Risk Advisers Will be Driven Out by Over-Education

Life insurance advisers are set to depart the industry en-masse in the next five years, Synchron Director, Don Trapnell has claimed.

Synchron Director, Don Trapnell

Trapnell said, “A mass retirement date for life insurance advisers is looming and that date is 31 December 2023”, which is the day before new education standards become compulsory.

He referred to a number of industry surveys that estimate the level of advisers departing the industry will range from around 16 per cent to 34 per cent.

Trapnell said the projected numbers of advisers intending to step out of the advice sector in the next few years highlighted that the mandatory education requirements announced by the Financial Adviser Standards and Ethics Authority were over-prescriptive.

“A Government which goes headlong in pursuit of regulation to the extent that it kills off an entire sector of an industry does the community a grave disservice. The industry is not that sick. I believe it is akin to a doctor over prescribing medication to patients and in the process killing them,” Trapnell said.

“A mass retirement date for life insurance advisers is looming and that date is 31 December 2023”

He also said it was his belief the Government was trying to force life insurance advisers to become full service financial planners, and it was ‘inappropriate’ for life insurance advisers to have to hold the same education qualifications as financial planners.

“Risk advisers need qualifications in life insurance. Their job is to arrange insurance so that their clients are financially protected should the main income earners die or become unable to earn an income,” Trapnell said.

“To do this job, they do not need to understand transition to retirement strategies, the intricacies of managed funds, or the latest superannuation caps legislation. That kind of education is not appropriate,” he added, repeating his call for a separation of the two advice disciplines (see:  Trapnell Calls for Separation of Risk Specialists).

Trapnell added the departure of life insurance advisers would also have a negative effect on consumers who would be forced to buy life insurance directly from life insurance providers without the benefit of advice.

He said Synchron would continue to call on the Government to allow streamlined education pathways for the differing financial advice disciplines.

  • Paul

    Well, hasn’t this been the agenda all along?

  • John Galt

    “Life insurance has more in common with household and car insurance policies” well that certainly does support the position on the one hand, but is the suggestion that we should also be providing advice on household insurance and car insurance or… Oh dear.

  • paulkate72

    Good article from Don. He certainly knows where it’s at in our industry. Sadly, his words will fall on deaf ears and there will be no going back from here on the government’s part. It seems to me that some very savvy, much switched on life-risk advisers will not only ride this out; they will prosper from this monumental regulatory debacle. However, it will take serious thinking, planning and implementing to get there.

    As it stands, the government is dismantling the life-risk advice industry which, as we know, has been with us for over 150 years. If we don’t adapt to change we’ll become like the horse and cart when the motor car was first introduced. That is the challenge we all face.

  • Mervin C Reed FAICD

    In his analysis Don is correct, but the very large costs will not be apparent to the Government(s) until the volume of Life insurance sales drop like a stone over the next 2-4 years.
    Remember Life sales represent a large company tax collection plus the GST plus the state stamp duties at 10% on each contract and renewal.
    Thus when the stupidity of this decision impacts in Fiscal terms to Govt revenues then and only then will the politicians understand that they have been had.

  • disqus_sxdzTFJ28Y

    In theory investment funds are designed to prosper for both client and adviser. By contrast life insurance and its ancillaries is sometimes designed to fail for the client or not provide the best result. Investment and Insurance are worlds apart. They only come together when you want to fund insurance from investment.

  • Ken

    I think Don is spot on with his comments education is not the problem it’s the over emphasis on obtaining ridiculous degrees to help someone understand some pretty basic things
    Protect what you love and own !
    I am one of those people wrestling with retirement should I shouldn’t I ?
    I think many are hoping that common sense will prevail and a level of education applied that is consummate with the knowledge level required and previous industry experience
    There will be others who benefit greatly though once these books of business become available for purchase probably at a reduced value due to the “flood” they will create in the market
    What is really the lose in all this is the experience that those retiring will take with them something you cannot learn from a book or achieve through education no matter how many degrees you obtain
    The UK worked out it was wrong when they went down this same path many years ago changed it back but are still suffering the under insurance costs and lack of sound advice lost when they enacted it
    New Zealand explored the fee versus commission aspect and decided it was irrelevant commission was a standard type of remuneration and changed nothing
    But not us ! Our elustrios leaders have paid no attention to any off this and gone ahead with an even more convuluted plan of restriction of trade and over education models.
    Hopefully someone with power and foresight will wake up on this and give it the proper review it requires before the industry is completely “stuffed” I am sure this is the only reason people have not already left ! They are hoping for some sort of sanity to prevail
    Who wants to be the most educated person on the Dole Cue ?

    • Alan

      Ken if you are anywhere near retirement age, near or in your 60’s and you have no debt and enough in your super/assets, just do it! It’s not a hard decision and life will be bliss.
      Retired life can be busy, keep good health and do all the things you want to do. I am so glad to be out of that industry and haven’t looked back.
      Remember this, every extra day spent working is one day less in retirement!

  • emkay

    Problem is Don, you are expecting an understanding of the industry from a Govt that has been led by the nose to achieve this exact outcome. Want insurance, just come direct to the FSC members. I guess if my business is not sold in the next few years its value will halve, fantastic thanks Trumble and O’Dwyer!

    • Squeaky_1

      No Emkay, your business value will never halve. Good, reliable, well managed and grandfathered client bases are worth platinum bars, forget gold! As businesses struggle with all the issues you list, a solid and constant non-seasonal renewal income stream from pure risk client base will allow some business to not only survive but thrive against whatever idiocy the entities throw our way. If you can get the opportunity to buy a good risk client base and intend satyin in the industry do 2 things: 1) grab it with both hands and take it and 2) if it scrubs up under analysis, pay whatever price is being asked, within reason. Do NOT let it go if you can afford to buy it AND it is a good risk database. I know all this to be true after buying 3 client bases over the past 20 years. They, the GOOD ones, are literally the best financial investments you can make, bar none.

      • emkay

        I would think, that purely from a supply and demand basis, that when there is a large number of books for sale, many with two year clawback risk and I believe fewer buyers, the price will drop. Seems most tend to agree with me? You are also comparing buying books over the past 20 years before 2 year clawback (grandfathered policies not withstanding) diminishing commissions (Shortons idiotic 20% upfront & ongoing) costs of owning a business (compliance) ASIC hunting anyone who changes providers and now uni degree requirement, this is a totally different scenario than we now find ourselves in. I guess we will see what the future holds….

        • Squeaky_1

          emkay, look, I can’t honestly argue with what you say. I suppose I am coming from a viewpoint of gut feeling edified by experience, albeit experience from pre-2 year clawback period era. Who REALLY knows what will happen in the years approaching 2024?! Everything I know says a good client base can virtually name it’s own price. Having said that, when deciding on the price obviously this damn clawback period will be one of the variables considered. I personally will have next to ZERO clawback periods when I sell as I am now paranoid about writing new business (compliance and clawback) and simply manage my client base and look after it as best I can. I ‘will’ write new business but I am extremely reticent to do so unless it is requested by a trusted client OR is obviously in a client’s best interest AND I trust them from a past relationship. I will also get them to sign a clawback agreement that guarantees my commission from them if the damn life company takes it back from me. I’m not mucking around any more on the life company terms. Bugger them! It will work to my rules now and, as always, the client will pay unfortunately. See how these pollies and life company execs can stuff things up with self-interest, arrogance, greed and unintended consequences! Cheers, Squeak.

  • Alleycat

    You’ve all, including Don have missed the most salient point.
    The LIF legislation after 2020 will be the catalyst to destroy the Life insurance industry and see an exodus of advisers leave when you all will be reduced to accept 20.0% level commission.
    When this happens, you will need to find and write 5 times as many clients for the 1 you wrote last year to earn the equivalent amount of income.
    If none of you see that then you’re all in the wrong business.
    The fee for service model is a myth !!!

  • Greg

    Its not just over education. Its over compliance, reduced commissions, 2 year claw back,
    coupled with forcing risk advisers to be registered tax agents ($600) and join the FPA who dont actually do anything (another $600 pa) so we can tell clients that income protection can be tax deductible if its held outside super and Life Insurance in super should be paid to dependants.

    We actually cant help clients anymore. Its too costly and the threat of being sued is too great. Best to just work for one of the direct insurers and provide clients with junk policies which dont pay out. At least then we wont have to do SOA’s or comply with the BID.

    Risk advisers will be leaving in droves.

  • Janine

    Separation of Risk Specialists should have occurred in 2001 when FSR was introduced and each advice discipline dealt with separately and changes introduced to suit the differences of each. Perhaps we wouldn’t be where we are now if it had been.

  • BKY

    There are so many things wrong with FOFA and LIF BUT if you take a step back and ask, “How did we get here?”, then the overarching answer is that ASIC and the Government initially thought that all the original changes would insert ethics into people that are never going to be ethical. You either have a good solid ethical character or you don’t, and no amount of lecturing is going to change that…people who think they are smarter than the Licensees and Regulators will always think they are…I agree with Mervin C Reed…unfortunately change will ONLY occur when the government of the day learn about how their imposed regulations are further adding to their budget deficit woes.