to cross-subsidise that advice."
"It will drive out many independent financial advisers," he argued.
In order for a cap to be considered, life insurance premiums would need to fall to allow advisors to recoup their costs while allowing cover to remain affordable, argued advisor Ash McAuliffe, from McAuliffe Wealth Management.
"If the premiums come down, that will make way for people to pay fees instead of commission – otherwise I'm not sure they've hit the nail on the head with these recommendations," McAuliffe said to the Sydney Morning Herald.
"I could spin a chocolate wheel and come up with better suggestions than that," Mark Draper, advisor with GEM Capital said to the Sydney Morning Herald, of proposals that would see commissions capped at $1,200.
He pointed out it would cost more than $1,200 to have multiple meetings with clients and prepare a statement of advice for their policies.
"It would simply not be profitable to write the business," he said. "This form of insurance largely requires advice to determine correct levels – in my experience I find that people's view of how much insurance they need is well below what they actually require.”
Former member of the Australian Prudential Regulation Authority, John Trowbridge released a report with proposals that included the cap on upfront commissions and a limit to trailing commissions of 20 per cent of the policy value for the duration of the contract.
Regulators are looking to fix Australia's troubled life insurance industry, with any developments Down Under being watched closely by the same Canadian regulators backing CRM2. The fact that Australia has already led the way on fee transparency in financial advice lends added weight to concerns that proposals affecting life insurance would also find their way to Canada.
Advisors in both markets are worried any cap on initial payments would fail to cover the costs of providing the advice.
"An advisor would need to be subsidizing the costs to give that advice – that money has to come from charging a fee," said Jason Bragger, director of planning group Dolfinwise, to the Sydney Morning Herald. "The structural problem to all of this is that vertically aligned groups such as banks, who sell their own product, will be able to cross-subsidise that advice."
"It will drive out many independent financial advisers," he argued.
In order for a cap to be considered, life insurance premiums would need to fall to allow advisors to recoup their costs while allowing cover to remain affordable, argued advisor Ash McAuliffe, from McAuliffe Wealth Management.
"If the premiums come down, that will make way for people to pay fees instead of commission – otherwise I'm not sure they've hit the nail on the head with these recommendations," McAuliffe said to the Sydney Morning Herald.
