Beware: regulatory reform has its sights set on those fat upfront commission cheques for life insurance deals.
Beware: regulatory reform has its sights set on those fat upfront commission cheques for life insurance deals.
An upcoming Australian report is looking to cap advisors’ commissions, a move that would be closely watched by the same Canadian regulators backing CRM2.
Under the proposal Down Under, advisors would receive nothing more than $1,200 in upfront commission, with a trailing commission capped at 20 per cent of the policy value for the duration of its life, according to John Trowbridge, chairman of the Life Insurance and Advice Working Group.
Canada has long followed Australia’s lead on regulation reform and if these recommendations are adopted they could soon find their way to the Great White North.
The recommendations are looking to axe advance payments of 100 per cent to 130 per cent of the first year's premiums, which tempt advisors to put profits ahead of clients' interest.
But when complex life insurance advice was provided to clients advisors should be permitted to keep commissions.
"There's some innovative ideas here that I think would make a substantial difference to the industry, and especially to the way life insurance is delivered to customers through advisors," he said of the upcoming report to the Sydney Morning Herald.
The report will also address the practice of advisors swapping clients from one insurer to another to pocket higher commissions, known as "churning".
Advisor commissions was pushed to the forefront after the Australian Securities and Investments Commission found nearly 40 per cent of the advice given by advisors when it came to selling expensive insurance products had failed to comply with the law.
A third of advisors were more concerned with netting commissions than serving their clients.
Almost 90 per cent of advisors recommend life insurance that paid an upfront commission of 100 to 130 per cent of the first year's premium, in addition to 10 to 13 per cent of the annual premium in following years.
"These inquiries make clear that the current regulatory arrangements are no longer sufficient to ensure high-quality consumer outcomes and to maintain public confidence in the industry," Assistant Treasurer Josh Frydenberg said to the Sydney Morning Herald.
"It is now time to put in place an enduring framework that raises the professional, ethical and education standards of advisors."
An upcoming Australian report is looking to cap advisors’ commissions, a move that would be closely watched by the same Canadian regulators backing CRM2.
Under the proposal Down Under, advisors would receive nothing more than $1,200 in upfront commission, with a trailing commission capped at 20 per cent of the policy value for the duration of its life, according to John Trowbridge, chairman of the Life Insurance and Advice Working Group.
Canada has long followed Australia’s lead on regulation reform and if these recommendations are adopted they could soon find their way to the Great White North.
The recommendations are looking to axe advance payments of 100 per cent to 130 per cent of the first year's premiums, which tempt advisors to put profits ahead of clients' interest.
But when complex life insurance advice was provided to clients advisors should be permitted to keep commissions.
"There's some innovative ideas here that I think would make a substantial difference to the industry, and especially to the way life insurance is delivered to customers through advisors," he said of the upcoming report to the Sydney Morning Herald.
The report will also address the practice of advisors swapping clients from one insurer to another to pocket higher commissions, known as "churning".
Advisor commissions was pushed to the forefront after the Australian Securities and Investments Commission found nearly 40 per cent of the advice given by advisors when it came to selling expensive insurance products had failed to comply with the law.
A third of advisors were more concerned with netting commissions than serving their clients.
Almost 90 per cent of advisors recommend life insurance that paid an upfront commission of 100 to 130 per cent of the first year's premium, in addition to 10 to 13 per cent of the annual premium in following years.
"These inquiries make clear that the current regulatory arrangements are no longer sufficient to ensure high-quality consumer outcomes and to maintain public confidence in the industry," Assistant Treasurer Josh Frydenberg said to the Sydney Morning Herald.
"It is now time to put in place an enduring framework that raises the professional, ethical and education standards of advisors."
