Hi TJ, Unfortunately, like the wealth management industry the life insurance industry was consolidated by the banks during the 2000s and it is now an oligopoly market structure.
Oligopoly market structures differ from other market structures (monopoly, monopolistic competitive and competitive) in that the oligopoly market structure cannot increase customer prices with ease like a monopoly can. An oligopoly market structure faces a kinked demand curve. With a kinked demand curve profit and a barrier to entry is created by lowering input costs rather than raising consumer prices. Therefore, the game of the life companies (banks) is to screw the suppliers. Screwing the suppliers (advisers) in the life insurance industry is occurring in three ways.
1. Technology gains are making it cheaper and easier to distribute product directly to consumers;
2. The best interest duty under FOFA legislation says that we have to "take any other step that, at the time the advice is provided, would reasonably be regarded as being in the best interests of the client, given the client’s relevant circumstances." As such we are legally bound to provide advice on a client’s life insurance needs no matter what the client wants. Therefore, life insurance companies do not have to make it as attractive under FOFA for advisers to provide life insurance advice as we are forced to do it regardless. The banks never complained about FOFA did they??????
3. The LIF reforms are not about “churn”. Churn was the excuse used to implement a government backed form of collusion where all life insurance companies collectively acted through the FSC to equally lower their input costs (adviser commissions). Worst of all this was done by a Liberal government. We are supposed to be a free market capitalist economy, but in this case, the government is setting the price paid to life insurance advisers at the bequest of big business.
Financial advice that relies on product for revenue will be squeezed to a bare existence just like the dairy farmers are as suppliers to the supermarket industry. This is the nature of an oligopoly market structure.
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