Unrelenting regulatory changes over the last decade have led to a massive decline in the number of financial advisers in the industry, with just 15,701 left according to the most recent figures from Wealth Data.
This is even more true for risk advice, with the Life Insurance Framework (LIF) and the reduction of commissions to the current levels of 60 per cent for upfront commissions and 20 per cent for trailing commissions, with a two-year clawback.
According to Phil Anderson, general manager for transformation and policy and advocacy at the Financial Advice Association Australia (FAAA), the flow on effects of fewer Australians in the risk pool are wide ranging.
“There’s data we’re hearing about new business sales volumes, which have more than halved in the last five years,” Mr Anderson said.
“So, there’s a lot less policies being written, there’s a lot less new clients coming into the risk pools. And that’s, that’s concerning because new lives and typically younger lives, and getting younger lives into the risk pools is important for the sustainability of the risk pools going forward.
“That’s something that we should all be quite concerned about.”
He said the reduction in new business then leads to underinsurance getting noticeably worse, while adding that the decline in the number of people who are actively agreeing to provide life insurance advice is concerning.
Mr Anderson explained that all the regulatory changes have acted as a “trigger” for advisers to walk away from an area that is too complex to stay up to date without commensurate reward.
“A lot of advisers started to change their business model and they started to outsource risk insurance to a risk specialist. Or at least some of them put those outsourcing arrangements in place,” he said.
“Our concern might be that a lot of advisers are not addressing risk in their discussions with clients. Or they are making a referral that doesn’t necessarily eventuate and people are not getting that risk advice.”
Turning things around is going to be challenging, Mr Anderson said, as it takes a “real commitment” to build expertise that comes with being a risk specialist.
“How do you incentivise people to do that, given that there’s all the challenges that the LIF reforms have created?” he said.
“We are concerned about this. I think we’ve got to look at how we bring more people into the risk channel, how we adequately support them to do study that’s relevant to that area, rather than doing study that is more broadly relevant to holistic financial advice.
“We’ve got to make it easier for people to come in, and we’ve got to make it easier for risk specialists to work alongside holistic advisers. There’s a lot of challenges to make that work. I think we’re fairly early in the stage of realising the scale of the problem.”
Mr Anderson said that while the solutions will take time to work, things like the establishment of the Council of Australian Life Insurers (CALI) have to be viewed as a positive to help encourage the broader financial services industry to respond to the challenges.
“But the work is in front of us to achieve that,” he said.
Too hard and not profitable enough. Risk is dead and the FPA/AFA watched it happen.
Yup. I agree.
I don’t think CALI is going to be the answer here. Of course the solution to advisers starting to write risk again is to fix the LIF which has been a disaster for customers and everyone else.
However CALI are not pushing for a change to the LIF. Quite the opposite they are pushing to retain the LIF
So you can only assume that CALI’s game plan will be to push for simple direct advice solutions as with the super funds.
We have already seen a significant reduction in product quality and significant price increases for consumers coupled with CALI now taking control of the life code.
I think what we will be seeing is a very quick progression back to direct sales, poorer product quality and more difficult claims for consumers.
Send all your risk to me!
The industry is just a slow train wreck now. The reality is if you take away the profitability no one will do it!
“Bounce back” is clearly “a bit” optimistic… However, the number of policies sold looks to have bottomed, and SLOWLY improving (although premium is slower because of pricing discounts being offered).
From our data, we know there are only 500 advisers who are still writing over $80K in annual premium p.a., who in total account for almost half of all industry sales, and less than 2,000 who write at least $20K. Thankfully, we have seen a number of advisers who did stop writing risk starting to re-write after a couple of years of no new business, but still tiny.
A long way to go…
Get the Govt to write the policies for 66% payment of the young people and try to make money, with two year clawback, no change from the insurers premiums for paying out commission payments. What a joke.
It’s really really simple FAAA. LIF thrust a 40% pay cut upon advisers and so risk advice and the enormous compliance and implementation work that goes with it is NOT COMMERCIALLY VIABLE…..end of story. Economics 101 says if it’s not worth doing, then few, if any, will do it. Increase commissions back to at least 80/20 and it becomes marginally feasible again. Any less than that, forget about it. This topic goes around and around in circles and the Einstein ivory tower dwellers simply didn’t listen to the advisers at the coalface.
Risk is dead because the government does not care.
I have two questions I don’t know the answer to as an experienced risk specialist:
Why have the life insurers not backtracked on LIF? It has cost them half their business. Do they not know that (impossible) or what is the reason? If their lobby group would ask the government to change the law it would happen quickly but their lobby group has never made that request.
Why have all but one insurer (MLC) cut their Level commission to a level that makes it unviable? For example Zurich pays 25% – barely more than the 22% continuation commission for ‘up front’?
Firstly the AFA & FPA stood aside and waived LIF through. Didnt play a shot, all in the name of “professionalism” and maybe some nice sponsorship money from the banks and the” hangers-on” non-bank insurers. Same for FASEA. AND for some reason they never DEMANDED to be considered “stakeholders” with ASIC, and APRA
Treated like serfs in the feudal life insurance industry where advisers cannot set a price for thier advice and service
The fall-off in new business began 5 years ago, not last week! Advisers basically voted with their wallets, aided and abetted by the APRA “nuclear option “” on IP in Oct 2021. More increases to existing policies, with reduced new business under LIF with a 2 year clawback. It was all very predictable but the AFA/FPA swallowed the line risk advice to mum & dads could be paid by fees. CHOICE was the winner there!
Neither professional body ( there is a misnomer) wanted to consider RISK ADVICE as seperate to investment advice. They never challenged the ASIC model of one size fits all
I would go as far as to allege the current gouging on legacy product premiums can be sheeted home to the complete lack of appreciation of the welfare of risk specialists by both components (now ) of the FAAA because by waiving through LIF and FASEA, they confirmed ASICs twisted view of the advice world.
Right now non-insurer insiders tell me there is, RIGHT NOW, no appetite in CALI or the FSC to go to Government and admit LIF was a disaster. That may go on until ASIC completes its long-trumpeted, but also long in delivery, review of the gouging,everyone, except perhaps the FAAA, knows is going on , to consumer detriment
Its all too late FAAA
Allow people to pay a risk advice fee from their super, increase commissions, reduce the need for SOAs. There you go, fixed the findustry.
Repeal LIF as the starting point and go from there.
“There’s data we’re hearing about new business sales volumes, which have more than halved in the last five years. Oh dear…. what’s that quote that if you put the government in charge of the Sahara Desert, within 5 years they’d be complaining about a shortage of sand?
Risk Insurance is dead…this conversation is like trying to bring back the Tasmanian Tiger. Also why Mr Anderson would I want to fly to a FAAA conferance and listen to a Representative from an Insurance company speak when less than 5% of Advisers provide risk advice. Groups like the FAAA can’t sit back and ignore their members for 10 years because they’re in the pockets of AwareSuper. Then wake up in 2023 and say there’s a problem and expect Advisers to get on board. Sorry but that Risk Tiger is dead and buried long ago and unless the FAAA listen to members and stick there heads out they’ll be like risk advice..oh wait already happening.
Offer advisers the choice of increased commissions with increased responsibility period. Force insurers to honour level premiums. Revert back to the Customer Advice Record (CAR) format instead of SOA.
For goodness sake don’t increase the responibility period. That’s the main reason we stopped giving risk advice. Do all the work, then the clients situation changes and you have to pay it all back because they can’t afford it any more. No one else in the country works for free and they expected life writers to do just that.
I don’t have a magic solution, but insurance companies putting up level premium income protection by 82% in a year and a 25 year old level premium policy (mine) by 100% over 3 years, are just 2 examples of why the insurance companies have managed to destroy faith in the system. They managed to make advisers look stupid for recommending level premium when it should have been the best option for the client.
The government didn’t listen at the time of any of the umpteen reviews. They were warned from many directions, by people who understood the industry, that the changes would destroy it. Why is anyone suprised?
How about giving the adviser the choice? Say, 1 year to 5 year responsibility period.
Churning was the problem mentioned by ASIC. I would gladly endure a longer responsibility period if (a) I could get higher commissions as compensation and (b) level premiums were fixed.
I would choose a 5 year responsibility period as I’ve not had a lapse (during the responsibility period) in over 10 years. Admittedly, most of my clients are on level premiums, average $30,000 p.a. per household.
we already have a 2 year clawback period…….are you suggesting extending that to 3 years ?
I think s/he’s asking for the choice. Higher responsibility period would be rewarded with higher commission.
Cdm solutions is the solution
Only if we get rid of ridiculous Statements of Advice & return back to Customer Advice Records. Otherwise no.
You want to remove SOA’s because you are too bloody lazy…
Let’s keep punishing the adviser by forcing their clients to read the SOA and whilst we’re at it, the PDS from cover to cover… then, complete a quiz to ensure that the client understands the documents before the adviser file notes the results of the quiz as evidence of “informed consent”.