Forcing risk advisers into the same FASEA education mandate as financial planners will decimate the insurance industry’s adviser stocks and lead to an industry with less specialist knowledge, according to the founder and chief executive of licensee Synchron, Don Trapnell.
The industry is being pulled apart, he says. While advice is becoming more specialist in nature, with areas like risk, aged care and broking relying more on unique knowledge, the qualifications around those areas are being miscast under FASEA’s broader, financial-planning based relevant degree and exam.
“Not differentiating between risk advice and financial planning is the real issue,” says Trapnell, whose firm licenses around 500 advisers. “We need to separate them.”
While he acknowledges there is little appetite in government for further amendments to the education laws, Trapnell says we should look at where advice fits into the licensing spectrum. “We need to go back to what it means to be an adviser,” he says.
The CEO rejects education comparisons between financial planning and the medical profession. In a May interview with Professional Planner, the chief executive of FASEA, Stephen Glenfield, likened its education benchmark to reaching GP level accreditation for a doctor, who can then go on and specialise.
“Let’s take another profession, like the building industry,” Trapnell suggests. “You have a plumber, a plasterer, a draftsman. All need to know where they fit in the puzzle, but they don’t have to know how to build a house.”
You can’t have an industry where everyone knows everything, he explains. Even the notion of holistic advice is in itself problematic.
“I have known really good financial planners that don’t know how to write risk, and I know really good risk advisers who aren’t too bad at financial planning, but I’ve never met the truly holistic planner. They say they are but it’s a different skill set.”
The perfect storm
Originally an insurance advice business, Synchron has evolved to now take 48 per cent of its revenue from financial planning. Trapnell says the pressure on risk advisers to meet FASEA’s benchmark will see the insurance portion of his business become further marginalised as the pool of qualified risk advisers dries up.
He recalls speaking to one insurance advisers that is considering leaving the industry to sell used cars rather than meeting the education benchmark.
“Once you cull the good risk advisers the result will be a fall in the amount of insurance written,” he says. This will have broader implications on the economy, Trapnell explains, as less insurance leads to a drain on health sector funding and less advised insurance leads to worse claim rates.
The Life Insurance Laws have compounded the issue, Trapnell continues, with declining revenues cutting profitability and making the profession less attractive.
“Everyone I know has drifted into life insurance,” he recalls. “Now we’re saying to 18 year-olds they’ve got to do a degree, a professional year and pass an exam, then they might be allowed to go out and sell a life insurance policy. It’s not a good business model.”
A recent whitepaper from researcher Plan for Life on behalf of MLC Life Insurance reported 67 per cent of risk advisers experienced a reduction of profit since the LIF laws were introduced in 2018. The laws are being implemented in stages, with new business commissions capped at 88 per cent (inc. GST) as of 1 January 2018, 77 per cent at the start of 2019 and 66 per cent in 2020.
Less than half of risk advisers are prepared for the next phase of the LIF laws in two weeks. according to the report.
“I can’t see an argument for 66 per cent upfront, because it costs more than that to do the work,” Trapnell says. “Unless you’ve got a mature book you’re going to be operating on a loss. That’s not a really good formula for bringing people into the industry, is it?”