2019 Tougher for Risk Advice Businesses

Year two of the Life Insurance Framework transition period (2019) will have a greater impact on my advice business than has year one (2018)

The results from our latest poll suggest most advisers and their practices will do it tougher in 2019, as year two of the Life Insurance Framework reform processes get rolling.

As we go to print, 81 percent of those taking our poll told us that year two of the LIF transition period – 2019 – will have a greater impact on their business than did year one.

Advisers appear to have their focus on both the reduction in the hybrid commission formula to 70/20 in 2019, down from 80/20 in 2018, and also the implementation of the two-year clawback period, over which there still appears to be confusion in the market.

Regular contributor, Jeremy Wright, has raised the possibility that life companies may be interpreting clawback cut-off dates differently, especially for clients paying annually, which may see a 100% clawback applied after year one by some insurers but only a 60 percent clawback by others. The same applies to year two, where some insurers may levy a 60 percent clawback after two annual premiums are paid, while others would not apply any clawback.

From earlier investigations, Riskinfo understands the more favourable interpretation is what should be applied, but we’ll check in again and report back to you soon.

In the meantime, it would appear that most risk-focussed advice businesses are looking at a tougher year ahead for them in 2019, made even more challenging for most by the new professional standards packages to be implemented by FASEA (see: FASEA Latest).

…the FASEA minimum education standards and exam may act as a double whammy for risk-focussed businesses

While the FASEA minimum education standards and exam may act as a double whammy for risk-focussed businesses when teamed with the LIF reforms, the entire advice sector will be holding its breath in the lead-up to the release of the recommendations from Commissioner Hayne following the completion of the hearings into the Banking and Financial Services Royal Commission.

The fact of the LIF reforms transition period, the implementation of the FASEA standards and the Royal Commission recommendations, all  happening in proximity to each other may present significant challenges for a financial advice sector which, at least historically, has proven itself to be highly resilient and capable of navigating change. We’ll report all the regulatory changes this year as they emerge and stay in touch with you as you chart your own course through what is likely to be a challenging time for many…

  • James

    Im going to write all my new business with Level Commission structure. 33% upfront and ongoing with the increases that insurers reguarly make to in force business will see you break even around year 3-4.

    This will end up costing the insurers much more. It looks like they have shot themselves in the foot by trying to use legislation to stop churn which they could have done easily by themselves by stopping accepting business from the churners who they can easily identify.