Financial Planning
Synchron slams RC on commissions

The Royal Commission's recommendations to cull commissions are causing advisers some concern, according to Synchron director Don Trapnell.

On Monday, Commissioner Kenneth Hayne formally recommended an end to grandfathered commissions, and asked government to push to its current 20-60% commission caps on sale of life risk insurance products to zero when it reviews the Life Insurance Framework in 2021, unless "there is a clear justification to keep them".

Trapnell says Synchron will approach the Government to make a case for keeping life insurance commissions for advisers.

"There was always going to be a review of life insurance in 2022 [sic], it was part of the Life Insurance Framework," Trapnell said.

"The only difference is that Commissioner Hayne has said we should look at life insurance commissions with a view to bringing them down to zero, unless there is a commercial reason not to.

"There is a very obvious commercial reason not to and we will be talking to the Government to explain the Dutch experience whereby commissions on life insurance were removed with serious negative consequences for the consumer and the economy," he said.

"Surely it must occur to the Government that the Dutch market is the only market in the world that has removed commissions on life insurance."

Commissioner Hayne's report implied that "a clear justification" for keeping life risk commissions would be if abolishing them would leave Australians "underinsured".

"I doubt that a complete ban on conflicted remuneration in respect of life insurance products would lead to significant underinsurance," Hayne said in the report.

Further, Trapnell said the recommendation to ban grandfathered commissions is likely to worry affected advisers, who will need support to deal with the change.

"One way of looking at it though, is to realise that advisers selling books of clients that were generating grandfathered commissions were receiving about two times revenue," he said.

"January 1 2021 is two years away, so the recommendation means advisers with these books will receive two times revenue, therefore the net effect is zero."

Rainmaker analysis shows Synchron advisers account for a large proportion of the Association of Financial Advisers' membership.

The AFA has also said advisers will require a great deal of support in preparing for the removal of grandfathered payments.

"This is not a simple matter and will likely be difficult for advice businesses to implement in less than two years," AFA general manager policy and professionalism Phil Anderson said.

"Discussion about returning benefits to clients is fine when it comes to modern products but there are some significant implications when dealing with legacy products, including sometimes quite substantial system costs."

Finally, Trapnell said the final report gives advisers certainty on how they can move forward in their profession after many years of upheaval.

He said he was particularly pleased that the report did not propose to upend the vertical integration model.

"However, the relationship between the product manufacturer and its advice network must be made very, very clear to clients," he said.

"If you are an adviser and you are aligned to an institution, your clients must understand that you are aligned to that institution, that the institution manufactures financial products and that those products may be recommended to them.

"It must be as clear to clients as knowing that when they drive into a Caltex service station, they are purchasing Caltex fuel," he said.

Read more: SynchronDon TrapnellRoyal CommissionAFALife Insurance FrameworkKenneth HayneAssociation of Financial AdvisersPhil Anderson
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