Shock, outrage and a measure of denial have greeted John Trowbridge’s recommendations put forth in his report to the Life Insurance and Advice Working Group (LIAWG).
Risk advisers seem to be united in their rejection of the report’s findings, along with the Association of Financial Advisers (AFA), which joined the Financial Services Council (FSC) in forming the working group and engaging the services of Trowbridge.
The shock and outrage of risk advisers comes from a two core arguments:
- that risk advisers can’t cover their costs with a $1,200 upfront payment
- less advisers will continue to provide life insurance advice, adding to consumer underinsurance.
Most of the dissenting comments we’ve received on the Professional Planner website articles on life insurance remuneration fall into one of the two bullet points listed above.
Some are indulging denial in continuing to believe the way they have provided risk advice for the last 20 years will continue for the next 20. Change is coming, and as both Trowbridge and the Assistant Treasurer Josh Frydenberg have said, this may very well be the last chance the industry has to drive the change rather than accepting government imposed reform. This denial was driven home in an open letter Frydenberg penned earlier this week, giving early signs the government likes what it has seen from Trowbridge.
Yesterday’s leaked copy of the FSC’s submission to the Trowbridge inquiry will add further fuel to the fire. With comparisons sure to be made between points raised by the FSC and the ultimate recommendations of Trowbridge, it will likely become another rallying point for risk advisers, and grow the divide between the two organisations that formed the LIAWG to begin with. Strange days indeed.
Keep out: risk advisers only!
Another common refrain revolves around a view that only risk advisers themselves have any right to participate in the debate. Many comments start with something along the lines of: “I’ve been a risk adviser for xx years, how much risk advice have YOU ever provided?” The flawed, protectionist ‘logic’ of such arguments serves only to highlight the need for an independent expert such as Trowbridge to officiate in canvassing the case for change.
One thing decidedly lacking in these critical remarks are alternative options for remuneration of risk advisers. Fortunately, Ian Bailey, director and co-founder of advice firm Bailey Roberts, has offered a different take.
“I believe the situation can have a simple solution not considered by the report: zero commission product with reduced premiums, with the ability for advisers to dial up the first two years payments to pay for the advice,” Bailey says.
He believes this would enable consumers to clearly identify which portion of the premium covers advice. “And the advisers who want fee-for-service with a direct fee would have a correctly priced zero commission product.”
“The increase in premium for fees would be the same as premium funding offered in the general insurance market, except as it has been in the past, the premium funder will be the life company,” Bailey says.
“Advisers could no longer claim that the cost of entry will stop people being insured, consumers will know the true cost of the advice, and insurers will have to make their products competitive.”
Tom Reddacliff of Reddacliff Consulting also presented useful views on how advisers prepare to implement changes in their risk advice remuneration systems. Like Bailey, he suggests insurers need to reduce their costs of providing insurance products, which should in turn cut the price advisers charge their clients.
In the meantime, we watch and wait.