{"id":47509,"date":"2019-12-12T10:31:29","date_gmt":"2019-12-11T23:31:29","guid":{"rendered":"https:\/\/riskinfo.com.au\/news\/?p=47509"},"modified":"2022-08-09T17:37:00","modified_gmt":"2022-08-09T07:37:00","slug":"cost-of-delivering-life-insurance-advice-advisers-must-act","status":"publish","type":"post","link":"https:\/\/riskinfo.com.au\/news\/2019\/12\/12\/cost-of-delivering-life-insurance-advice-advisers-must-act\/","title":{"rendered":"Cost of Delivering Life Insurance Advice – Advisers Must Act"},"content":{"rendered":"

A new white paper commissioned by MLC Life Insurance<\/a> has delivered a detailed and sobering assessment that contrasts the cost of delivering life insurance advice and the remuneration advisers receive.<\/p>\n

\"\"<\/a>While some of the headline numbers clearly demonstrate the challenges facing commission-only advice propositions in particular, the report concludes Australia’s life insurance advice industry has arrived at a watershed moment, and maps out a set of recommendations intended to address and overcome the challenges outlined in its findings.<\/p>\n

…Australia’s life insurance advice industry has arrived at a watershed moment<\/p><\/blockquote>\n

The white paper: Cost and efficiency of delivering life insurance advice<\/em>, was prepared by research firm, Plan For Life<\/a>. It explores the various components of the advice process as it applies to both new and existing clients and outlines the time and costs associated with each of the advice process components.<\/p>\n

In overlaying advisers’ remuneration on the averaged cost of delivering their advice, the paper concludes that advisers who rely only on life insurance commissions will make a loss under the Life Insurance Framework remuneration reforms which will apply from 1 January 2020.<\/p>\n

In concluding that relying on commission alone is unlikely to cover the cost of advice, the research confirmed the logical finding that as the complexity of a client\u2019s insurance needs increases there is a corresponding increase in the cost of providing that advice. Those increased costs relate to the amount of time and extent of the adviser\u2019s experience required, along with the nature of the policy solutions normally required.<\/p>\n

The following table, taken from the whitepaper, sets out the researcher’s finding that commission-only advisers will make a loss at every point along the spectrum framed by simple policy advice at the ‘bottom end’ and complex policy solutions at the top:<\/p>\n

\"\"<\/a>
Source: Whitepaper – Cost of efficiency of delivering life insurance advice<\/em>, December 2019 – commissioned by MLC Life Insurance, prepared by Plan For Life.<\/figcaption><\/figure>\n

Given the outcome of this commission and cost analysis, the whitepaper suggests that commission-only advisers may need to reduce their expenses by as much as 20-25 percent to return to profitability.<\/p>\n

If this cost gap is not addressed, the report suggests risk advisers may need to commence charging their clients a fee in addition to commissions received from product issuers to remain sustainable.<\/p>\n

Sean McCormack<\/strong>, Chief of Group and Retail Partners, MLC Life Insurance, noted \u201cWhat is clear from the research is that there is a need for more detailed knowledge of the true operating costs associated with providing advice, and how each facet of the process \u2013 such as marketing, administration, client servicing and compliance, can impact overall profitability.\u201d<\/p>\n

McCormak emphasised that with upfront commissions reducing further next year, \u201d\u2026it is imperative that advisers act.\u201d<\/p>\n

\u2026it is imperative that advisers act<\/h6>\n

He said the whitepaper analysis shows impacted advisers should take the opportunity to better understand \u2018peer relative industry averages\u2019 and use this information to review their own business\u2019 costs and, potentially, make changes to their business model.<\/p>\n

Other key findings revealed in the whitepaper include:<\/p>\n