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Recently I had a conversation with a client around commissions, which completely reinforces why we at Hewison Private Wealth run our insurance advice on a fee for service basis.
Personal insurance has traditionally been a commission environment, where advisers have long been paid by insurance companies for placing business with them. That in itself doesn’t necessarily cause problems. More so it’s the commission structures that in the past have offered upwards of 110% of the premium paid in the first year, with an ongoing commission of 11% in future years. This created an environment where an adviser was almost incentivised to keep re-writing clients’ insurance policies every few years to receive a new upfront commission, regardless of whether replacing the policy was in the clients’ best interest.
The recent conversation I had with my client revealed the upfront commission that his previous insurance adviser had been getting paid. All of a sudden he realised why he’d been recommended to change insurance providers several times over a relatively short period. In this case the recommendations may not have put him in a worse position, in fact they may have been an improvement, but all too often changing policies isn’t in the client’s best interests. This is especially true given the potential underwriting or non-disclosure consequences you open yourself up to when replacing products.
Now, not to intentionally put anybody offside – I have worked with countless insurance advisers who do the right thing and I too have worked in commission-based firms in the past. But it amazes me that we operate in an environment whereby the situation can be abused so easily in the self-interest of an adviser.
We’ve seen it in all aspects of the financial services industry and poor practices continue to be revealed via the Royal Commission. Financial products including superannuation no longer have product or trail commissions – it all operates on a fee for service basis – however, reform in the insurance industry has been left behind.
The insurance industry is now in a transitional period where commission structures are slowly decreasing, and measures have been put in place to avoid policy ‘churning’, but it’s taken a while to get to this point.
At Hewison Private Wealth we’ve gone a step further. We believe the only exchange of fees should be between our clients and us. Completely unaligned to any product provider we provide our insurance advice on a fee for service basis. The outcome – transparent, unbiased, conflict free advice. Our clients come first, always.
It’s a pretty compelling conversation I get to have with my insurance clients on a day to day basis. We simply charge a flat ongoing fee and rebate all commissions back to the client. I can clearly demonstrate the value we can add over time by operating on this basis.
We have already had many great client outcomes, some that generate savings in the tens of thousands of dollars over time.
Many of you reading this may have already worked with me and are now benefiting as a result. If your friends, family or peers are in similar positions, I encourage you to share our story and let them know that we’re here to help.
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 email@example.com 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.