Hybrid Commissions Gaining Ground

Financial advisers are favouring hybrid commission models over level commission or fee for service, and estimate more than half of their revenue will come from that model by 2020, according to Investment Trends.

Data released as part of the research group’s ninth annual Planner Risk Report reveals the use of hybrid commission has climbed steadily over the past three years, increasing from 20% of revenue in 2014 to 37% of revenue in 2017, for advisers providing risk advice.

At the same time, the percentage of revenue drawn from upfront commissions has fallen from 58% in 2014 to 39% in 2017, while revenue drawn from fee for service and level commissions have remained stable at around 12% each across the same period.

…upfront commissions are expected to fall away quickly…with advisers estimating only 14% of revenue will come from this source next year…

In asking advisers to estimate what proportion of revenue will be drawn from these models in three-year’s time, Investment Trends found that by 2020 advisers expected that 51% of their revenue will come from hybrid commissions and 26% will come from fee for service.

Not surprisingly, upfront commissions are expected to fall away quickly from 2018 onwards with advisers estimating only 14% of revenue will come from this source next year before reducing to only 7% in 2020.

Fee for service as a revenue stream is also expected to expand in 2018 with advisers estimating that around a quarter of revenue will come from that source next year, up from 18% this year.

Looking into the specifics of how advisers will respond to the Life Insurance Framework (LIF) reforms, Investment Trends also found that 54% of advisers would charge more for the advice they provided, 47% would focus more on strategic advice and 40% would focus more on higher balance/higher sum insured clients.

Advisers were also extremely doubtful of the consumer benefits of the reforms with 59% not agreeing with the statement that Australians would be better off as a result of the LIF reforms.

They also believed the reforms would affect them personally with 57% stating their practice profitability would be negatively impacted, while 73% believed the reforms would lead to a decline in revenue for their practice.