Specialised insurance advisers are becoming increasingly rare, with the number of ‘risk specialists’ dropping from 34 per cent five years ago to just 15 per cent today according to recent data from researcher Investment Trends.
The decline of risk specialists – defined as those who derive over 50 per cent of their total practice revenue from providing risk advice – is being attributed primarily to remuneration erosion and the mounting compliance burden.
The squeeze on remuneration started with the 2017 Life Insurance Framework (LIF) laws, which capped upfront commissions at 60 per cent and ongoing commissions at 20 per cent. This was compounded when Hayne delivered his royal commission recommendation that ASIC should consider further reducing the cap on life insurance commissions.
“Unless there is a clear justification for retaining those commissions, the cap should ultimately be reduced to zero,” Hayne stated.
After the federal government promised to enact all of Hayne’s recommendations, finance minister Mathias Cormann told attendees at the Professional Planner Risk Summit in September it was willing to wait and see how the LIF reforms played out before letting ASIC check those reforms have been “bedded down” in its government-mandated 2021 review. At that stage, he said, “further adjustments” may be required.
“The admin burden of compliance and paperwork, coupled with an uncertain regulatory landscape, are the top challenges that prevent financial planners from growing their insurance advice,” says Investment Trends’ Senior Analyst, King Choi. “As more planners seek to diversify their advice proposition and focus more on holistic advice, the risk specialist planner has become an industry niche.”
Risk specialists must also meet the same set of education standards as holistic financial advisers, which puts them at a disadvantage. More than twice as many risk specialists as non-risk specialists cited “transitioning to the new education and professional standards” as one of the most significant issues with providing insurance advice, according to Investment Trends (see below).
Abandon ship
Another headwind for insurance advisers – again stemming from a Hayne royal commission recommendation – is possible legislation that will require advice practices that provide insurance advice to actively disclose to clients that they accept conflicted remuneration, or in Hayne’s words to explain “simply and concisely why the adviser is not independent, impartial and unbiased”.
Currently, advice practices are only required under section 923A of the Corporations Act (2001) to refrain from using the terms independent, impartial and unbiased. To force even holistic advice providers to call essentially call themselves conflicted may result in large swathes of full-service advice providers abandon holistic practice in favour of scaled advice sans insurance.
According to Daniel Brammall, president of the Profession of Independent Financial Advisers (PIFA), advisers reconsidering insurance advice in light of the incoming legislation is “to be entirely expected”.
Kris Mason, a Partner at MBS Insurance, says the trend of advisers abandoning the insurance space has already started.
“A lot of them will want to get out of the insurance space to keep that clean model,” Mason says. “Post royal commission, they’re sticking to fundamental financial planning and not doing the peripheral financial services.”
There is one thing that is worse than being under insured. Being under insured and intestate!
Most Australians don’t have a valid will and no one really addresses this issue.
The recent reforms will cause a major under insurance problem which multiply the lack of estate planning among Australians.
These planners leaving the personal risk space are PROFESSIONALS – they did this for a living – some of them very well.
I have not once, in 36 years, after a thorough NEEDS ANALYSIS using the client’s figures, found a person had anywhere near the amount of cover that they truly needed to protect themselves, or their family, if they had been disabled or died. NOW, they might even have lost a lot of the cover they had forgotten about on old supers.
On a number of occasions I have fought to get someone cover because of a pre-existing illness or injury.
Sometimes I was required to go back to the client and say “We got the cover! It is twice the cost, due to your history.”
One client told me to jam it, and died 6 months later – leaving his family destitute.
The government may foot the bill for people who are under-insured, it is far more likely that the people themselves, or their family, will foot the bill through indescribable unnecessary suffering.
I might cure an outbreak of a disease by murdering everybody who might get it – or I might decide to treat those with the disease in a targeted way.
There are people I have encountered over the years who definitely ripped people off and are of unsound character – the current environment is murdering everyone, rather than seeking to target these people.
With all the recent and upcoming legislative changes, I fail to see any shred of evidence that consumers are better off and actually see an awful lot of evidence that the average consumer is worse off. Great to see our politicians acting in the best interests of the public they supposedly represent!
The one issue that many in the industry are not talking about is the reduction in capacity amongst advisers and advisory practices. Not only are advisers leaving in their thousands and uneconomic clients are being abandoned by those who have left or those who can’t afford to service these smaller clients, remaining advisers are finding it more difficult to put on new clients. Some advisers are not taking on any new clients. This in my opinion is a very bad outcome for consumers who can genuinely benefit from advice but may fail to access it.
The tragedy here is that this was all done by design.
The objective of the LIF reforms as I recall, was to set commission rates on life insurance products below the cost of providing the services necessary to implement the cover. Hayne went a step further saying the rate should be reduced to zero.
My question is who will pick up the bill for the uninsured?
Perhaps it’s poetic justice that the answer is inevitable,…. the government = us the taxpayers.
Struggling to understand why the Investment Trends data didn’t specifically mention the re reduction in upfront commissions?