Policy-makers misunderstand life/risk commissions

life/risk life insurance fees Commission ClearView financial planning greg martin

5 June 2019
| By Mike |
expand image

Life/risk advisers should not be viewed in the same manner as those providing investment advice and can’t simply replace commission revenue with fee revenue in the same way investment advisers managed to do in the aftermath of the Future of Financial Advice (FoFA) changes.

What is more, there was a real risk that the path being travelled by policy-makers would see more than half life/risk advisers stopping providing standalone life insurance advice.

That was the assessment of a new whitepaper produced by ClearView chief actuary and risk officer, Greg Martin  – Advice Culture and Remuneration – which argued that policy-makers needed to better understand the situation.

They also needed to understand that advisers, when providing life insurance advice, could not simply replace commission revenue with fee revenue in the same way they had been gradually doing with investment advice, since the Future of Financial Advice (FoFA) regime commenced in 2012.

“For superannuation and investment advice, a client can fund an explicit advice fee from the capital within an investment portfolio or super fund arrangement,” it said.

“Where there is no associated ‘capital sum’, as in the case of an insurance policy, consumers need to transfer funds or pay out of their hip pocket. That’s an upfront cost of roughly $1,750 to $2,875 for a typical life insurance policy.”

The whitepaper said that, economically, it made sense for a life company to fund that cost in circumstances where the ‘cost of capital’ for an institution funding the upfront cost was significantly less than the value to the customer of making the equivalent upfront payment.

It said that to complicate matters further, with life insurance advice, a great deal of work was done before a policy could be issued and there was no guarantee that a client would proceed to cover.

“Institutions funding the upfront cost associated with securing life insurance is the reason initial commissions were originally invented,” it said. “According to the 2019 ClearView Adviser Experience survey, more than 80 per cent of advisers do not believe many clients will pay a fee for life insurance advice.”

“If life insurance commissions were banned or subject to further changes, 54 per cent said they would stop providing standalone life insurance advice,” the whitepaper said.

Read more about:


Recommended for you

sub-bgsidebar subscription

Never miss the latest news and developments in wealth management industry



Planners will be in short supply, with only 376 in FY23–24. In my experience, of this number, only around 20% to 30% wi...

7 hours 44 minutes ago
Peter James

As usual there is no delineation in the article between risk specialist advisers and investment specialist advisers. Thi...

8 hours 48 minutes ago
Mark Harris

Is he serious, improvements from legislation change, all I see is more ASIC compliance and higher costs, this government...

9 hours 44 minutes ago

Insignia Financial has unveiled a new operating model and executive team, including a new head of advice, while three senior executives are set to depart the licensee....

1 week 5 days ago

The $280 billion Australian Retirement Trust is the first superannuation fund off the block to report its performance for the 2023-24 financial year....

3 weeks 1 day ago

Analysis by Chant West of the annual performance of growth superannuation funds has uncovered which ones see the best performance....

5 days 4 hours ago


Fund name
Ardea Diversified Bond F
144.00 3 y p.a(%)
Hills International
63.39 3 y p.a(%)