After much debate, consensus was finally reached on how advisers on life risk business in Australia will be remunerated in future.
The ifa online newsletter states:
The agreed policy will consist of a maximum total upfront commission of 60% of the premium in the first year, including a maximum ongoing or trail commission of 20% of the premium in all subsequent years.
Starting from 1 January 2016, upfront commissions will be capped at 80% and then reduced to 70% from 1 July 2017, before settling at 60% from 1 July 2018.
It also sees the introduction of a three year claw back clause.
While there appears to be some relieve that the uncertainty is over, not all were amused.
Below are just two comments from Australian brokers on the new dispensation:
Mossy 2015-06-26 13:35
I’m thinking of introducing a sort of “user pays” model in my business now…bear with me.
Phone rings: Hi, it’s XYZ, your friendly insurance BDM. Can I come and see you to talk about all the enhancements we’ve made to our products?
Me: sure, that’d be great. Just so you know, I’m now charging BDMs for my time. $440 per hour is the current rate. I’ll shoot the invoice out today, and once it’s paid, we can set the time.
BDM: Um, no, we can’t do that.
Me: Surely you haven’t forgotten that your company is an fsc member, and they want insurance advisers to move to fee-for-service, so that’s all I’m doing, implementing a full fee/user pays service.
BDM: We didn’t really agree with the fsc, we want to support you.
ME: great, you can support me by paying me for my time…
Roger Smith 2015-06-26 12:48
Has anyone ever seen a requirement on an SOA (statement of advice) to disclose the retention period? Maybe this is what will now become a major focus on future SOA’s. It might go something like this.
Mr/Mrs client, the remuneration that I ACTUALLY earn may be nothing like that stated in dollar terms and percentage term in your SOA. In fact I could well earn absolutely nothing and after the “one sided” recent negotiations in our Industry if I (survive) a period of three years I will in fact receive the amount stated in the SOA. If you for whatever reason change your mind or if the Life Office rejects your application I will earn NOTHING. If you become influenced by someone else in the Industry to change over servicing to them they will in fact get my future remuneration BUT I will be holding the responsibility for the 3 years anyway. You asked about what I have to pay tax on. Well it’s interesting that I have to pay tax on 100% of the income I receive even though there is quite a strong possibility I won’t actually get to keep it and I cannot make provision in my business accounts for that contingency. Sorry what was your question? Yes, asking why anyone would be stupid enough to work under those terms and conditions is a very valid question. The only thing in my favour is that my life expectancy (keep your fingers crossed) is 19.2 years, so it looks like I will have to make a business decision to stop writing Insurance policies at the latest in 16.2 years but perhaps it will be a lot sooner than that.