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Hewison Private Wealth - Insights
Hewison Insights
Stamp out Commissions

Independent firm moves to stamp out commissions on insurance and extend fee for advice model

John Hewison
Founder and Director
12 Apr 2010

Independent wealth management firm, Hewison and Associates, has taken the lead in stamping out commissions based advice and is now rebating all commissions paid on insurance policies – a move it says will save clients thousands of dollars in hidden fees.

In keeping with its fiercely fee-for-service approach toward financial advice Hewison and Associates is amongst the first in the industry who can now apply a fee-for-service model to Life, Total and Permanent Disability, Trauma and Income Protection insurance. They will rebate all commissions received back to insurance policy owners and instead charge for the advice provided to establish the policy and review it annually.

John Hewison, CEO of Hewison & Associates, a staunch advocate for fee based advice said insurance is the next frontier in the battle to give Australian consumers access to commission free, independent advice and is also key to unlocking the chronic under insurance problem in Australia.

“Countless studies show that Australians are far less likely to insure themselves against illness or death, yet they’ll happily take out insurance to protect their car or their home. Cost and lack of awareness are the main reasons behind our chronic under insurance,” Mr Hewison said.

“What consumers don’t realise is that in some cases advisors will receive 140 per cent of the first year premium, and then 20 per cent each year after that, in commissions. This can have a huge impact on the overall cost of the insurance – but if the commissions are paid back to you it can save you thousands.

“Wiping out commissions on insurance is a sure fire way to reduce the cost of personal insurance as well as  encourage people to seek advice on how to best  protect their income and their family, without paying excessive premiums,” he said.

Hewison’s modelling shows that customers could save more than $2,500 or 17 per cent over five years on a life insurance policy that charges a fee for advice rather than commissions to an adviser, based on the cost of a life insurance policy for a healthy, non-smoking, 45 year old male working professional, with a payout of $2 million and increased each year to offset inflation.

Hewison added that advice should go hand in hand with establishing an insurance policy.

“Every person will have a different insurance need and not having the right level of cover could end up costing more than the cover itself in the long run – particularly if people are paying for more insurance than they actually need. For instance, as an individual moves through life and their debts are repayed their adviser should consider reducing their insurance cover, but often this creates a conflict for the advisor as it reduces their commissions on the insured amount,” Mr Hewison said.

“When there isn’t the conflict of commission attached clients can feel confident knowing we will find the best and most affordable outcome for them.

“Insurance is an important component of the wealth creation strategy so it makes sense that the fee-for-service model, which we’ve applied to financial advice for over 25 years, should be extended to insurance – in fact we’d like to see it become the industry standard,” he said.

Referring to the research from Lifebroker’s Life Insurance Research survey conducted in March 2010, Mr Hewison said that cost of insurance was deterring people from taking out adequate personal insurance.

“Recent research from Lifebroker found that 36 per cent of people surveyed directly cited the cost as one of the major reasons they didn’t take out life insurance, yet more than half were over-estimating what that cost would be. Commissions are driving up the cost of life insurance and we strongly feel that this is an area that must be addressed by the regulator if we are ever going to change perceptions and solve the problem of under-insurance in Australia,” Mr Hewison said.

Lifebroker’s survey of 1000 Australians found that men and women vastly overestimate the cost of life insurance by 49 per cent and 65 per cent respectively, even though premiums for life insurance can be lower than car, home and health insurance.

The study also supports that Australians are dangerously underinsured when it comes to life and income insurance, compared to rates of car, home and health insurance. It found that 21 per cent of Australians have income protection insurance and 49 per cent have life insurance, compared to 56 per cent who have private health insurance; 80 per cent some form of home insurance; and 86 per cent some type of car insurance.

Moreover, many individuals are simply under the wrong impression when it comes to personal insurance. The study also found:

·        77% of respondents in the survey mistakenly believe that everyone automatically has life insurance through their superannuation;

·        82% mistakenly believe income protection insurance pays a replacement income if they lose or quit their job;

·        85% believe mistakenly believe life insurance pays you a lump sum payout if you live past retirement age.

Table 1:
The table below illustrates the fees versus commission difference for the cost of insurance for a professionally employed, healthy, 45 year old, non-smoking male for a life insurance policy with a payout of $2 million, increased each year to offset inflation.

* This is an estimate only.  Simple cases may have lower fees, while more complex cases would involve higher fees.

The saving in the above example is $2,563.55, or around 17 per cent, over five years.  The savings increase the longer the policy is held.

*Hewison & Associates now provides advice on and can arrange cover for:

Life Insurance
Pays a lump sum in the event of death

Total and Permanent Disability Insurance
Pays a lump sum in the event of total and permanent disability

Trauma Insurance
Pays a lump sum in the event that a specified illness or injury is suffered

Income Protection Insurance
Pays a monthly benefit of up to 75% of income, if you cannot work due to illness or injury.

–    Ends –

About Hewison & Associates:
Hewison & Associates is one of Australia’s largest independent wealth management firms, specialising in high end financial planning and investment advice to Australian individuals and families, portfolio management, and Self Managed Superannuation Fund administration. The firm manages around 900 individual client investment portfolios currently valued at $340 million, of these investment portfolios 410 are Self Managed Superannuation Funds.

Hewisons is a fee based firm which does not accept commissions of any kind. It pioneered Individually Managed Accounts in the early 1990’s and its clients’ investments portfolios are structured in this manner with investment portfolios consisting predominantly of direct investments diversified across the five main asset sectors.

Established in 1985, the firm has over 25 years’ experience in providing clients with unbiased and strategic advice tailored to their individual requirements and for the ongoing management of their financial affairs.

For more information visit: www.hewison.com.au.

About John Hewison:
John Hewison CFP, FFPA, MFinPlan, JP is CEO of Hewison & Associates, a Melbourne-based private client wealth management firm operating since 1985. He is a former Chairman of the Financial Planners Association of Australia and a vocal advocate for reform in the financial planning advisory industry.

Download article Hewison Private Wealth is a Melbourne based independent financial planning firm. Our financial advisers are highly qualified wealth managers and specialise in self managed super funds (SMSF), financial planning, retirement planning advice and investment portfolio management. If you would like to speak to a financial adviser on how you can secure your financial future please contact us 03 8548 4800, email info@hewison.com.au or visit www.hewison.com.auPlease note: The advice provided above is general information only and individuals should seek specialised advice from a qualified financial advisor. The views in this blog are those of the individual and may not represent the general opinion of the firm. Please contact Hewison Private Wealth for more information.