A new breed of “qualified advisers” is headed your way, but the jury is out as to whether it is likely to hinder or help practices providing risk advice.
Announced as part of the government’s final response to the Quality of Advice Review – dubbed the Delivering Better Financial Outcomes package – these advisers are expected to be mainly hired by super funds and insurers, and potentially the banks.
The qualified adviser moniker has generated controversy with Minister for Financial Services Stephen Jones having conceded openness to changing the “nomenclature”.
Qualified advisers, as they remain known in the meantime, will provide advice on behalf of licensed financial institutions and will be subject to minimum competency standards (likely a diploma). They will be able to provide personal advice on less complex matters but cannot personally charge a fee or receive a commission for this advice.
Anthony Campbell, a personal insurance and risk adviser at Business Risk Solutions in Newcastle, doesn’t expect qualified advisers to become competitors of advisers writing risk.
“I don’t believe insurers will want to be dealing with anyone other than simple, straightforward mums and dads that have a salary and SG [superannuation guarantee] contributions,” he tells Professional Planner.
“They might have a couple of super funds to consolidate and want some life cover. Potentially these are the type of people that previously wanted advice but couldn’t afford it.”
Financial Advice Association policy general manager Phil Anderson expects planners to continue to focus on the risk needs of high-net-worth individuals (HNWI) and in particular, high-income earning clients who are likely to have a greater need for insurance.
However, he sees a big opportunity for super funds to use qualified advisers in servicing younger members with limited insurance needs. This group, he says, has become financially unattractive clients for advisers because they don’t generate a premium high enough to cover the cost of providing the advice.
If it costs $3000 to provide advice, then you need to have clients who are paying premiums of at least $5000 to cover the cost, given the 60 per cent cap on commissions, he says.
Anderson believes there is an opportunity for super funds to proactively use qualified advisers to encourage younger members to take up life insurance when they turn 25 or their superannuation balances edge up to more than $6000.
However, qualified advisers are not expected to stem the flow of holistic advisers out of the risk area.
Campbell says advisers have been moving out of writing risk advice because of reduced commissions and the increased time and costs required to produce the advice.
“None of that has changed with the QAR announcements,” he says.
There is a possibility, however, that qualified advisers could be employed by practices or licensees to help reduce the costs of providing risk advice and provide a better service.
Anderson says Minister Jones envisaged the majority of qualified advisers would work for financial institutions, but he has also suggested advice practices could employ them, as long as they met all of the eligibility criteria.
With qualified advisers being unable to charge for the provision of advice, Anderson says it would be interesting to see how things might work in practice.
“It could be the advisers charge for the advice and the revenue they generate might cover the costs of the [qualified adviser],” he says. “But we would want to await the final legislation to know that it would work.”
Risk Hub founder Marc Fabris can also see the possibility of moderate-sized licensees with some scale hiring qualified advisers as wage-based employees while the commission flows to the adviser.
He says qualified advisers could be an efficient way of supporting the network and working in a complementary way with advisers.
Campbell, however, can’t see practices being inspired to employ less experienced and less qualified advisers to do what they’ve already decided isn’t a profitable part of their business.
Meanwhile, like many others, Jake Wilkins, a financial adviser with Jake Wilkins Financial Planning in Moreton Bay, Queensland, is concerned that under-qualified employees of large institutions could appear to the consumer as more qualified than existing financial advisers because of the title.
Also, he says there’s the risk that consumer sentiment will grow to expect that financial advice to be free or significantly subsidised, eroding the strength of the pre-existing advice profession.
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