Advisors warn of further changes to life insurance commission caps

New changes to life insurance commission caps could see up to 87% of financial advisers stop providing standalone risk insurance advice, decimating the life insurance industry, according to a submission to the Treasury Quality Advice Review (QAR) by ClearView, a firm engaged in life assurance, wealth management and financial advice.

About 67% of financial advisors would stop providing stand-alone risk advice and a further 20% are unsure if they would continue if life insurance commissions were subject to further changes.

According to ClearView’s QAR submission, the Life Insurance Framework (LIF) has had no significant impact on the quality of advice since its introduction in 2018 and has only nullified the ability of advisors to serve clients with needs. relatively simple.

Instead, the continued separation of product and consulting – leading to the breakdown of vertical integration and the institutional exodus of personal consulting – had the greatest impact on the lifting of standards, followed by requirements in higher education and training. Only 5% of advisers believe that the LIF has had a significant impact on the quality of advice. The LIF deals with the remuneration of advisers and licensees as part of the reforms introduced by the government.

Dependence on life insurance commission

The survey also revealed that the advisory industry is highly dependent on life insurance commission income, with 94% of advisors accepting life insurance commissions. Additionally, 70% of advisors do not plan to change the way they charge for life insurance advice and a further 17% are unsure.

Almost 70% of advisers do not think consumers will pay a fee for risk insurance advice, and a further 16% are unsure.

ClearView chief executive Simon Swanson said it was critically important that advisers’ opinions and experiences were presented accurately to regulators and policymakers to avoid unworkable legislation and poor results.

He said: “It’s clear from our research that advisors are extremely engaged and want to play an active role in shaping policies that affect their businesses and their livelihoods.”

Since the introduction of the LIF, 30% of advisors often refuse clients and 42% of advisors sometimes refuse clients because their needs are too simple and it is impossible to serve them profitably, within the framework of the regulatory regime current and reduced commission ceilings. Less than a quarter of advisors believe the current commission caps (60% upfront and 20% ongoing) are appropriate, while 73% of advisors believe they are inadequate.

The COVID-19 pandemic has also highlighted the problem of rigid two-year clawback provisions, with 62% of advisors indicating that 1-10% of new risk insurance business has been clawed back , partly due to financial difficulties linked to the crisis. pandemic.

Advice process

The ClearView QAR submission urges the Treasury to simplify advice processes and avoid changing life insurance commission rates to improve accessibility, affordability and quality of advice. “Consumers should be able to choose how they pay for life insurance advice, whether it’s fees, commissions or a combination of the two,” Swanson said. “LIF is not perfect, but it is better than some of the alternatives that have been suggested, including a complete ban on commissions. Other changes are unnecessary and would have many potential unintended consequences, including fewer people seeking professional advice, fewer advisors providing life insurance advice, and the financial cost of caring for the sick and injured falling on families, society and government,” he said.

The ClearView Advice Quality Survey was an online survey of financial planners conducted by ClearView between April 20, 2022 and May 23, 2022. An invitation was emailed to approximately 4,000 financial advisors who currently use ClearView products. The total number of complete responses was 403.