Ban risks everything

New research commissioned by the Association of Financial Advisers (AFA) confirms what many advisers already know: millions of Australians will be put at risk if the Government pushes ahead with a ban on commissions on life insurance products within superannuation.

Conducted by CoreData and sponsored by AIA Australia, the Risking Everything research covers 700 corporate super and life insurance clients. It reveals a number of key insights:

• Consumers with an adviser are more confident, have more appropriate levels of insurance and greater control of their financial future.

• With two in 10 consumers in an advice relationship, Australians are under-advised, under-insured and under-saved. The concern with a number of the proposed Future of Financial Advice (FoFA) reforms is that they will ultimately exacerbate these issues.

• There is a clear need to educate consumers on risk – identifying, managing and mitigating risk so as to better protect themselves, their families and their assets.

The central proposition from the research is that advisers enable clients to make better decisions around their financial futures by identifying risk and then taking steps to manage and mitigate this risk. Their levels of cover are more realistic and these clients better understand the benefits of the type of cover required.

Removing choice and access to insurance advice is clearly a retrograde step. It is one that will impact on the already very low levels of insurance in the community.

This tells us something the Government has not understood: it is not advisers who have a problem charging fees, it is consumers who have a problem paying them.

It’s difficult to believe that this is what the Government wants, given that the cost of underinsurance is already estimated to be $1.3 billion over the next 10 years, according to the Lifewise/NATSEM Underinsurance Report, released last year.

So let’s think about possible implications. In banning commissions on life insurance inside superannuation, the Government is removing affordable access to advice for corporate superannuation fund members.

As well as assessing the client’s needs, researching appropriate products, organising medical appointments and preparing Statements of Advice (to name but a few activities), in a post-FoFA world, advisers will have a fiduciary duty to always act in the best interests of the client. To appropriately remunerate advisers for their time, expertise and increased legal obligations, clients will have to pay an upfront fee of around $1500 to $3000 out of their own pockets – something many of them have never done before and will have difficulty funding.

For many consumers, the only affordable option will be to get advice from the superannuation fund or go direct to the plethora of online sites offering products. Whilst both of these options are appropriate in some circumstances, they can’t replace tailored, bespoke advice before, during and through the insurance process. That is why this proposed policy setting will have some serious ramifications for the Australian community.

Risking Everything highlights that the advice profession has work to do in communicating the value of the advice relationship. It reveals that consumers believe insuring their homes, cars and health is more important than insuring their lives: less than a third (29.3 per cent) of those with life insurance and only 5 per cent of those without it, rate it as extremely important.

However, what it also reveals is that those who do have an adviser highly value that advice, understand the benefits of life insurance, have more appropriate levels of insurance and prefer to have choices – both in where they access advice and how they pay for it.

In the words of a Risking Everything respondent: “I need my adviser and don’t want to lose him. I don’t want to go to the bank or call centre.” (Female respondent, 48 years old, NSW.)

The challenge for the advice profession now is to better articulate that sentiment to the powers that be in Canberra.

Richard Klipin is chief executive officer of the Association of Financial Advisers (AFA).