Retaining risk commissions and scaling advice are critical solutions being advocated by MLC Life Insurance as desired outcomes from Treasury’s Quality of Advice Review.
While not having provided a formal submission, the insurer has held several meetings with independent reviewer Michelle Levy and her Treasury colleagues, during which it has presented its case in support of what it says are the most important factors that will deliver greater access to financial advice for all Australians, regardless of their financial status.
…we are haemorrhaging advisers
Foremost among the top priorities, according to a release issued by MLC Life Insurance this week, is for the industry to act on reducing the cost of advice. The insurer’s GM Retail Distribution Partnerships, Michael Downey, notes that after years of inordinate regulation, however well intentioned, “…we are haemorrhaging advisers who provide critical advice to clients in their time of need.”
Warning this trend is unsustainable, Downey adds that unless the industry takes steps to reduce the cost of advice, “…I have a real fear that only the wealthiest Australians will be able to afford to see an adviser.”
Referring to benchmark research it commissioned in 2019, the insurer warns that unless advisers can remove 20-25% of the current cost base for each business, advice will not be profitable, which will leave many Australians to make important financial decisions on their own.
…an average of 10 hours is required by a risk adviser to prepare and implement [simple] life insurance advice
According to the benchmark research, an average of 10 hours is required by a risk adviser to prepare and implement life insurance advice for a client in simple cases, and up to 15 hours for more complex cases.
The most important elements that will drive a reduction in the cost of financial advice, says MLC, include:
Retaining risk commissions
Advocating the need for consumer choice in how to pay for advice, the insurer argues: To have a sustainable advice sector, commissions must continue to remain an option that supports everyday Australians having access to much- needed financial advice during key life moments. This includes maintaining the Life Insurance Framework.
Scaled advice
MLC advocates the need for scaled advice tailored to specific customer need: For life insurance, this could be as simple as a “Life Cover Assessment” that may or may not include a product recommendation. Despite consumers calling out for this style of advice, current regulation and guidance makes this difficult in practice, with often the only options provided being costly full, holistic personal advice or no advice/support at all.
Other key solutions MLC is seeking – with the aim of delivering more access to advice for all Australians include:
- Tax deductibility of advice
- Increased use of technology and digital solutions
Downey concludes: “We must do what’s right for our customers and their advisers, which means ensuring more advice, not less. The recommendations we have put forward to Michelle Levy and her team are reasonable and we look forward to working closely with them over the coming months to ensure a positive outcome for all Australians.”
The key message that needs to be continually sent and explained to Treasury, ASIC, Michelle Levy, Ministers and all interested parties, is that Australians will NOT pay a fraction of what it costs to provide them with BID risk advice and a huge percentage said they are not prepared to pay any fees for risk advice.
WHY? It is very simple to answer that question.
Life and Disability Insurance advice has NEVER been a high priority for Australians.
Apathy, lack of understanding and perceived affordability issues are the main reasons for such a low take up by non-advised Australians and a cause for high lapse rates if there is no Adviser to guide them as to why their cover is so important for their wealth protection planning.
It has already been proven in the USA that Technology alone will not create required growth.
It is an end to end solution that includes technology and Advisers to guide and encourage clients to continue down the path that is the key to success.
People want Technology to make their lives easier and they want a real person / Adviser to provide comfort that their decision to proceed is the right one.
In Australia, it has never been a better time to attain new clients.
Unfortunately, it is not economically viable to provide risk advice and has led to thousands of Advisers exiting and holistic Planners scoping out risk advice, which is a disaster for all Australians and unless fixed, will make retail Life Companies unable to provide affordable Life and Disability Insurance and will led to their decline.
The solution is right in front of us and is an easy fix.
What we need is for the Life Companies to recognise their strengths and weaknesses, then put their resources to workable solutions.
Vast amounts of money is being spent by Life Companies propping up old systems and processes that do not reflect what Australians demand in 2022.
Cobb and Co, Kodak and Blockbuster were three giants who became minnows due to their inability to see what the future held.
The retail Life Companies need to recognise that they are still clinging to old ways that do not fit into the current and future expectations of their customers, though they still have a short period where they can change their current trajectory, which is down.
What we need to see, is that they are serious, or not.
To quote Mr Downey “…we are haemorrhaging advisers who provide critical advice to clients in their time of need.” And retain LIF. Indeed we are bleeding Mr Downey, but not for the reasons you might suggest
Of course MLC is speaking for its Japanese masters and all the other Japanese masters, the people who saw a good opportunity to buy into Australian life insurance businesses being disposed of by the banks. And we all know the banks had “tarted up” their insurers for sale by convincing and idiotic government that the answer to everything was to lower life commissions by 50%, thus making the sale easier by a promise of halving distribution costs.
In a world of rapidly decreasing income protection sales and an overall lowering of standards by life insurers in providing services to advisers to enable business to be written, it’s clear to me that the insurers think they can still run with LIF for just a little bit longer before they have to tell the government it really wasn’t a good idea. It’s about time the CEOs of life companies either found some, or grew some, but don’t hold your breath. .
For example it’s come to my attention that many insurers and their reinsurers are playing games with the upper limits for TPD for personal use, and may even consider extending the qualifying period back out to 6 months from 3 months on any TPD product, as Clearview did rather sneakily in 2021. It seems that the reinsurers don’t think it’s a good idea for advisers to subsidise the 60% income protection limit by recommending lump sum cover that can be invested to produce than much-needed extra 20%, or 15% of earnings if you like, over the mandated 60%.
And funnily enough Mr Downey does not mention that it might be just a good idea to help advisers survive by having the federal Treasury declare that financial advice fees are fully tax deductible regardless of the product.
As we speak, most risk advisers are only prepared to recommend coverage for lower middle income earners if they can pay for the premium by rollover. I am of the view the insurers better brace themselves for further bad news: the superfunds, including the retail super funds, have never loved the idea of rolling out some of their FUM to pay for insurance at somebody else’s insurer. My bet is that the first cab off the rank from the ISN funds in their discussion with Mr Jones will be along the lines “let’s get rid of that rollover facility to pay insurance premiums, because it costs us processing time that we can’t charge for, and we are losing FUM.
There is of course is nothing new about life insurers being out of touch what’s really going on in their industry at the coal face. In the days of mutuals, someone may have asked the question, but right now all our CEOs are only worried about their next bonus
Gotta go. A client just rang me demanding to buy life insurance! Pigs!!
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