The real cost of the commissions crackdown 

Alex Burke,  Senior Writer,  No More Practice Education

It's been six years since the Trowbridge review and one could argue there's been nary a quiet moment for the advisers in the interim. 

The Life Insurance Framework - developed in response to Trowbridge's report - was rolled out in phases, the last of which commenced in January 2020. And while FASEA and the Royal Commission have tended to take up the most column inches during this period, a new ClearView whitepaper suggests that the LIF's ongoing effects on the industry represent a "major concern". 

In Fertile ground for an advice outbreak, ClearView general manager, life insurance Gerard Kerr said that while life insurance advice and claims management remain "a key part of the advice proposition," a shrinking cohort (63%) of advisers see risk advice as being a core part of their offering in the future. This is despite over 75% of advisers surveyed in 2020 seeing risk advice as a core part of their job and nearly all (93%) saying claims management as an "important value-add for clients".

"This reflects the significant challenges currently facing advisers," Kerr said, "including the rising compliance burden and cost to provide life insurance advice, falling remuneration under the Life Insurance Framework (LIF) and climbing insurance premiums."

As per the whitepaper, risk advisers have been declining year-on-year since 2012 to the point where they now represent only 16% of the industry.

"The falling number of those advising on life insurance is a major concern," Kerr said, because "fewer advisers means fewer people receiving professional advice."

Reflecting this, research cited in the whitepaper from Investment Trends shows that advisers have serviced fewer clients, focused on higher-premium clients and charged higher fees since the LIF's introduction. 

"Collectively," Kerr added, "the impact of these trends has contributed to the broader issue of underinsurance. Longer-term, this could have disastrous repercussions for Australian families, society and the government."

We don't yet know to what extent Treasury will be incorporating these concerns into its Quality of Advice review, part of which will examine the Life Insurance Framework. Back when the LIF review was being spearheaded by ASIC, we discussed a report by Key Person Risk Management's Brett Wright, who argued that under a commission or brokerage model, the cost and "complexity barriers" to receiving financial advice are removed. 

"Life insurance advisers," he explained, "cut through consumer apathy and are able to do this by making the process seamless for the consumer, often collaborating with other professionals such as accountants, and willingly providing advice and services without consumers needing to worry about being charged thousands of dollars in upfront and ongoing fees on top of their insurance premiums." 


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