February 19, 2019
Advisers are divided on whether they think their business will remain viable if forced into a level commission remuneration model for life insurance advice after 2021.
This appears to be the message stemming from our latest poll which has been the subject of much discussion by our adviser audience. As we go to press, 46 percent of those who’ve voted have said their advice business would not remain viable on level commissions after 2021.
However, 40 percent have said their business viability will be okay on level commission remuneration, while 14 percent are unsure.
Why are we asking you this question? It’s because the Federal Government has indicated it will mandate a level risk commission structure if ASIC’s 2021 review of the impact of the Life Insurance Framework remuneration reforms finds that it has not delivered significant improvement in quality life insurance advice to consumers (see: Government to Consider Mandating Level Commissions…).
If ASIC finds in 2021 that significant improvement in the quality of advice has indeed taken place, the implied outcome will be retention of what will then be a 60/20 hybrid commission structure (plus GST), presumably along with a level commission option either side of 30 percent, as currently exists.
…it would be almost impossible for new risk advice businesses to operate from scratch under this model
Comments from advisers have suggested some existing advice businesses – especially those who have historically opted for upfront and/or hybrid commission options, would be able to weather the transition to level commissions, mostly due to the annual renewal income that has already been established, but that it would be almost impossible for new risk advice businesses to operate from scratch under this model.
Elsewhere, others have said the cost of advice to the consumer would increase, on the proviso that premiums would remain about the same, as most advice practices would need to charge an additional fee, especially at the commencement of the advice process, to supplement the level commission income they would derive.
There’s a lot of time and a lot of politics to unfold before ASIC’s 2021 review is handed down, and we don’t yet have a solid idea of how a potentially new Labor Government might approach this issue. So, while the life insurance industry continues its journey through the Life Insurance Framework transition period, we’ll continue to reflect on what the future may hold for risk-focussed advisers and the life insurance sector in general.
Our poll remains open for another week and we hope you will add your voice to the debate…
Editor’s Note: Thanks to some of our readers who have raised the prospect that those with a political agenda may seek to skew the outcome of polls such as this. We take steps to restrict the number of times any IP address can register a vote and we also have over ten years’ experience in monitoring the voting patterns of our polls.
We never claim any scientific rigour for our poll results, but given the volume of votes we always receive, when we receive them and our deep understanding of the make-up of our audience, we’re often able to draw some general ‘mood of the meeting’ conclusions, as we like to say sometimes. We can assure all our readers that our poll results are never ‘hijacked’.