Print This Post
Email This Post
(No Ratings Yet)
Loading ...Excessive exit fees on superannuation products?
April 9, 2008 by Josie Kay
If you're new here, you may want to subscribe to my RSS feed. Thanks for visiting!
Q. Hi. I was listening to your program this morning 06/04/08 re the guy who rang about the 60% termination value on his super.
I have worked in super for 32 years in the private sector ( life offices). I am concerned that this guy may be unaware of termination costs. These were set by the life offices to recoup paid commission to “advisers” before the term of the contract was satisfied.
These terms were for mainly 10 years and were introduced in the late 1980’s early 1990’s. So if this guy has a “termination penalty” of 60% NOW, there is certainly something very wrong with his contract.
I haven’t heard of a penalty of 60% that high. As you know, the life offices were held hostage by the “sales forces” in order to enforce higher commissions from super products.
Hence the now crackdown on these guys having to be licensed to sell all financial products. The life offices were also totally gutless in standing up to these stand over sales forces because of “sales targets”.
I would suggest a segment on your show outlining the consequences of termination penalties and also why they were imposed.
It was not just the life offices saying they wanted more money but also the sales forces saying they wanted their commissions UPFRONT which means the life office had to recoup any overpaid commission if the contract was terminated early within the contract period.
Josie’s answer: Thanks for your comments and totally agree. I have been in this industry for nearly two decades now and started life in the corporate superannuation area……
Time and time again I came across the old superannuation policies which had excessive exit fees. Isn’t it any wonder that many people think superannuation is a waste of time!
You are right when you state the reason the exit fees are excessive was that they paid huge upfront commissions to financial advisers (called insurance agents in those days) and the life companies had to recoup this money. Some products paid over 100% of the first year’s contribution.
Luckily, financial advisers don’t have the same products to sell these days, but there are still plenty of products around that provide incentives to financial advisers (in other words, pay high commissions).
I am personally uncomfortable with commissions being paid from any financial services product and the only way we will see them banned is if the government intervenes (but it is a political hot potato!).
Whenever I get the opportunity I will highlight the importance of seeking the right advice from the right people. I am tired of seeing hard working individuals losing money because some people in my industry want to make big and quick bucks.
It gives us all a bad reputation. Again thanks for your comments.
Josie’s Quick Money Saving Links:
Don’t forget that the above information is general in nature and not specific to your goals and objectives. It is recommended that you seek personal financial advice specific to your needs. Thanks for posting your question on www.askjosiekay.com. As you know, this is a free service and if you found it useful, we would be chuffed if you told your friends, family and workmates about www.askjosiekay.com – free financial advice by a Certified Financial Planner. No strings attached! Wishing you happy money organisation
.
Comments
Feel free to leave a comment...
and oh, if you want a pic to show with your comment, go get a gravatar!