I was on the phone recently with an adviser operating under the Synchron licence. He derives the majority of his income from insurance commissions, which are consistent across each insurer. He was distraught at the prospect of further changes and has almost resigned himself to trying to find a new career. His “resignation” comment came on the back of shadow assistant treasurer and shadow minister for financial services Stephen Jones reaffirming his view that insurance commissions are inherently conflicted and should be banned. With the latest Newspoll numbers showing 52% to 48% in favour of Labor, does this start to signal the end of the risk adviser? Will consumers pay for insurance? How does this correlate with the government’s stance on protecting broking commissions for mortgages?
With insurers heavily exposed to retail life, there is fierce lobbying happening behind the scenes. On average, more than 75% of insurers’ revenues (data from the Adviser Ratings Financial Advice Landscape 2020) are generated by advisers. In the previous 2 years, the total number of advisers in Australia has declined 26% from their highs, with risk advisers leaving the industry at a rate of 2.4 times greater than their peers (Adviser Ratings Financial Advice Landscape 2019).
The full effect of the Life Insurance Framework (LIF) is now playing out in the industry for both insurers and advisers. In 2020, the shift in remuneration, alongside the pandemic and policy repricing, saw a virtual tsunami hit the insurance industry. Insurers’ profits were hit significantly and risk advisers’ workload for existing and new clients increased significantly. The response by insurers to an overwhelming number of claims saw pressure on processes, support and technology, leading to significant declines in adviser sentiment.
There are now only approximately 1,800 “risk advisers” in Australia, with this number to decline further in 2021 and beyond.
The ongoing impacts of the last 12 months in risk advice combined with legislation could see up to a further 700 risk advisers exit the market, leaving adviser risk supply at dire levels. The data for certain risk insurers paints a bleak picture (captured in the 2020 Financial Advice Landscape Report).
Insurers and their support structures, particularly BDMs, will play a key role in not only persuading advisers to stay but also proactively develop relationships with advisers or licensees that have signalled a strong commitment to the industry. 2021 will be a year where insurers need to play a different tune to advisers. The one outstanding – what happens in a world absent insurance commissions?
Finding risk advisers left standing, with or without commissions, will be canaries in the coalmine for life insurance companies.
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Comments8
"When I started out in the industry over 15 years ago, I was proud to say I was an out and out Risky. The joke that is LIF and FASEA has forced me to upskill so that I can offer other areas of advice. 50% reduction in comms, much tougher underwriting, and ever increasing premiums has made it impossible to be a Risk based adviser. I'm nowhere near close to retirement and I really feel for those with much more experience that are being forced out. In a society where underinsurance was already an issue, when will governing bodies realise they are only compounding the issue? Now that I've thankfully passed the FASEA exam and have moved onto going back to Uni to study the extra unit requirements whilst still while working full time, only time will tell if I stick with it or get jack of it all and change industry. - Disappointed and disillusioned. "
Mark 23:06 on 18 Mar 21
"I completely agree with Bill, and the other comments."
Richard Lynch 17:30 on 17 Mar 21
"As a risk adviser of 50 years I am appalled to see our once great industry brought to it's knees by petty bureaucrats and politicians who constantly look for ways to grandstand while denigrating our industry. I am proud of the fine work done over many years by Life advisers such as myself. Because of our work many families are able to cope financially following an unforeseen tragic event such as the death of a loved one or a major disability. These families and individuals can continue to live with some dignity as a result of the policies put in place by commission paid advisers such as myself. I have counted on my trail commission to be my superannuation and have worked for decades to accumulate this nest egg only to now be threatened with it's cancellation because it is "conflicted". What a ridiculous word to use, "conflicted": it almost seems as though it is somehow unclean, ill gotten and clashes with the interests of my clients. What utter rubbish. I have worked long and hard to earn my trail commission and I take extreme issue with anybody who thinks that this commission is somehow not in my clients best interests. Life advisers like myself spend lots of time helping clients with a myriad of queries and changes to their existing policies much of which is compensated by trail commission without which service levels to clients would collapse. To charge clients fees for insurance advice both initial and ongoing is unworkable and is un Australian. What the the powers that be do not realise is that The Life industry is a "people" business; we are about building relationships and genuinely care about our clients and do not want to looking at the clock every 6 minutes to ensure we are compensated for every minute spent as is the case with other industries. If the backbone of Life advisers leave the industry I fear that nothing positive will emerge. The public will not want to pay for insurance advice and so will opt to "do it themselves" over the internet or will simply not bother at all the result of which will be that the already acute under insurance problem in Australia will get worse with the responsibility eventually resting with the taxpayer further embedding a dependency culture which leads to people losing control over their own lives and further empowering politicians. This was a once thriving and proud industry which unfortunately has suffered at the hands of inept and incompetent management and is now further suffering because of the ignorance of those looking to "regulate" the industry. Now that the Life offices themselves are facing extinction I am hoping that there may be some unified support from them in helping to avoid this approaching train wreck. Life companies must show some back bone and ensure that the government is properly educated so as to move us in a positive direction instead of under the train. "
Bill Medhurst 16:48 on 17 Mar 21
"Spot on. At the moment, federal labor has an ideological view, reinforced by self interest, that small business, and financial advisors in particular need to be eradicated, because they cannot stand the idea of people having the freedom to choose their own destinies - preferring people to be subjugated to a life of powerlessly working for institutional overlords that they can then “defend” them from."
Mark B 16:15 on 17 Mar 21
"The FASEA standards were poorly thought out and written. Its almost like someone just kept adding stuff as they thought of it. Now we have the very real possibility of many of our most experienced financial planning and/or risk advisers leaving the industry by the end of this year. FASEA standards could very easily have been rolled out through a consistent CPD and compliance oversight by each licensee. Exactly why are we forcing out so many advisers this early into the new education framework?. "
Marty B 15:16 on 17 Mar 21
"The Life Office's have done precious little to help their cause. If they appreciated the Life Agent or Adviser, they should be aware of the UK 's issues in recent times, and learned from it. Commissions had to be Increased above previous levels to retain Advisors so that new business would not fade away. Management decisions made, without any coalface experience, are among the main reasons for declining new business with most of Australian Life Industry issues today. Too many costs are passed on to Advisors, along with overload of compliance requirements. Separate work title names need to be established for Risk specialists and Financial Planners, not all titled Financial Advisors. Different Education requirements also need to fit these Advisors work areas. The Life Office's were happy of course to reduce commissions thinking the Direct market would help them ultimately recover any other loss that may occur. They were not bright enough to realise that the Advisor/agent had been responsible for majority new business delivery, from day one. ( Over 200yrs) Did they support the Advisor ? Not in my opinion! Very little has been done collectively, to support the sales people . When was the last New Product delivered ? Can not remember when ! Much can and should be done, but where is Management decision to make it happen? It appears their are no Leaders to inspire new sales products and Ideas unfortunately. After a lifetime in the Insurance Industry of 63 years, I believe in the views given, and would invite any query or comment from a life office senior manager or CEO, to help put Positive results on the table and improve the Industry situation."
Darryl Elsley 15:00 on 17 Mar 21
"Unbelievable is all I can say. Stephen Jones is clearly not in touch with reality. Having said that, it was a Liberal MP who set up FASEA. Insurance is insurance is insurance, whether it covers buildings, vehicles or people. Risk only advisers should never have been put into the same category as financial planners. There is very little difference between a general insurance broker and a risk adviser. I ought to know, I have been both for more than 30 years. I chose the "dark side" a few years ago to concentrate on life insurance. No one can give me any good reason why I have to be licensed with the TPB, registered with AFA or the like, and pass a 3 hour exam which has absolutely nothing to do with what I do on a daily basis just to keep doing what I have been successfully doing for the last 33 years. I spoke to a prominent and successful Financial Planner recently who said he avoids risk because of the compliance burden. There will always be a need for compliance, albeit on a lesser scale than we have now. Our problem to me is simple. We have no serious representation where it needs to be. The people making decisions that will wipe out an honorable profession just go about their business sanctimoniously declaring commissions are bad. Industry funds must have people in high places working for them, because they will benefit from the demise of risk advisers.We need people to lobby for us and turn this rabble towards some common sense."
Deputy 14:59 on 17 Mar 21
"The decline of pure risk advisers will continue until there are dramatic changes to the unworkable Life Insurance Framework (LIF) Regulatory maze, that has made it unprofitable and too much risk to work in this area. The FASEA exam is another insult to highly experienced and ethical Advisers who have dedicated their lives to helping their clients. The current commission structure with all the risk placed on advisers, including a 2 year responsibility period, is not enough to pay the bills now, so what planet is Labor on when they make a statement that zero commission is a better option, knowing Australians will not pay a fraction of what it costs to provide all the work. Insurers are not in a position to persuade Advisers to stay. They are stuck between a rock and a hard place. The solution is simple and could be reversed quickly, though the Regulators and the Government are moving at a snail pace, with no positive news to slow the exodus. ASIC have said they will not report back on their findings till it is too late for many hundreds more advisers who are not going to do the FASEA exam, so the decline in Life Insurers revenues will continue. This has become farcical and Fawlty Towers looks positively professional when compared to the disaster unfolding in clear sight before us all."
Jeremy Wright 14:47 on 17 Mar 21