Why, when the biggest issue in our industry is underinsurance, has there been an overwhelmingly strong focus on how advisers are remunerated?
Why is the Assistant Treasurer and Minister for Small Business, Kelly O’Dwyer, ruining thousands of small businesses while at the same time awarding another free kick to the banks and life insurance companies?
Why can't Ms O’Dwyer and her predecessor, Josh Frydenberg, see that three of the four stakeholders in the life insurance industry lose under the current proposal of 60 per cent upfront advice fee, 20 per cent ongoing with a two-year responsibility period?
What has been overlooked, and what the regulator has failed to see, is that lapse rates have been very similar over the past three decades. That is, in the vicinity of 12-14 per cent.
The four stakeholders in this discussion are the consumer, advisers, government and product manufacturers – which are the banks/life insurance companies.
The consumer will lose under this model since they will pay an additional fee charged by advisers, to compensate income that was previously paid to the adviser via the life insurance contract. The consumer also loses as the massive underinsurance issue that already exists will be exacerbated by the drop in professional advisers, who will not be able to afford to offer advice in this space.
The government will also lose as the underinsurance problem will increase, meaning Australians will not have adequate insurance protection and as a result, force them to government-funded assistance instead of self-funding.
And, of course, advisers will also lose. Typically small business owners, they have just had their income reduced by between 20-40 per cent depending on which business model they were currently working under. This will close many small businesses, and change the appetite for those businesses that survive to recruit new advisers. On average the amount of time for a new adviser to be profitable in our industry is four years. This time will only increase with the drop of income available and the two-year responsibility period. What other industry has a contingent liability on the balance sheet for up to two years, after work has been satisfactorily completed?
The banks and life companies (the product manufacturers) are the only group to win from this unworkable proposal. They will not pass on the 40 per cent savings they are making; quite the contrary, most of them are raising premiums as we speak, even though they have made record profits.
If Ms O'Dwyer genuinely cares for small business – as she continues to say she does – she should take a similar stance to her predecessor, former Minister for Small Business Bruce Billson, a genuine champion for small business.
What Ms O'Dwyer and the regulator don’t grasp is that we provide specific advice in the less sexy part of the financial advice space. Without this advice, the majority of financial plans would fall apart should someone suffer one of the health events that these plans cover. We provide money to our clients' families when they die too soon, leaving debt and children behind. We provide money when they get hurt or sick and need to take time out to recover. We also provide money when clients suffer major health events, and rather than leave a mess for their family, business partners or lenders, we leave cash via insurance contracts with personalised advice. This important part of financial advice is like the floor in your house – without the floor, the walls and the roof cannot be supported.
The problem is not how we are remunerated; it’s that there are not enough of us giving personalised advice to fix the underinsurance problem Australia has. And as the Brogdens, Summerhayes, and Mahers leave the industry after loading the FSC gun, advisers are left to pick up the pieces.
The mistrust advisers have towards life companies, after a deliberate, colluded campaign to blame us for systemic problems that the banks and life insurers have created after decades of greed, will ruin our once great industry. And, when FSC members return to their day jobs at the life companies and banks, and they are sending people to our offices to talk about their products and they feel that cold stare from the other side of the desk, they will understand why.
It is now time for Ms O'Dwyer to sit down with the people that work in the industry day in and day out. The AFA has not listened to the requests of their members, and has been bullied into the current position, which does not represent our true feelings or what we are prepared to accept as fair and reasonable.
We need to talk.
Mark Dunsford is the director of dealer group Now Financial Group.
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