Much of the fear now gripping many risk advisers in the wake of the Trowbridge report relates to the potential scale and pace of change, says industry consultant Tom Reddacliff.
Reddacliff is a former general manager of Godfrey Pembroke and senior executive at MLC, now head of Reddacliff Consulting.
Referring to those practices he has assisted in readjusting or dramatically evolving their remuneration models, Reddacliff emphasises the time and care taken in doing this.
“It’s important to note these transformations took time to plan, execute, adjust and then embed,” he says.
“The current issue is a genuine fear of this happening en masse, via legislation and with haste.”
Reddacliff believes risk advisers and other life insurance stakeholders need to seize the opportunity of reform, or face a painful regulatory shake-up.
“If the transition doesn’t go far enough we will end up with yet another ‘do it to you’ moment,” he says.
“On the other hand, if there isn’t proper consideration for the time and impact to transition, we will have high attrition of insurance advisers.”
His comments echo those of John Trowbridge himself. “If the industry fails to reach consensus on my recommendations and stakeholders continue to promote their own interests ahead of consumers, they will leave no option but for the government and regulators to step in,” he wrote on Tuesday, in a letter to the editor of the Sydney Morning Herald.
Reddacliff says the Trowbridge report has “laid down some valuable long-term commentary and solutions for the insurance advice industry, however, the key issue is transition and clear commitments versus motherhood statements from stakeholders”.
Over his many years of working with advisers on their businesses, Reddacliff says he is yet to meet one that regretted moving their business from a stepped premium to a level premium structure, and from upfront to level commission.
“Some have also gone the extra step and moved to fees” he says.
“These advisers have also transformed their advice process and made a strong connection between insurance advice and the family tree. This shifts the advice from being transactional to a long term, value-added risk-management conversation.”
How to implement the changes
To address the problems plaguing life insurance advice and help head off externally imposed measures, Reddacliff suggests practitioners quickly adopt “a hybrid-like commission structure with dollar-based commission caps”.
He believes that instead of the $1200 cap proposed by Trowbridge, a figure of $3000 or $4000 more accurately reflects the cost base of advice.
“In my experience, [$1,200 should refer only to] a clean skin,” he says.
“There should be a three-year responsibility period. I think opening up approved product lists, introducing a code [of conduct] and soft dollar restrictions all make sense. I think the profession should commit to a level structure in five years to provide sufficient time for essential changes to occur.”
Insurers must also take responsibility
Cost is a common argument risk advisers fall back on to defend commission remuneration in life insurance advice. Instead, Reddacliff believes the root problem of where these costs flow from need to be addressed.
“It’s not good enough that it costs an adviser at least $3000 to put a client on the books,” Reddacliff says.
“The insurance companies should be coming out and committing themselves in writing to work with the profession to halve the cost of the advice.
“Until there are explicit targets and statements, advisers won’t believe it.”
Especially in the context of the rapid development of predictive analytics and technological innovation, he believes these changes are achievable.
“Once this happens, then a movement to a level structure for the entire profession becomes viable,” he says.
“If the existing insurers don’t take on this challenge, I see new entrants filling the void and an obvious market opportunity.”