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…