Will stapling add to the advice gap?
The younger generation could be at risk without proper insurance due to a combination of stapling and not being able to afford proper advice.
Phil Anderson, Association of Financial Advisers (AFA) general manager policy and professionalism, said this was another example of why the increase of the cost of advice is concerning.
“Seeking financial advice may be a solution for these Australians, however if they are young, then it is less likely that they would have either the capacity to pay an upfront fee for financial advice or have a sufficient premium to justify a financial adviser providing a statement of advice (SoA),” Anderson said.
“This comes down to a simple issue of mathematics. If it costs $3,000 to prepare an SoA, then based upon the life insurance framework (LIF) commission rate of 60%, then the premium would need to be $5,000 to cover the costs of the advice.
“This is why we are so concerned that the increase in the cost of financial advice is placing financial advice out of the reach of everyday Australians.”
Sean Williamson, MLC Life chief group insurance officer, said with respect to advisers he did not see them being able to play a role in helping them with insurance coverage.
“It’s just the cost to serve for the young individual is too costly for them so I don’t see that happening,” Williamson said.
“Where we need to get to, is the trustee needs to be able to provide generic advice to its membership of certain age cohorts.
“When [the younger group] are about to make an insurance decision, that’s when they should have supplementary advice to help that individual make the right decision.
“Particularly in a stapling world, the risks to the member are magnified because we’ve moved from this opt-out to an opt-in world and moving into that opt-in or member-led system, it will create additional risks for that member.
“There should be some generic information provided by trustees to their members, but when an individual is about to make an insurance decision they should be communicating more clearly.”
Because advisers did not typically advise on group insurance it was likely there would be another advice gap younger generations would have to deal with.
“You might get advisers who were doing it a fee for service that might recommend taking out insurance through their super fund but it is quite limited,” Williamson said.
“Most of the advice we would see from advisers is to take out a retail insurance and have it funded through superannuation.
“They’re still taking out a retail policy, but the funding mechanism is through super so it’s delinked, whereas group insurance is fully linked to a members account.
“I would expect a reduction in retail-linked arrangements going forward, there’s some challenges accessing tax rebates for retail cover, so I expect group insurance will continue to rise.”
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