Are risk advisers an endangered species?

Risk specialists have been disproportionately affected by the diminishing adviser numbers that have plagued the industry in recent years, research from Adviser Ratings has revealed.

Specifically, between 2020 and 2022, risk advisers were between 2.4 and 2.5 times more likely to depart than their holistic adviser counterparts.

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Now, there are only about 150 ‘pure risk’ advisers left across the country, which equals less than one per cent of Australia’s 15,800 retail advisers, according to the data agency.

More broadly, a further 3,400 advisers now write at least some risk volume, including 1,200 who carry large risk books.

The rest (78 per cent of the profession) either refer to these risk specialists, write a small amount of risk, or none at all.

Adviser Ratings attributed this contraction to changes to commissions along with premium increases and profitability concerns, causing specialists across the risk advice spectrum to leave the industry or pursue a different advice pathway.

Despite the low and falling proportion of risk advisers, Australian Prudential and Regulatory Authority (APRA) data shows retail advisers write more than half of the country’s life insurance.

Given this, advisers have repeatedly expressed concerns that the falling risk specialty will result in a significant underinsurance problem in Australia.

Financial Advice Association Australia (FAAA) chief executive, Sarah Abood, recently expressed similar concerns for risk advisers.

“We’re seeing premiums go up, and go up by a lot, and there are a couple of reasons for that. One is that advisers generally can’t afford to advise someone now unless they’re playing the premium of at least $2,500-$3,000 … The premium pools are changing quite rapidly and it’s becoming harder and harder to run a business in this space,” Ms Abood reasoned.

Advisers expect the Quality of Advice Review (QAR) to further exacerbate this problem. Namely, in her final report, reviewer Michelle Levy said while commission and clawback rates should be maintained at the current levels (60 per cent upfront commissions and 20 per cent trailing commissions, with a two-year clawback), advisers should need to seek written, informed consent from clients if receiving them.

“If an adviser will receive a benefit for the sale of a life risk insurance product they recommend to their client, they should have an obligation to tell the client about the benefit and the client should have the opportunity to consent (or not) to the provision of that benefit,” Ms Levy said.

Since her recommendations came to light, advisers have posed many questions in relation to what additional obligations would apply in relation to disclosure, consent, and ongoing services.

Touching on the matter on Monday, Ms Abood said: “We must see commission continue as a way for paying for life risk advisers”.

“There is a lot of evidence that if you don’t make that available, all you do is dry up the number of consumers who are getting advice and we already know that Australians are underinsured.”