A federal election? Be afraid
It looks like we are heading for (another!) federal election, following the double dissolution trigger on the night of 18 April. As an industry, I think we need to be afraid. Very afraid.
Conversations we have been party to around the traps reveal there is much criticism of the current government. A lot of that criticism in our own industry has been squarely levelled at the draft Life Insurance Framework (LIF) reform legislation and, as a licensee with around 400 financial advisers in our network, we are arguably better placed than many to understand the reasons for this criticism.
Financial advisers have had to deal with years and years of scrutiny and criticism which has resulted in volumes of reports, papers, inquiries and recommendations. This has led, predictably, to copious proposed, draft and ultimately implemented regulation and legislation. We know it's been a long, hard battle because we have been a party to it, consistently and relentless flying the flag on behalf of advisers in front of government. And we know that many advisers are disenchanted and disillusioned with the outcomes because these outcomes have affected profoundly on the way advisers do business and will be required to do business in the future.
But here's the thing...
While we might not be wholeheartedly in love with the LIF legislation as it currently stands, we have every reason to believe that if Labor returns to power, it will be profoundly worse – for advisers and for consumers.
On what do we base our fears? Consider a government strongly influenced by the Left, the union movement and industry superannuation funds. Then consider Industry Super Australia (ISA) and its call for no commissions or a maximum of a flat 20 per cent.
I probably don't need to spell it out but I will anyway. No commissions or even a flat 20 per cent would either completely remove or severely restrict an entire revenue stream. If a form of revenue is stopped or restricted, a business that has been relying on that revenue stream will either go out of business or be forced to increase fees to the point where the very people who need the service the most will no longer have access to it because they simply can't afford it.
There are two facts of life here – not making money is not a good business model. Not having access to financial advice is not good for consumers.
We have said it before but we will say it again. The UK experience demonstrated loud and clear that removing commissions is a bad idea. The UK's Financial Conduct Authority is considering reversing a ban on receiving commissions on investment business because – you guessed it – it has resulted in increased fees for consumers that smaller clients cannot afford.
This is not a political endorsement but I do believe a Labor government will lead us down the rough road of banning commissions. It will take time before Australia will see the profound error of going this way and, in the meantime, a sea of advisers will exit the industry and a sea of people will be forced to leave their advisers. Worse still, I believe it will result in people abandoning life insurance altogether. They won't buy it through an adviser and they won't buy it over the phone, online or at all. If Labor wins the federal election and presses ahead with outlawing commissions, they will be penalising the very people who help protect consumers.
Consider this, the average cost of a Sydney family home is now in excess of $1 million, in Melbourne it's around $700,000. Many families have very big mortgages and in many cases, it takes two people to service them. If something happens to one of them and they are not adequately protected via risk insurance, the family risks losing their home and their lifestyle. In some cases, it may mean the family is forced to live on social security. And so we should be afraid. Very afraid – because that's a cost this country can't afford.
Don Trapnell is the director of Synchron
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