Although the Coalition appears to be the better bet for the financial advice industry, Risk Hub founder Marc Fabris told ifa that a Coalition win currently looks less likely, which ultimately spells trouble for risk advisers.
Looking at Labor’s plans, Fabris suggested that outgoing Financial Services Minister Stephen Jones’ actions over the last three years have shown that reviewing the risk advice industry is not a priority for Labor.
In fact, Jones at Momentum Media’s Election 2025 event just two weeks ago said Labor has “no plans for making any changes in that area”.
Fabris believes that while life insurers were warming to the idea of lifting commission caps, the current government has actually dissuaded the Council of Australian Life Insurers (CALI) from making any meaningful efforts in this regard.
“Unfortunately, CALI aren’t pushing it because they’ve had the government say, ‘Don’t bother pushing it.’ So they haven’t been pushing it but CALI are supportive, supposedly, of a LIF review. They’re just not pushing it as a policy,” Fabris said.
As such, Fabris said there is little hope for achieving any meaningful change under a continued Labor government.
“I don’t hold out any hope in the next year or two that we’re going to see any change in commissions,” he said.
On the other hand, the Coalition has promised to review risk advice commissions, as professed by shadow treasurer Angus Taylor, although he was slim on details.
While not committing to any specific measures, he said earlier this year that any changes to risk insurance regulation will need to be “affordable, accessible and advisable”.
Meanwhile, shadow financial services minister Luke Howarth argued at an Association of Independently Owned Financial Professionals dinner late last year that the 60 per cent upfront commission cap “has made it unviable for advisers to sell life insurance to some people”.
“The upfront commission means it isn’t worth doing the work involved,” he said.
Responding to this, Fabris said: “I have some level of confidence that the Coalition is going to do something. We’ve certainly got different people in the responsible positions than were around when LIF happened, and a fair bit of water has gone under the bridge.
“My feeling is that what we’re hearing from the Coalition certainly sounds a lot more positive from the risk perspective.”
Fabris shared that the shadow minister has been very receptive to discussion pertaining to commission levels and clawback periods, among other issues raised by the risk advice sector.
“You just kind of hope that the current government, if they are successful, which is most likely, that they’re hearing the challenges, the issues. They’re hearing what the Coalition is talking about and recognising it, and the bottom line is the population is disadvantaged at the moment by this regulation,” he said.
However, Fabris highlighted that advisers lack trust in both sides of government, having been let down by both Labor and the Coalition in the past.
Digging deeper on the big issues
According to Fabris, no matter who wins the next election, commission levels, clawbacks and process inefficiencies desperately need to be addressed to save what is a deeply struggling risk advice sector.
When it comes to commissions, there has been considerable back and forth since the Life Insurance Framework (LIF) in 2018 that, after a transitional period, capped risk advice commissions at 60 per cent for upfront and 20 per cent for trailing commissions.
While the trailing commissions are more or less widely accepted, Fabris argued that the lower level for upfront commissions is in serious need of addressing in order to make the provision of risk advice financially viable for holistic advisers.
He explained that raising the upfront commission from 66 per cent to 88 per cent (figures inclusive of GST) would make a considerable difference and provide enough incentive to get more advisers operating in this space.
Fabris said the two-year clawback period also acts as a significant barrier, given it heightens the risk for holistic advisers.
As such, he suggested that this should be reduced to 12 months, arguing that life insurers should have a wide enough margin in their business to absorb the losses if and when policies are cancelled.
“There’s a lot of advisers that do not write risk business because of clawbacks, because it’s hard enough to make a buck as it is, and then if I do and the carpet gets ripped under me, it’s outside of my control if something changes with the client,” he said.
The final piece of the puzzle, Fabris said, is slashing unnecessary processes that drive up the time it takes to provide advice, while providing little to no value to clients.
While this has certainly been a goal the profession and the government has been chasing with the Delivering Better Financial Outcomes reforms, he opined that not much has changed to date.
“Despite the pressure, despite the crap, a big chunk of advisers do actually want to grow their focus on risk. They just need help, they need encouragement, they need it to be worthwhile,” he said.
Ultimately, according to him, it’s all about taking small steps to effect change.
“How do you eat an elephant? One bite at a time.”
– Harsh commission/clawback model.
– Bad advice regulation that unnecessarily increases cost and complexity.
– Massive disability premium increases to cover ballooning mental health claims.
– New IP product design regulations that are totally unsuitable for many client types.
Insurance advice could have battled on with 1 or 2 of the above problems. But when you get slammed with 4 major issues like these together, there’s no point even trying to continue.
Without professional insurance advice, the whole personal insurance industry will shrink significantly.
Commission cap increases would be great.
But I think the real barrier to not being able to service more clients is the time & cost soak that goes into an SoA to justify why someone needs to be insured. I currently have to provide more documentation for someone to insure themselves as opposed to getting a home loan – it is simply bananas.
Upfront discounting has to stop, yep the premiums will increase but its getting seriously ridiculous. The client then gets slapped with a loyalty tax when the discounts fall off. Price the product correctly.
The speed in which we can provide advice would make cost, while important, a secondary consideration in the conversation.
True product redesign needs to occur to deal with Mental Health. This will sound harsh but really, the insurers need some sort of ‘work test’ in there TPD wording for MH, it seems simply too easy to get currently.
Transparency on musco-skeletal claims would be good too. Are they genuine degenerative disorders causing the huge claim numbers or predominately accident related claims?
I believe this is important to determine because currently most people get an exclusion for anything musco-skeletal related – which is deteriorating the trust between the public & the insurers.
Also insurers need to go back to being insurers. Stop the health programs and sponsoring stuff that really, isn’t making them look good to consumers or advisers – only their competitors. I can honestly say I’ve not best interested a company because they sponsored an event.
I understand CALI is for life insurers, but gee some adviser representation on the board would be great. This would actually give them some real world advice on what they are doing. I would say a lot of these CEO’s have no real idea of how their companies are actually treating consumers and advisers. They might be getting fed a story from their exec teams, but the reality is generally very different.
I think if the life insurance profession wants to evolve insurers and advisers need to work together. But right now, it seems very fractured and full of lip service.
Its not the commissions, its the unsustainable market. Even if commissions were 200% upfront its still not attractive due to the ever increasing premiums and high lapse rates and the shafting of the existing loyal clients to pay for new business discounting.
The whole market is kaput and has been ever since LIF and the group market was knobbled by the saving our super changes.
Until the insurers reset the prices and keep racing to the bottom working on very slim margins to get new business targets the industry will continue to die a slow death.
Not to mention the massive losses the insurers face from TPD and IP claims from group insurance market where everyone gets cover with no health questions or even separation of smokers and non smokers, the insurers of last resort that our fully underwritten clients are subsidising.
The first insurer to reprice and offer stability in premiums going forward will be successful. The rest wont be around
Unfortunately all the managers are on short term incentive bonuses linked to short term new business, if they were linked to sustainable long term business and trying to stop all the lapses maybe the industry could start to crawl its way out from the rock it lives under.