The unintended consequences attaching to the Life Insurance Framework remuneration reforms continue to be reinforced in the Riskinfo Story of the Week, where it appears fewer consumers will be the beneficiaries of life insurance advice that can make such a positive difference for so many…
Feedback from advisers affirms the consumer will be one of the biggest losers when it comes to the fallout – the unintended consequences – from the implementation of the Life Insurance Framework reforms.
Adviser survey data recently released by Investment Trends consolidates the firm’s earlier findings that the most significant change risk advice practices have been making to their business in recent years in direct response to the Life Insurance Framework reforms is servicing fewer risk clients.
…servicing fewer risk clients …was the top response from those survey respondents who provide advice on life insurance
This is one of the key findings delivered in the research firm’s 2021 Adviser Risk Report, which reveals servicing fewer risk clients (just under 40%) was the top response from those survey respondents who provide advice on life insurance, when it comes to the changes they’re making to their businesses in response to the LIF reforms.
Investment Trends asked the same question of risk-focussed advisers in its 2020 survey, in which just under 30% responded that they would be servicing fewer risk clients. This was also the top response in the 2020 survey, but which has now extended from just under 30% to just under 40% of risk-focussed advisers in the space of a year.
While there exists a general consensus that the new minimum adviser education standards originally set by FASEA has led to a downturn in the number of authorised representative remaining in the sector – thus leading to fewer Australian receiving advice – this latest finding from Investment Trends would appear to deliver a ‘double whammy’ in that the issue of fewer Australians receiving financial advice due to the FASEA reforms is being exacerbated by the Investment Trends finding that those risk-focussed advisers remaining in the sector are themselves servicing fewer clients.
The following chart details the top adviser responses across 2020 and 2021 in the Investment trends Adviser Risk Report when it comes to changes in their business stemming from the implementation of the Life Insurance Framework remuneration reforms. These reforms and their impact are being reviewed as part of the Treasury’s “Quality of Advice Review”, which is due to submit its report to the Government of the day by 16 December 2022 (see also: Quality of Advice Review Terms of Reference Released):
This was ALWAYS going to be the case – advisers leaving the industry, and those remaining would take on less or service fewer clients. Why are we not surprised? Brett Clark from TAL says we have to give the 60/20 commission split a go. Get the message Brett – a 60% upfront commission does not cover the costs to get business on the books. Risk Specialists have been saying this ever since LIF was introduced. I am going to say what I’ve been saying for the past 5 years – the only way out of this mess is for the CEO’s of the retail life insurers, and larger licensees, the head of the AFA and FPA, to put together a watertight case, and go to the govt and make them understand the damage to the retail life insurance industry cause by the ignorance of LIF, FASEA, and others like Trowbridge. And put forward a solution – i.e. reinstate commissions back to 80/20, and get rid of these ridiculous FASEA impositions.
The solution to the issues has always been staring the Government and Regulators in the face from day one.
Churn was the false narrative that started this whole fiasco and there were a tiny percentage of advisers who did it.
The solution back then was to get rid of those Advisers and let the honest Advisers continue doing a great job.
What we got, was a sham trial that blamed all Advisers and after Billions of dollars lost on one of the worst cases in Australian history of false accusations and even worse solutions, that has now led to all Australians paying the price.
The merry go round continues, though the decline will roll on until we reach a point where Advisers can have some confidence that the cost and risk to provide Life Insurance advice has reduced to the point of feasibility.
Soft skills learned over many years that enables an Adviser to bring a client on the journey to accept that they need to commit to having appropriate Life and Disability coverage is crucial and this can come from and be taught by experienced risk specialists to new advisers, though it is critical that the Government recognizes that there are virtually ZERO new risk advisers entering the Industry and the only way to change this is to separate risk advice from Investment advice and make it easier to enter, train up and provide this specialist work.
To be blunt, Tim, Jeremy and others, including myself, can rave on about the obvious solutions to our problem.
But sadly nothing is going to happen until the CEOs of the life insurance companies either find some, or grow some.
Some of the CEOs clearly think there is STILL an advantage in 60/20 and they are just not quite prepared YET to admit that LIF was a self-inflicted disaster, driven by the FSC and the banks that owned the insurers who had suddenly decided to sell.
Like Vladimir Putin, the CEOs need a way to withdraw from this fiasco without losing face or admitting defeat.
We need those life insurance CEOs to get off their bonused backsides, ring up Frydenberg, and tell him they, and him, were wrong!
You can just about guarantee that Treasury are still being fed the same line of BS from the CEOs that LIF was good for everyone. Treasury would not know anything about the cost of providing risk advice, nor would they have enough knowledge to ask the appropriate questions.
And as usual, the only stakeholders that aren’t being consulted are life risk advisers on the home front. I’ve yet to see anything from either the AFA or the FPA which comes out and categorically states that LIF must be restored to 80/20
Hahahaha!! CEO’s “bonused backsides” hahahahaaa! Luv it!
Also your last paragraph there Old Risky – GOLD. Riskies are always the last ones to get consulted, if ever.
Agree with comments from #jeremywright and #concerned, however add that 15,000 highly trained experienced advisers are more likely to be providing advice to around 1,500,000 Australians (100 active/ engaged clients per adviser) who have fairly significant funds to invest.
This leaves around 24,500,000 Australians with NO ACCESS to Advice PERIOD. Accumulators and those with debts and heavy reliance on their income earning capacity are left with NO ADVICE – hence insurance new business has fallen off a cliff edge – leading to new ‘sustainable’ products and massive increases to premiums on legacy products – it is a totally predictable shambolic mess.
With only a tiny number of new advisers coming through, I would suggest that the answer isn’t just lowering red tape or increasing commissions, there has to be a way of tiering advice to make less complex primary level advice more accessible to the masses…
The FASEA PROBLEM was not that risk advisers did not want to get more qualified and aspire to a higher standard. The problem was that risk advice is a totally different discipline and skill set to plain investment advice and traditional FP. The exam risk advisers were forced to sit held zero relevance to the job most did for decades or would do into the future.
It is arguable the hastily rolled-out exam was even relevant to investment advisers or financial planners. The people responsible for creating and administering that FASEA exam should be abjectly ashamed of the job they did and the part it had in the risk adviser exodus currently.
A separate relevant and risk-focused exam would have kept many advisers who have left, except of course those that were overwrought with the ridiculous and wholly unnecessary compliance burden – which was most if not all of them.
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