Latest Poll – 80/20 Works

7

An 80/20 risk commission model will sustain a viable risk-focussed advice business, but a 60/20 model will not.

Our latest poll is effectively projecting a reality beyond the release of ASIC’s 2021 review of the quality of life insurance advice, should the outcome of the review and its recommendations result in the continuation of risk commissions.

Assuming the Government determines risk commissions should remain as a valid form of remuneration following the outcome of the regulator’s 2021 review (certainly not guaranteed), many advisers have questioned whether this would even hold much meaning for them if the existing 60/20 remuneration cap under the LIF reforms is retained.

…there exists a seemingly widely-held view that an 80/20 commission model will make all the difference

Based on comments made by advisers to numerous Riskinfo articles and also on anecdotal feedback provided directly to Riskinfo by advisers and licensee firms, there exists a seemingly widely-held view that an 80/20 commission model will make all the difference to the ability for a risk advice business to remain commercially viable.

On the one hand, it could be argued that an additional 20% upfront (one-off) commission should not be the ‘deal breaker’ and the difference between maintaining a commercially viable risk advice business and having to shut up shop, especially when considering the annual 20% ongoing commissions from the policy, which will continue to fund the business for the next seven years (based on the average term of a life insurance policy).

For others, though, this additional 20% upfront commission in the first year would indeed make all the difference between going out of business or just subsisting and actually building a commercially viable and successful risk-focussed advice practice.

We appreciate this is very much a theoretical debate, especially given a 60/20 commission cap is now law and ‘undoing’ existing legislation is easier said than done. In other words, the horse may already have bolted; never to return.

In recent times, however, there appears to be a growing perception or appreciation among regulators and legislators that the well-intended move to cap risk commissions at 60/20 – in order to better align the interests of consumers and advisers – is contributing to the unintended consequence of potentially decimating risk-focussed advice businesses and leading to fewer – not more – Australians receiving quality life insurance and financial advice.

In our follow-up report next week, we’ll bring in the issue of the existing two-year clawback rule, and how this element may or may not be a factor in this debate. But for the time being, we’d welcome your views on this, our latest poll question…



7 COMMENTS

  1. 80 percent commission will help recover some of the upfront cost, which will encourage advisers to write New Business, though it needs to be 80 percent of the premium.

    The current 60 percent commission is actually less than 50 percent, once the Life Companies start deducting policy fees, modal loadings and stamp duty.

    The main cost of providing advice, is due to the inefficiencies and delays that inhibit an Advisers ability to see more potential clients.

    There will need to be a three pronged approach from the Life Companies, the Government and the Licensees to get some common sense back into the Life Insurance sector, to enact a model that encourages advisers to be able to ramp up their New Business, which will then allow all participants to be profitable.

    If the time to write New Business and the current Regulatory restrictions of trade are reduced, this will enable the Industry to recover and more importantly, bring about a reversal of the thousands of advisers who are still going to exit the Industry, as to put it in plain English, the current regime has made it too bloody hard to run a viable risk advice practice.

    The fact that across the ditch, the commission is more than double what Australian advisers receive and the NZ advisers have less Regulatory imposts, is also an indication that the Australian system is currently broken.

  2. Two things – 1. Will RiskInfo pass the findings of this survey on to the Regulators? 2. The horse has NOT bolted, as stated above. Laws can be changed. As I have repeatedly said before – all retail Life Insurance Company CEO’s, the head of the AFA and the FPA, and other major parties, must go to the govt collectively and put forward a water tight case, which will include the need for commissions to be reinstated to at least the 80/20 model.

  3. It is a major consideration that even rolling back risk commissions to 80/20 won’t fix. Why so? Because there simply isn’t the time available to see clients to make it pay. With a compliance regime such as we have now and the education minimums foisted upon us, quite apart from FASEA, taking up so much time, for specialist life-risk advisers it is no longer do-able.

    To survive under an 80/20 commission model, we would need to work a 60-hour week. To to earn a professional income would require an 80-hour working week. Of those who might become clients, we would need to filter out everyday people and target only wealthier clients who could manage premiums of $4,000+ a year—minimum.

    Sorry to sound so glum but for us, in my view, it’s over.

  4. It is a major consideration that even rolling back risk commissions to 80/20 won’t fix. Why so? Because there simply isn’t the time available to see clients to make it pay. With a compliance regime such as we have now and with the education standards foisted upon us—quite apart from FASEA—taking up so much time, for specialist life-risk advisers it is no longer do-able. This doesn’t even factor-in the explosive cost of doing business now as well.

    To survive under an 80/20 commission model, we would need to work a 60-hour week. To earn a professional income would require an 80-hour working week. Of those who might become clients, we would have to filter out everyday people and target only wealthier clients who could manage premiums of $4,000+ a year per case—minimum.

    Sorry to sound so glum but for many of us, in my view, it’s over.

  5. It’s simple. At 60% I’m doing everything I can to avoid writing new business because it is not profitable. At 80% I will reconsider. The industry has got to decide whether it wants advisers writing new business. If their answer is yes, they need to get together and collectively lobby the government to make the profession viable including reasonable income and the elimination of meaningless compliance. If nothing is done, those that can write insurance will continue to leave the industry or sit on their hands without replacement.

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