Reforms will render small brokers an “endangered species”

Reforms will render small brokers an “endangered species” | Insurance Business

Reforms will render small brokers an “endangered species”

Small general insurance brokerages which sell life insurance on the side could soon be an “endangered species” as the Future of Financial Advice reforms become mandatory in July.

With the Treasury’s reforms likely to lead to greater requirements on the broker to disclose information and complete more paperwork, Max Franchitto of MGF Consulting, said the one-man band broker will find it difficult to keep up with both GI and life insurance regulation.

“There are a number of small general insurance brokerages writing life insurance as a side item but their days are numbered. Life insurance and general insurance products have become much more specialist areas,” said Franchitto who has worked in the life insurance and funds management industry for more than 20 years.

“With life insurance, there is a lot more paperwork and disclosure of fees and information involved – particularly as a result of the FoFA reforms. Once upon a time, the GI broker could sell life, too, but there is so much more choice now – in a market where the GI broker is not a main player,” he said. “Life insurance cannot be a side interest, it has to be a core activity.”

Franchitto stressed large brokerages should have enough staff to allocate to life insurance  and would have little problem complying with FoFA reforms but smaller outfits would have to make a choice.

“Those one-man band brokers will have to decide if they are a GI player or a life insurance intermediary.”

Franchitto said he knew of some who believed they could still provide products in both specialisms, but had also spoken to intermediaries who were considering solely selling general insurance.

 “Life insurance logically lies in wealth management, not general insurance broking,” he added.


The reforms

  • A prospective ban on conflicted remuneration structures


  • The introduction of a statutory fiduciary duty so that financial advisers must act in the best interests of their clients



  • Increasing transparency and flexibility of payments for financial advice by introducing a two-yearly opt-in arrangement


  • Percentage-based fees (known as assets under management fees) will only be charged on ungeared products or investment amounts and only if this is agreed to with the retail investor



  • Expanding the availability of low-cost 'simple advice' to improve access to and affordability of financial advice.


  • Strengthening the powers of the Australian Securities and Investments Commission to act against unscrupulous operators.



  • The examination of the need for a statutory compensation scheme for financial services by Mr Richard St John, who has significant corporate law experience.

(Source: Treasury)


  • Paul Murphy 2013-03-25 2:43:00 AM
    In earlier "reforms" in the Nineties around 90,000 agents and associates left the Life industry. The latest reforms will drive people out for no good reason. The net result will be an ever increasing number of Australians without adequate risk cover. I am just picking up the pieces for a young relative who purchased a no advice product from a telephone sales unit. The cover is disgracefully inadequate and given his occupation will be void in the case of a claim. I intend to document the case and refer it to ASIC and the Minister and the Opposition spokesman.No one is facing up to the fact that life and associated risk cover is not purchased it is sold. Most union and private occupational super does not provide adequate life, trauma and TPD cover. The direct sellers are product floggers who do not take into account the needs of the individual and his/her family. Its an utter failure of public policy and ongoing disgrace. Paul Murphy Australian Risk Advisers
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  • Greg Cottrell - Insurance Professional Dinosaur 2013-03-25 5:08:45 AM
    It is just not the life industry, the General Industry is also being forced to revert back to basic information collection for a sales only delivery system again with a majority of the market now only giving "General Advice". I am coming across more and more insurance documentation on Broker letterhead that is producing "General Advice" only. The big insurers in collusion with international broking companies, cluster groups and NIBA are gradually forcing the Professional Advisor type Broker out of the industry in the name of streamlining, cost cutting and modernising of their operations which will eventually be transferred overseas. Even those that say they give "personal advice" don't really, and only give basic "general" advice to make "a commission sale". Once the Cluster groups sell out to the big corporations, the individuality and independence of brokers will disappear - then as they say "only God can help the poor hapless insurance consumer". But in this current "not my problem" society "who cares about insured, they are just there to be extorted" until they stop or can't afford buy insurance at all". The more complaints to the FOS means more legislation equals more opportunity to monopolised the market.
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  • Still Cranky 2013-03-27 9:09:02 PM
    In respect of general insurance, the General Advice only selection by insurance brokers to Retail Clients is a problem of the government's own making. General insurance should never have been rolled into the catch-all FSRA regime which was supposedly targetting investment products, not risk products. As usual, the gormless dodos in Canberra did not know (or want to know) the difference. The upshot was that because of the relatively low commissions and fees earned on general insurance (as compared to Life and investment products) the provision of extensive, regulated Personal Advice was not a viable option - unless the purchaser was willing to pay more for it than the cost of the policy itself. In effect, the brokers' traditional role of providing proper advice was actually curtailed by the legislation. How ludicrous is that?
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