A seismic shift in the advice industry is already underway and we are at the dawn of a new era for advisers. This transformation is being driven by an urgent need to repair the fracture in consumer trust across the financial services industry. There is a universal agreement that, in order to achieve this, measures must first be put in place so the needs of consumers are the priority. This will ensure that businesses act fairly, honestly and transparently in the best interest of consumers.
Legislative guardrails are being put in place, with the banning of grandfathered commissions across wealth more broadly one such example of these protection measures. But whilst adviser commissions have become a controversial issue amid fears they encourage mis-selling and other anti-consumer behaviour, the evidence is indisputable that the advice industry, built primarily on a commission structure, has had a profoundly positive impact on the finances of Australians who receive advice.
Banning commissions has a far-reaching impact on the entire industry, largely because there is, as yet, no alternative remuneration structure accepted. We know that upfront fees are not popular. For consumers, going from paying nothing upfront to potentially paying thousands is an almighty jump – particularly given a general unwillingness and lack of precedence in paying for advice.
Fee for service models are standard across so many industries – consumers are happy to pay lawyers, plumbers, designers, marketeers and many other occupation groups for their time. So why not advisers? A lack of immediate reward or gratification is likely to be part of the issue, but we also have an image problem. It is difficult for our industry to tell the good stories of when insurance has helped, because death and illness are still very much taboo topics. We also face headwinds from the commoditisation of life insurance, and this undermines the value of advice in helping consumers select a policy appropriate to their needs.
We are left in a difficult situation and advisers could be forgiven for feeling like they can’t win – consumers are disapproving of hidden or opaque remuneration structures but extremely unreceptive to the idea of being presented with a bill. Clearly something has to give.
In order to ensure the advice industry is sustainable, the industry must change perceptions around the value of advice and the role it plays in helping consumers to obtain products suited to their circumstances.
It is clear that consumers need more time to get comfortable with paying an upfront fee for advice so for now, it may be that commissions are the preferred remuneration structure, but with far greater transparency, in order to build trust in the adviser consumer relationship. As well as having full visibility of adviser remuneration, consumer choice should be an important factor to winning back trust. Giving the client choice in the way they pay for insurance advice puts the power back in their hands.
At Integrity, we recognise that change has been a long time coming. We’ve built our systems with a huge amount of flexibility in mind to allow a variety of fee options with the basics like commission, fees, a mix of both, and even split commissions We are trying to make it easier for advisers to build those great relationships with their clients, ones that are based on trust and transparency. This also means simplifying the process for both parties. Advisers are able to give their clients full visibility of premiums and the factors that impact their calculation.
Resolving the complex issue of remuneration will require insurers and advisers to work together in consultation, collaboration and education with consumers. To ensure our industry moves forward with consumers it’s essential that we move to a model where advisers are remunerated fairly – and where their clients see the value of their adviser’s fee.
Suzie Brown is general manager, distribution at Integrity Life.