The current state of risk advice presents several issues to the sector due to its complexity, inefficiency and complicated remuneration model.
Last year’s Adviser Ratings Australian Financial Advice Landscape Report found new life insurance business was written by just 532 advisers.
But one of country’s best risk specialists, MBS Insurance partner Kris Mason, believes there are five ways to achieve growth in the risk advice space.
These solutions range from industry-led transformations, along with legislative changes.
Mason tells Professional Planner one crucial way to incentivise and stimulate growth in risk advice is to adapt the remuneration models to fit both new and old insurance advice businesses as the current structure is preventing growth in the industry.
“For firms like ours, big established advice businesses with large inforced premiums, big trial books, the current remuneration structure works well,” Mason says. “If anything, it probably works into our favour.”
The Life Insurance Framework introduced a cap on risk commissions to 60 per cent up front and 20 per cent ongoing.
Instead, Mason suggests that while keeping 60/20 for established firms is fine, for new practices there should be a different option, like 90/10, which would encourage new advisers to join risk advice.
“Just to make starting a bit easier [and] more economically viable for new entrants,” Mason says.
Killer complexity
The added complexity of the insurance products has meant firms are utilising more specialist advisers, as those who have historically handled life insurance now have “a noisy back book with all this premium volatility”.
“The implementation [and the complexity is] why I think a lot of the generalists have walked away from it.”
“It is and will become more and more specialised, irrespective of qualified advisers or any change in legislation,” Mason says.
It’s only the businesses with existing internal specialised divisions or partnerships with specialist firms that will be able to handle giving risk advice.
“As it currently stands, you need scale, large inforce premium and plenty of distribution,” Mason says.
Smarter data
Outside of regulatory change, an industry-led solution would be the creation of a centralised data platform for insurance.
The lack of a centralised platform means advisers must spend hours locating data from different places rather than having all required information in one place easy to access.
“There’s still no industry utility, you’ve got advisers sourcing data from all over the place – it’s prehistoric,” Mason says.
“All they’re doing is wasting hour after hour trying to consolidate this information it should be the click of a button.
“It’s just such an onerous, laborious thing in this day and age that there is no one central platform.”
Over legislation
It was also important to get the right legislation passed, according to Mason. He encourages the government to “stop trying to over legislate everything” as advice firms are accountable anyway for any bad advice given as a business.
Mason says the government’s Delivering Better Financial Outcomes legislation should focus on simplifying the advice documentation.
“There’s so much unnecessary documentation and that flows through to the managing in-force policies as well,” Mason says.
“It should be down to the advice firms themselves to issue the advice in a concise executive summary, obviously supported by necessary research.
Mason criticises the government and particularly Minister for Financial Services Stephen Jones, who last week announced he will be stepping down and will not stand for re-election, as a “dead set embarrassment” for the lack of progress with finalising the legislative reforms.
He instead praised the original recommendations of the Quality of Advice Review, rather than the government’s response via the DBFO, as “a breath of fresh air”.
Mason says replacing Statements of Advice with Letters of Engagement and Records of Advice would remove unnecessary documentation.
“The core advice we would give a client for insurance would be an executive summary, which would be a page and a half long. That’s all the client wants to know.”
Mason suggests insurance should be separated from the holistic financial advice legislation in order to differentiate insurance advice from the other areas as a lot of the details relevant to general financial advice are irrelevant to insurance.
He adds the Council of Australian Life Insurers, the peak body for insurance product manufacturers, should be pushing to get insurance out of the financial planning legislation regime.
“[It should] stand on its own two feet and have a completely separate designation, just so they can be more agile around education requirements that are relevant to the advice that people are giving,” Mason says.
Teaming up
While some risk specialist firms have teamed up with advice practices to handle referrals, super funds will also need to rely on referring to external risk advisers.
Mason says MBS is looking at working with a large super fund to provide insurance advice for its members as the fund does not have the capability to do so. The services required from risk advisers by a super fund are insurance advisory services and retirement.
“In their case, that’s us providing the advice,” Mason says. “It’s our license, but it’s their client.”
Mason says better coordination and teamwork in the industry to connect insurance advisers with super funds would be beneficial to the insurance space as well as encourage cooperation across the industry.
While introducing the new class of adviser would be very useful in certain areas for super funds that want to internally expand the advice they can give on group insurance, they are still unlikely to be qualified enough to handle the full breadth of client needs.
Minister Jones had also said all licensees would be able to use the new class of adviser – on APRA-regulated products – but Mason says he would be cautious about how they would be utilised if they were to employ them.
“If we were to implement them at MBS, we’d have to have pretty strong systems and process to make sure that, if all of a sudden, we’ve got 10 people giving advice that aren’t degree qualified, that haven’t got experience,” Mason says.
However, the new class of adviser would be “well utilised given a strong system process and the right resources”.
