A partial rebuttal of ASIC’s view

A rebuttal of ASIC’s view is now, in early 2016, a waste of time, but for completeness we note:

  1. ASIC’s SOA sample focused on risk insurance specialized AFSLs and their most active “selling” advisers. This is not a random or representative sample. To be frank its surprising that two thirds of SOAs cherry picked from the product sales end of the financial planning spectrum passed ASIC’s muster, particular when you consider the subjective nature of the muster and the rigor and vigour of the musterer;
  2. It’s poor science to base massive industry reforms, including massive cuts to commissions, ie adviser incomes, on a small unrepresentative sample of AFSLs, advisers and SOAs;
  3. ASIC’s allocation of blame to advisers is illogical. Inferior policy terms, higher premiums, the exclusion of health issues and denial of claims are features of the industry and are not within the control of any adviser. To the extent these features can be controlled, the controller is the 12 insurers who dominate the industry, not any one adviser or group of advisers.

Many would take issue with ASIC’s conclusion that the correlation between high lapse rates and up-front commission models means one is causing the other. There is a large body of research that shows commissions in a positive light, including strong evidence that most consumers (including those most in need of insurance and insurance advice) would not be insured but for commission remunerated advisers[1]. This research is not noted in ASIC’s report.

You can read the full text of ASIC Report 413 review of retail life insurance advice here: ASIC Report 413 Review of retail life insurance advice.

[1] This research is noted by Mr Andy Marshall. Head of sales and research at Zurich Life and Investments, in an article dated 6 January 2015 http://www.riskadviser.com.au/viewpoint/13444-commissions-not-synonymous-with-churning published in RiskAdviser

The Dover Group