Speaking to ifa, Peter Johnston, executive director of the Association of Independently Owned Financial Professionals (AIOFP), said that simplifying education requirements is crucial for boosting the number of pure risk advisers in the country.
In light of the government’s recent announcement regarding the experience pathway, Mr Johnston said that the next item on his agenda is easing education requirements for risk advisers in an effort to boost their numbers.
“What we’re trying to do is say if you just want to be a risk adviser, which is only 20 per cent of the knowledge universe, you just specialise in risk advice. So therefore, you don’t need a degree covering financial advice,” he said.
“You [risk advisers] just need to be diploma course qualified to offer risk advice. If you want to go across and do financial advice, we’ll, you’ve got to get a degree. Because risk is only 20 per cent of the knowledge base.”
Late last year, research from Adviser Ratings showed that the pure risk segment had dropped by 67 per cent in less than a year, while the volume of “high-risk” advisers had halved.
“There are now 225 advisers handling a quarter of all in force in Australia — averaging $4 million per adviser,” Adviser Ratings said at the time.
Meanwhile, the firm found that with under 16,000 advisers currently operating in Australia, 77 per cent are writing little to no risk, compared with 60 per cent a year earlier.
“While some advisers who wrote a high volume of risk have exited the industry, others have told us they’ve retreated from it due to remuneration changes, complexity or compliance issues,” Adviser Ratings said.
According to Mr Johnston, the introduction of a diploma course designed to facilitate the entry of risk advisers into the industry is key to addressing the issue.
“We think it is fair that there is a diploma course that you invest in, which is a 12-month or a six-month course, and it’s just about risk insurance and all the ramifications of it,” he told ifa.
“We’re going to do a bit of pushing on this.”
Mr Johnston also confirmed the AIOFP will be pushing for an increase in risk commissions.
“We need to try and get it up. Sixty per cent is just far too low,” he said.
“We’d like to see it go up to 80 per cent if not more. If we can get the compliance regime rationalised, which is what the Quality of Advice Review has suggested and we totally agree with that, and if we can get the commission up, then we’ll see people starting to write risk business again.”
Despite calls from some parts of the industry for an increase in the current 60/20 risk commission caps, the final Quality of Advice Review report explicitly recommended retaining the caps, which has been seen by many as a victory.
Facts: reduced commission, increased premiums, increased responsibility period, increased compliance requirements = less people being insured = higher risk for the insurers. You (insurers) asked for it. Deal with the consequences.
The issue is heavy compliance for little reward , not a lack of advisers . What utter nonsense IMO. Make SOA a 1 page document and insurance sales will go through the roof. Stop encouraging used car salesmen back into the industry AIOFP.
Only problem is that if risk is funded by superannuation, which a lot is, then you need to know about superannuation. How about simply making it easier to provide advice? Maybe it is time for a Quality of Advice Review with someone picked by the ALP since they’re ignoring the recently completed one.
Interestingly, Michelle Levy has stated that it would not be appropriate to increase the current rate of risk insurance commission payments…..but she has not explained why this is her opinion and what factual evidence her recommendation is based on.
The reduction in commission payments has decimated the profitability of placing new risk insurance business…full stop.
This has resulted in a significantly smaller insurance pool by which the companies can spread the risk between policy holders and therefore place controls around premium cost.
In addition, skyrocketing claims means money going out the door rather than being replaced by new business income coming in the door.
It’s a simple recipe for business disaster.
Please Michelle, provide a rational, evidence based assessment and reason why professional risk advisers should not be able to provide high quality advice and be remunerated appropriately for their advice and service.
The LIF has been a dismal failure of massive proportions…it was a very very costly mistake driven by politics and Life Insurance company grab for profit and shareholder returns.
It has failed.
So another course in order to write risk business. Must those who have already qualified to write all forms of financial advice sit this exam too?
I actually disagree. The problem is the poor remuneration and the liability compared to the complexity of insurance advice.
You must know for example plenty about superannuation and SMSFs to be able to be a good insurance adviser on top of all the complexity of risk advice. Right now the pay is peanuts and the liability is enormous. Deal with those and there will be plenty to make the effort, including decent education requirements.