It’s no secret the financial adviser workforce is in freefall, but one segment of the market is departing at a much quicker pace than others.
Risk specialists are becoming a rarer species in advice, with more than double the exit rate of other advisers in the two years to December last year, our analysis shows.
At the start of this year, there were fewer than 1800 risk advisers in the Australian advice universe and we expect up to 700 to leave by the end of the 2021 calendar year.
The projection will come as little surprise to many. The combination of Life Insurance Framework (LIF) review, rising premiums and a pandemic-driven spike in claims from both new and existing clients has pushed many risk specialists towards the door.
Risk advisers are also not immune to generalised pressures plaguing the advice market, such as education deadlines and increasing compliance and professional obligations.
Life after commissions
The stress on risk advisers is set to continue, as with many in the surviving cohort juggling an often unsustainable workload. With fewer risk specialists in the industry, the remainder are now shouldering much of their former colleagues’ work, while transitioning to new remuneration structures.
Our research into the proportion of risk advisers planning to leave the industry reflects the impact of all these pressures.
As the chart below shows, almost a fifth of “pure risk” advisers signalled they would definitely leave the industry, while a further quarter were unsure. Pure risk advisers derived more than 80 per cent of their revenue from retail life commissions last year.
A similar proportion of “mostly risk” advisers plan to leave, but fewer are in the undecided camp. These advisers get between 50 and 80 per cent of their revenue from commissions.
However, our projections show the true exit rate could be much higher than that.
Risk advisers on whether they plan to leave the industry
Source: AR Data; fasea.gov.au
At the other end of the spectrum, 13 per cent of the general adviser market said they would definitely depart, while 11 per cent were unsure.
Can anything change the scenario?
As risk advisers leave the industry, their former clients often end up ‘orphaned’ and in the hands of insurers (who may keep the commission) or with lapsed policies. It’s not an ideal scenario for clients – who may be underinsured – or insurers, who still have a very high proportion of their revenues generated from advisers.
While there are many structural factors leading to risk adviser departures, there are a couple of things insurers can do to try to hold onto risk advisers who are committed to the changing industry. One is to nourish relationships with valued advisers through BDMs.
Insurers also need to be setting the right pricing structures for clients who are dumping life policies, such as the young, healthy cohort.
While this alone won’t be enough to turn around the trend, urgent work is needed to improve adviser sentiment towards insurers as risk specialists grapple with the confluence of changes over the last few years.
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Comments6
"I have been an Adviser for 34 years working in Risk and Investment advice, a Practice Owner for 30 years and we moved into specialist risk advice around 15 years ago. The grey hair belies my thinking that I am still in my twenties, though at 59, I thought I still had a good 10 years in me. Unfortunately and even though my Business has had a 100 percent success rate with our clients claims, NIL client complaints in 34 years and a substantial amount of grey matter directed towards every Regulatory change and attaining real world practical experiences, learning, acquiring knowledge from working with clients in all Industries, while also studying the books up to 2021, it became clear that it had become too hard for a tired and cranky old fart like me to continue as an Adviser. Luckily, 16 years ago, I had introduced and cajoled my son into believing me that what I was doing, was the best Business opportunity for him and as it turned out, he was much smarter than me and with an enquiring mind and a belief that we could do some good for ourselves, our clients and the Industry, he joined the Business. I resigned as an Adviser on 30th June, to take a deep breath and come up for air, though my son has continued and what he is doing has inspired me to believe that there is hope and more than that, a great opportunity for all Advisers in 2022. I know what we have all been through for the last decade has been exhausting and having been through many ups and downs over 34 years, I now have had time to reflect on what we have been working on and I am convinced we will see a clearer and better future for every Adviser next year. My simple wish and for what it is worth, my belief, is that the Risk space will become a viable model for all Financial Planning practices before the end of 2022. Keep your chins up and keep doing a great job, as Australia and Australians are much richer and wiser for having trusted Advisers to guide them on their journeys. "
Jeremy Wright 17:15 on 22 Sep 21
"The percentage definitely leaving is fairly consistent across all groups so it is not just a risk issue. Financial Planning is too complex and too difficult and until that changes the profession is done and dusted. Personally risk can still work but you simply have to set minimum payment levels (either fee or commission) and if people can't pay that then that is their problem and they can set up a go fund me page if something happens to them. This is not fair, equitable or just but it is the system that has been developed by the government, their legislative bodies and the insurers who set the rules and unless you follow them you will be destroyed."
Brian George 17:11 on 22 Sep 21
"Whilst this article refers to the often quoted risk of 'underinsurance' as a regional adviser of over 30 years who ahs always provided both Financial Planning and Risk advice I see a huge problem with 'overinsurance'. It is quite common when we pick up clients who have 'migrated' from the large cities to find pre retirees still holding the levels of insurance recommended to them 20 years ago when they had young families and large home loans. The lack of reviews and reductions in sums insured as they families have grown up, debts come down and wealth accumulated has often left them paying thousands of dollars in excess insurance premiums. I fear this exodus from Risk advice and holistic firms shying away from Risk advice could lead to an explosion in clients whose actual retirement plan has been compromised by spending too much on insurance later in their working lives. "
Justin Butler 16:06 on 22 Sep 21
"I used to be a risk only adviser (5-6 years) but with upfront commissions almost half where they were 5 years ago, and compliance work to write it about 2-3 times as hard/time consuming - there seems no way to make a reasonable living out of (new) risk business, even after charging a small advice fee. Managing an existing risk book is also often harder than it used to be. Not that it should be - but so many of the insurers that remain have cut their service standards badly - making servicing of existing customers more time consuming (and costly) than it ever has been. It would be extremely hard I think to make a good or easy living nowadays out of solely risk. More and more loss of riskies can only continue to compound insurers downscaling as new business continues to slow. "
Iain Wilkinson 16:05 on 22 Sep 21
"It's a pity that there are so few insurance products to work with, to begin with. The constant changing of the policy terms, first the removal of agreed value, and now APRA's proposed changes in the IP (now called Individual Disability Income Insurance or IDII) terms from 1st October is just going to make the insurance cover irrelevant to clients. What value add does a pure risk adviser provide for their fees with the proliferation of robot advice and websites that are touting insurance covers on TV which are free in the hands of the client (cannot comment on the commission structures between the websites and the insurance companies). I fear that risk advice will become a value add to a larger service rather than a service by itself. "
Mark Monteiro 15:03 on 22 Sep 21
"The scenario is too far gone. Your analysis also misses the risk revenue drop from holistic advisers. Many advisers I know who previously played in the advice space of wealth accumulators - where risk is typically required have moved on from that market. Our practice has seen a shift to dealing with wealthier retirees & pre-retirees predominantly. There is less need for risk insurance in these markets. Where once risk advice products might have made up 30% - 50% of our upfront revenues. We simply aren't writing risk insurance anymore. Upfront risk revenue has dropped to less 5% of our upfront revenue base and it is also dropping rapidly in our ongoing revenue proportion. Yet our business overall is growing at a very good rate. Over regulation has killed the risk insurance market. The difficulty in getting insurance underwritten has made risk advice more costly to us than it is worth. Not to mention the business risks in providing risk insurance advice and then running the BID risk at a later date. It simply makes more financial sense to exit the market and explain to clients we no longer offer it. Or only deal with clients who can self insure. The negative trend in advisers operating in the space and overall business being written will continue. Until we see deregulation I can only see the industry heading in one direction. Much like financial advice, the very wealthy will still afford it. The rest simply go without. Ultimately the over regulation costs the taxpayer, because the uninsured become reliant on charity or welfare. It's dumb as a nation, but its where all these enquiries without balance have lead us. "
Michael Chalmers 14:47 on 22 Sep 21