The chief executive officer of the Financial Advice Association Australia (FAAA), Sarah Abood, has revealed that the life risk advice space is on the association’s advocacy agenda.
Speaking at the group’s roadshow in Sydney on Monday, Ms Abood explained that the “FAAA is concerned about what’s happening to this space”.
“I’ve seen numbers that as few as 1,200 advisers around the country are specialising in this area. They’re seeing their business go down, more than halved in some cases,” Ms Abood said.
“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 paying 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,” she said.
Recent analysis from the Australian Prudential Regulation Authority (APRA) revealed that finance workers, including accountants, financial planners, and brokers/dealers have all had an average premium increase of at least 40 per cent since 2015.
Specifically, financial advisers saw average professional indemnity (PI) premiums surge by 43 per cent between 2015 and 2021.
“We really are concerned,” Ms Abood said.
Last year, research from Adviser Ratings showed that there are fewer than 200 “pure risk” advisers in the country.
The firm noted that the pure risk segment has dropped by 67 per cent in less than a year, while the volume of “high-risk” advisers has halved.
“There are now 225 advisers handling a quarter of all in force in Australia — averaging $4 million per adviser,” Adviser Ratings said.
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.”
Bit late
Pity your newly merged organisation did not care enoughabout this issue six years ago Sarah…!
I am afraid the whole industry is decimated and exhausted and if cheaper advice comes in then the viability of many practices already stretched will crash. The next big ‘oh my gosh moment” will be when an insurer folds, which can’t be far away. Well done to everyone who feels they have added to the movement.
The gall of this organization, the FPA/AFA backed the LIF Legislation and now crocodile tears for the destroyed lives and businesses…..
Pathetic FPA and AFA when we needed you most… you were all scurrying around trying to be chosen one for the Professional Diciplinary Body and deserted your members who pay you.
The Mortgage Broking professional body the MFAA showed what needed to be done at the time, but you ASIC/Bank grovellers just fell over with your legs in the air.
Video killed the Radio Star and the FPA/AFA killed the Risk Insurance Adviser.
LIF treats advisers worse than mortgage brokers who are not subject to advice legal liabilities but yet receive much better rewards. Can you imagine anyone would work 100% and get paid 60% and be subject to clawback within 2 years even though there is no churning? Simplify because the premium is shooting too high. Writing a big premium doesn’t help. Levy’s recommendation is too out of touch.
We have completely shunned and scoped out insurance in all of our advice and now we only focus on funds management and investment advice. Looking back I’m glad we did because the entire insurance landscape imploded with watered down definitions, 300%+ Plus premium increases and an exploding under-insurance gap. The real losers here are the consumers, which are the very same people LIF was supposed to protect! The irony is baffling!
Like I said from the outset – what was broken in life insurance that needed fixing?
…and now after the “fix”, its barely on life support – Good God, why, why, why?????
“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.
You mean like…what has existed in Statements of Advice forever?
I got out of risk advice in 2017/2018. LIF had nothing to do with it. I would say any adviser providing risk advice today is doing it illegally and would easily be breaking the Best interest obligations. Even if you specialized in it. The Advice of couse is most likely fantastic, but from a compliance perspective, I am 110% confidence a jail cell has your name on it. When you consider past look backs at advice being 10 years, that’s a scary thought that in 2033 ASIC could be saying you breached the law in 2023.
It’s a simple case of the policy makers (& the egregious regulator) not listening & not looking at the experience in other territories. For years, they were hell bent on destroying the industry (yes there were bad apples…think of those avaricious banks & other instos), but seriously!! Wreck the industry because of that??
What about the UK experience? The policy makers had to about face quickly if they were to save the taxpayer from footing the bill due to uninsured & underinsured people).
Have a look at the stats from AFCA (& the examples from the Royal Commission). Unadvised people trying to do it themselves via the internet & other direct channels are getting themselves into serious trouble. Insurers are dancing a jig because it’s easy money with no underwriting up front, so easy to deny claims for non disclosure.
If you don’t laugh at the mess they have created, you’d cry.
And let’s not forget the utter shambles those idiotic super fund trustees have created with auto acceptance limits.
The is more lunacy to discuss, but I’d better stop now. Would someone please pass me a large glass of red wine.
Concerned about risk advice?? What a load of codswallop!! Neither the AFA nor the FPA have ever shown any concern for risk advisers in the past and I would say this is simply a recruitment exercise to try to get advisers to join the new FAAA. (Side note – FAAA is an excellent name for these people as they know F All About Advice)
We all know LIF was based on skewed data and there was no massive churn issue in the first place. The ones who did do it could be easily identified by the insurers and can be again. Go back to pre-LIF commissions and clawbacks etc etc and the industry will improve dramatically
A minimum premium of $2500-3000 ???
I would say any professional Risk Adviser wouldn’t even consider seeing or working with any client who is not prepared to require & need and pay for insurance that doesn’t generate at least a minimum first year annual premium of at least $5500-$7000.
Risk Advisers who specialise need to strategically target high end clients with large incomes, large debt, complex business arrangements and succession requirements and dependants and estate planning issues and funding strategies.
They need to focus on large premium business and less client numbers.
Only way to survive & profit now is to chase annual premiums of $10,000, $15,000 & $20,000 plus.
The small, family orientated client is unfortunately dead and buried as a target market.
These people were once reliant on quality strategic advice at an affordable level of premium.
This is no longer possible and these clients who need advice are now being left behind because of complete mismanagement of risk insurance product and misguided and inappropriate legislation.
LIF was and will always be a complete and utter disaster driven by bias agenda, politics and insurance company greed.
It failed.
It’s a bit late for the FPA to be concerned now. They could have proved their worth when LIF was introduced. But instead they ignored advisers when they told them what would happen if LIF was implemented, and guess what it happened.
Unfortunately you found your voice about 6 years too late.
Life insurance advice is not sustainable with a 60% UF and the 2 year write back and the industry is at risk of failure.
No one pays a fee for insurance advice ,premiums are increasing ,an unacceptable percentage of the population is uninsured and the welfare cost will be horrendous.
What to do is simple-100% commissions first year ,a one year write back, detailed records of reasons for all replaced products and formal accreditation as a risk specialist to receive these terms.
All other providers of risk advice stay on the current LIF terms.
This way the specialist are viable and the general advice only providers continue to transact.
Brian, what you have just said has made the most sense to me out of anything anyone has spoken about on this topic in the last 3 years!!!
Well said Brian
This actually makes a lot of sense.
Agreed, but if we’re following best interest duty and FASEA, then there shouldn’t be any clawbacks?