In September, Adviser Ratings released numbers that showed half of all life policies were written by just 493 advisers in the six months to 30 June 2023. The other 50 per cent were written by 5,880 advisers, taking the total pool of advisers that wrote life policies to 6,373.
“The retail life industry is currently surviving on a small cohort of advisers to bring in new business,” Adviser Ratings said at the time.
“With 15,634 advisers in Australia at the end of June, in the last six months, only 40 per cent wrote a life insurance policy, what was once a standard part of an adviser’s armoury when onboarding a client or reviewing as a staple of their annual meeting.
“As advisers have shifted to servicing more retirees and ‘riskies’ have fled in droves, underinsurance is worse than ever.”
Speaking to ifa, Keith Cullen, founder and managing director of WT Financial Group – which owns Australian financial services licensees Wealth Today, Sentry, and Synchron – said licensees are key to getting more advisers providing risk advice.
“I would put an emphasis on licensees needing to encourage their advisers back into the space. I think too many licensees have said, ‘If you don’t want to advise on risk [because] the commission rates have been dropped, it’s expensive, it’s complicated. OK, we understand.’ Look, I understand all those things as well, but the solution is not to bury your head in the sand,” Mr Cullen said.
He added that there is more than one way to go about providing risk advice, but it is important that advisers address it with clients.
“We’re making it very clear to all of the advisers in our three different cohorts across Wealth Today, Sentry, and Synchron that they need to have a solution that adequately addresses their clients’ personal risk situations,” Mr Cullen said.
“Now, if I’m an adviser, I’d be saying I’m going to attend to that within my practice, either all of my advisers are going to be up to speed and be able to provide advice around risk or I’m going to pick one of us within the group and they’re going to specialise in it.
“But we’re saying to advisers if you don’t want to do that for any reason, then you need to enter into the right sort of referral relationship with a specialist within the group or outside the group.”
Importantly, he told ifa, it is completely reasonable to charge for risk advice the same way that advisers charge for every other form of advice – particularly with the impact on commissions from regulatory changes in recent years.
“With the rates where they are, the hours and the complexity of the work involved, that’s not satisfactory. Advisers therefore should be saying to clients that there’s a lot of work involved in this and we’re going to charge you a statement of advice fee on it, and perhaps in certain circumstances with complexities even charge you an implementation fee,” Mr Cullen said.
“There’s a way to address it that makes sure that you’re happy with the remuneration that’s coming for the time that you’ve committed to it.”
In addition to the time spent on the advice, he pointed to the transfer of risk from the client to the adviser that comes along with advice.
“If things go wrong with it, there can be material claims that arise from it. This is something that doesn’t get talked about often enough, both with the provision of advice generally, but also specifically with personal risk advice.
“It’s got to be properly compensated. I think the first step to address what has been a pretty dramatic decline in both volumes and also the number of advisers is the licensees just stepping up to the plate and helping their cohorts of advisers and practices find solutions.”
Investment adviser or wealth manager?
Mr Cullen questioned whether an adviser can truly be a wealth manager if they ignore their clients’ risk needs, or if they are simply acting as investment advisers.
“If you’re a wealth manager, and therefore you’re looking at things holistically, which is what the vast majority of advisers do, it’s not just about whether I can outperform the index and help you with your investments,” he said.
“All things being equal on your investments, good advisers can give their clients material advantage just through things like how they’re structuring their affairs, the nature of products they’re choosing, the nature of the investment entities they’re choosing, and so on.
“To help someone properly manage their wealth is to also manage the risks associated with that wealth.”
Framing wealth as two buckets – income and assets – Mr Cullen explained that advisers also need to manage the risk around those buckets.
“You might choose to do it yourself – and I’m all for specialisation cases, I’ve got no problems with that – but within your practice if you’re not going to do it yourself you need to come up with a solution for your clients,” he said.
“As far as we’re concerned, people just need to get focused and pay attention to it, and I think you’ll see the numbers start to come back. I’m not blaming advisers for this, if anything I’m saying I think all licensees need to pay attention to the matter.”
Mr Cullen added that with the major concern around underinsurance in Australia, advisers have to tackle the problem.
“I think there are two angles to fixing the potential risks of underinsurance in Australia. The first one that’s within our control is just motivating advisers and really getting advisers focused on getting back into the space and delivering solutions,” he said.
“The other one’s a broader legislative fix of that general advice definition to let super funds and product providers talk to people sensibly about insurance.”
The issues are multifaceted. The biggest are the compliance requirements and the insurers themselves. Sure you can charge for your (massive) efforts but it’s still not worth the stress. Then you get to underwriting stage and Insurers are routinely declining or whacking exclusions for what would previously been seen as paltry insignificant issues. It’s not only that Advisers aren’t in the business of insurance anymore, it’s that Insurers themselves rarely seem interested! The entire process from start to finish is just not worth the headache, particularly when you often can’t get the result for the client anyway.
Agree with @KeithCullen, licensees can and should play a part. The solution will take a multi faceted approach, The challenge will be co-ordinating it.
My interpretation of this article — writing risk is a mugs game that doesn’t pay enough for the work involved but we want our advisers to do it.
It’s not possible to provide Risk Advice under the current regulatory environment. If you’re providing risk advice then you’re a ticking time bomb. Not if but when. Keith Cullen highlights the problem because what we’ve got is a group of people that don’t sit in front of clients thinking the problem is remuneration, when it’s bad regulation. That actually is an insult to advisers as he’s saying we’re motivated & incentivised by remuneration and ignores advisers compliance fears. Typical ex risky really.
There are two main barriers IMO. One is compliance/licensee requirements around documentation. FAR too onerous for risk advice and is the main reason no one wants to do it (i.e. full SOAs with supporting research and documentation).
The other side of it is the slow and unpleasant underwriting process. More fairness needs to be enforced here.
Commission rates should also be pushed back up to 80% or 100% in my view (perhaps with a longer clawback period to give insurers comfort).
Problem: remuneration is paltry, compliance is horrendous, insurers eye-gouging level-premium payers.
Solution: allow advisers the choice of higher remuneration for higher responsibility period, go back to CAR, re-introduce proper level premiums.