Frydenberg sets fuse on Trowbridge time bomb

Mr F wants quick agreement. I wonder why? Then he says he can't be prescriptive on the percentage. Worried about a High Court challenge on TPA issues maybe

You see currently Licencees are able to take a "standard "commission scale while negotiating an individual Volume Bonus, each year, with the insurer

Under Mr T there is no negotiation, no VB, and no pretence to negotiation - same deal from all product manufacturers.

It is totally inappropriate that Josh Frydenberg demands a time frame of only weeks to address such important matters that potentially have such a negative impact on small business, the ability of risk insurance advisers to operate on a profitable basis and to deliver significant financial protection strategies to the community and consumer.

It appears almost as though because the Govt failed in its efforts regarding FOFA reform, that they just want this "fixed" and off the agenda as quickly as possible.

He cannot be serious! Weeks to get these changes agreed to! I would've expected such a statement from the Labor Party to help their friends in the Union Funds, but not from the Libs.

Has Frydenberg got any idea what this will do to small businesses across the country? What other industry is so burdened by compliance and (potentially) forced to operate on a basis that sees a business unable to cover its costs of production? Will Frydenberg also reduce the compliance obligations so that Risk Insurance advice can be implemented at a cost where a business can still generate a profit? I doubt it.

If the main catalyst for the alteration of commission rates is the so called churning of insurance policies and industry sustainability and the Govt want the industry to quickly sort out this matter, then the most appropriate solution is to not invoke wholesale change in a rushed and fractured manner but to have a binding agreement between all product providers that they must monitor and regularly report on churning practices and bound by a Code of Conduct or Charter be required to refuse the acceptance of applications by those advisers.

This penalises the advisers who may be employing the practice thereby significantly reducing or eliminating churn whilst supporting the professional and ethical advisers who should not be penalised because of the minority offenders.

After a short period of time, insurer profitability and sustainability will increase and allow the ethical advisers to be fairly remunerated for the service and advice provided in turn allowing those advisers to operate profitable and sustainable practices.

The consumer wins because they receive appropriate advice and service via a profitable adviser business, the insurer wins because they are not losing profit on regularly replaced business and the industry wins because eventually the offending advisers will either act in accordance with the requirements or exit the industry.

Is it just me thinking this seems to make a whole lot of sense in practice and principle?

Excellent comments Craig. I think you've summed it up perfectly.

On one hand Frydenberg says it needs to be fixed and very quickly, but on the other hand he agrees that IFA's are not on a level playing field with bank owned firms and could be significantly disadvantaged.

I don't think most of the people in the FSC, ISA or either side of government have any idea what we do in our businesses on a daily basis. I think the few that do have an idea, just don't care as long as they think their bottom line will improve.

Following on from Craig's comments, how about the life insurance companies agree to be part of a central register of suspected 'churner' advisers which all companies would have access to? Perhaps the FSC or ASIC could control the register. If an adviser's name appeared more than 10 times on the list for example, then all companies going forward would only allow that adviser to write their policies on a level commission (no more up-fronts).

To get around the issue of clients genuinely cancelling their policy due to changes in their economic circumstances and unfairly adding an adviser to the 'churner's list', each life insurance company would request a client complete a simple exit questionnaire as part of their cancellation request. This questionnaire could ask the reason for the cancellation and would be treated as a legal document i.e. loss of job or reduction in working hours; policy no longer required due to change in asset position; changing to another policy as directed by my adviser.

In the exit questionnaire, if the client selected the 3rd option for example, then the 'churner' adviser would only be added to the list if the policy was cancelled within a 3 year period, as there are genuine cases for recommending a new product for certain clients. If the adviser appeared more than 10 times on the list, then only level commissions are available to them thereafter. A second list could also include advisers who recommend clients move companies from years 3-5, with more than 20 appearances on the list causing a restriction to hybrid or level commissions going forward.

I'm sure this approach would soon weed out the churners real fast without the need for drastic changes to affect the majority of advisers who are out there doing the right thing by their clients.