After reading ASIC’s 413 ‘Trowbridge’ Report into retail life insurance advice in 2015, the founder and co-director of Synchron, Don Trapnell, decided to board a plane for England and find out how the industry was holding up in the UK.
“We wanted to find out what was happening overseas regarding remuneration,” he says, “because we were getting a lot of mixed messages.”
Trapnell, whose firm is the second largest mover of life insurance in Australia behind AMP Financial Planning, says he and chairman Michael Harrison met with association heads, regulators and managers of the UK’s Retail Distribution Review.
The first thing they learnt on the fact-finding mission, he recalls, was that – despite rumours – a ban on insurance commissions was never implemented.
“How many times have you heard people say they tried getting rid of risk commissions in the UK, that it didn’t work and they had to reintroduce it?” he says. “They actually never cancelled commissions in the UK. It never happened!”
Trapnell explains that a recommendation was made to ban risk commissions but was not followed through. “It’s because the government recognised – and this was the expression the RDR managers used – that life insurance is a grudge purchase.”
“It’s in the interests of the government, the community and the consumers to have life insurance but no one wants it because it forces people to face their own mortality,” Trapnell continues.
Despite needing it, he says, people don’t want insurance. “So it has to be sold,” he says.
“However, if you put a block in the way by making people pay two or three thousand dollars, they aren’t going to get insurance.”
The only two countries in the world that have actually stopped life insurance commissions – Finland and Holland – are unique in that they are mandatory when taking out a mortgage, he explains.
This, he says, distorts the market dramatically. In the Netherlands only 10 per cent of life insurance is advised, Trapnell notes. “Insurance advice became not just the province of the wealthy, but the very wealthy.”
Trapnell says after speaking to “a number of advice practices” they came to one conclusion: “People prefer to fund the cost of advice through their insurance premiums,” he says. “The reality is that commissions allow consumers to get the insurance that they need without finding the upfront cash to do it.”
He argues that if you put hurdles in front of people – like an upfront fee – they’ll either shy away from insurance or purchase “the cheapest possible option, with the lowest sum insured they think they can get away with, just to satisfy their guilty conscience.”
An ‘overnight’ success
Trapnell founded Synchron 21 years ago with the late Paul Riegelhuth, and boasts a “constant trajectory” of around 14 per cent growth every year. “So it’s taken us a couple of decades to become an overnight success,” he jokes.
The firm is ninety percent owned by Trapnell and his co-director, John Prossor. Synchron is, with just under 500 advisers, the largest privately owned advice firm in the country.
While the company started out as a risk advice network it has built up it’s wealth advice proposition to the point that it accounts for 42 per cent of revenue. Trapnell discloses that the firm “does about $30 million of risk new business” per year, and has a total annual turnover of “about $90 million”.
“We’re the only licensee to have an office in every state in Australia,” he reveals.
Trapnell says his “main concern” is currently the push within the Hayne royal commission for zero commissions on risk advice.
In his final report, Hayne cited the Life Insurance Framework legislation that capped commissions from 1 January, 2018 and recommended that “unless there is a clear justification for retaining those commissions, the cap should ultimately be reduced to zero.”
Trapnell argues that ‘clear justification’ is the fact that people won’t pay for life insurance advice upfront. Ergo, a commissions ban would lead to a dramatic reduction in the number of people getting sufficient and appropriate coverage.
Asked if there is any appetite for consumers to pay for insurance advice upfront, he says: “None. Absolutely none.”
“It’s a real concern for us and the industry as a whole, and should be a concern for Australia,” he says. “The losers in that will be the consumers, make no bones about it.”