Writing in an opinion piece for ifa, WT Financial Group chief executive Keith Cullen said that with constant regulatory changes that have made the provision of risk advice more difficult, advisers have departed the space rapidly.
However, Mr Cullen stressed that retail life insurance, which has seen new business drop 37 per cent over the past four years, is more than an add-on to comprehensive financial advice.
“It serves as a financial bulwark for individuals and families, shielding them from unexpected financial adversities. Disregarding this critical element exposes clients to considerable risks,” he said.
Many advisers simply view the entire sector of risk insurance as more hassle than it’s worth and have simply removed it from their business. This, according to Mr Cullen, is dangerous.
“Advisers who sidestep personal risk insurance can inadvertently set their clients on a path strewn with potential financial landmines,” he said.
“Without sufficient insurance, an unforeseen illness or accident can escalate a manageable situation into a financial catastrophe. By advocating risk insurance, we can steer clients away from these uncertainties and fortify their financial future.
“The psychological toll on clients who face financial hardship due to a lack of risk insurance advice is a reality we must not ignore. The financial strain is just the tip of the iceberg. Beneath the surface, there’s a torrent of stress, anxiety, and uncertainty that can ripple through every aspect of their lives.
“It’s a domino effect, with one financial setback triggering a cascade of personal and emotional upheaval. As advisers, we must remember that our advice (or lack thereof) doesn’t just impact the client’s wallet – it reverberates through their entire life.”
Mr Cullen added that while many advisers stopped providing risk insurance advice in large part due to regulatory constraints, they could actually be exposing themselves to legal issues by offering a comprehensive advice package which excludes risk.
“The legal landscape for advisers who fail to provide comprehensive advice, including risk insurance, is fraught with potential pitfalls. The law doesn’t look kindly on negligence or omission. Advisers who sidestep risk insurance advice may find themselves in the crosshairs of legal action, facing allegations of professional negligence,” he said.
“The potential legal repercussions are not just a threat to the adviser’s reputation, but they can also lead to significant financial penalties. It’s a high-stakes game where the risk of losing is simply too great.”
Importantly, Mr Cullen said, if advisers find the idea of re-entering the risk advice space to be unnerving, they should consider a joint venture with an insurance specialist.
“This collaborative approach allows them to tap into the expertise of a specialist, ensuring their clients receive topnotch advice without the adviser needing to become an expert overnight,” he said.
“It’s a win-win situation: the adviser can expand their service offering, the specialist gains access to a new client base, and the client receives comprehensive advice. It’s a testament to the power of collaboration and a shining example of how we can adapt and thrive in the face of change.”
The responses from advisers in the comments section of Mr Cullen’s opinion piece were broadly pessimistic about the state of risk insurance advice.
“Obviously life insurance is important for many people. However, I’ll not be recommending it again as the government has made it too much of a hassle. It is laughable that the life insurance companies themselves supported the LIF changes – a momentous own goal,” said one commenter.
Another proclaimed the demise of risk advice: “Take it up with ASIC … Any adviser offering risk advice is a ticking time bomb. Risk advice is dead.”
While a third said: “No thanks. ASIC and the commission have made SOAs 10 hours long with the associated paperwork and it’s not profitable for us to advise on. Lower- and middle-income earners will not pay $3,300 incl GST so we can at least break even.”
There are still many of us who have remain in the risk arena despite the government’s assault on us. ASIC should provide reasonable regulatory requirements which allow us to provide critical insurance to Australians. It would help if commissions were at a level that allowed us to be profitable.
The administration from life insurance companies has become so bad that it’s an impediment to writing risk profitably
Keith, you are misguided. You need to take up this issue with the insurers. They’re the source of the problem. They thought they could eye-gouge us. Now, they’re reaping what they sowed in relation to declining new business. Advisers have had a gutful.
Article states: “WT Financial Group chief executive Keith Cullen said that with constant regulatory changes that have made the provision of risk advice more difficult, advisers have departed the space rapidly.”
Let us not forget the other – just as real and intimidating – factors which are not mentioned here but were, perhaps, in themselves to scare many experienced advisers away from their passion of risk advice:
[b]1)[/b] the significant and insulting [b]drop to 60% upfront commission[/b]
[b]2)[/b] the [b]responsibility period inflated to 2 years[/b] for that pitiful 60% commission. This not only retards new business being written but is a strong disincentive to invest any part of that 60% in growing a risk business in any way when it can be whipped back from the adviser at a moments notice for 2 years.
[b]3) [/b]the replacement of properly configured and quality income protection and trauma products with the paper tiger replacements around October 2021. [b]These new policies were and still are a minefield for litigation against advisers [/b]because they protect clients so poorly. The [b]contractual definitions[/b] are not only offer weak client benefits but are stacked in favour of the life companies in most aspects of a claim. The re-insurers, to be sure, are responsible for this – just disgusting.
[b]4)[/b] the jaw-dropping [b]constant increase in premiums[/b] especially legacy policies – simply obscene.
This is all leading rapidly to the heat death of the life company universe. Armageddon is reliably said to be by 2027 at the latest. I hold this to be accurate based on knowing advisers and life companies over the past 36 years.