The life insurance industry’s 60/20 commission model was a topic of debate during the recent AIA Australia Round Table, with industry leaders indicating it doesn’t reflect the true cost of delivering advice – especially for clients on low-middle incomes.
Pina Sciarrone, AIA Australia’s Chief Retail Insurance and Advice Officer, said an adviser would receive $2,400 (60%) in the first year for a $4,000 premium.
“I think it’s under in that first year when you look at the unit cost to deliver advice,” she said.
Figures quoted during the discussion revealed fees of around $3,400 were typical for life insurance advice.
Ben Martin, AIA’s National Manager, Technical Advice and Strategic Partnerships, shared with the Round Table panel his view that the clarification of the tax deductibility of upfront advice fees, as indicated by the ATO last year, was a positive sign (see: ‘Significant Portion’ of Advice Fees Could Be Tax Deductible).
“It obviously improves the economics, particularly for those of us advising clients where the year one premium is around that $4,000 to $5,000 middle margin, or even lower,” he said.
Martin also said another rational which may support more advisers charging upfront fees to charge for life insurance advice is that clients will generally have a higher engagement in the advice process and outcome.
“Advisers sometimes spend time with the client only for that business – not to actually complete,” he said.
“So there’s a school of thought, based on some of the discussions that we have with advisers out there, that charging an upfront fee, as many professionals do, leads to clients being more invested.
We’re operating in a small talent pool of educated people and we need to pay them well…
“They’ve got more skin in the game which is hopefully going to elevate the chances of seeing it through a completion.”
Drew Burden, Partner and Co-CEO of MBS Insurance, said he wouldn’t start an an advice business today under the 60/20 model.
“We’re operating in a small talent pool of educated people and we need to pay them well, offer them career progression, and potential shareholding,” he said. “If we were starting MBS today on a 60/20 regime, we probably wouldn’t do it, or certainly not follow our current model.
“Without an existing portfolio of existing clientele of trailing commissions to subsidise those new ones, it would have just been too greater barrier to entry.”
However, not everyone who took part in the debate agreed. Phil Thompson, Founder and CEO of Skye Wealth, said going to an 80/20 model might be better for Australia, but wouldn’t help his firm as it may increase competition.
Pointing to Partners Life in New Zealand, and its Customer Outcome Matrix that rewards advisers for strong client retention rates, he said LIF doesn’t allow for any creativity in that area “…we don’t get rewarded for running an efficient business”.
Click here to review the 60/20 commission and fees for risk advice conversation during the 2025 AIA Australia – Advice at the Crossroads – Round Table series.
