Will the Royal Commission put life/risk commissions at risk?
Will the Royal Commission into the Banking, Superannuation and Financial Services Industry give rise to further changes impacting the payment of commissions and will those changes impact life/risk advisers?
That is one of the black swan events that ClearView managing director, Simon Swanson has canvassed as having the potential to further unsettle the Australian life/risk industry as it continues to work its way through the implementation of the Life Insurance Framework (LIF) and as it seeks to deal with a further round of mergers and acquisitions.
Just a week after television footage from the Royal Commission revealed bank executives struggling to explain the appropriateness of commission payments to mortgage brokers, Swanson pointed to the possibility of those commissions remaining in the life/risk sector under the LIF regime being removed.
“I think the black swan event would be removing commissions,” he said. “The banning of commissions would be a real mountain to get over.”
“If you look at the mortgage broking thing, it is getting very close,” Swanson said.
As one of the few major insurers with a continuing direct involvement in the financial planning sector, Swanson made it clear that life had become significantly more difficult for life/risk advisers and that the implications of the LIF had a long way to go before they fully played out.
He said that he believed advisers had three options:
- Selling a third more to replace the income they would have previously had because, notwithstanding trailing commissions being higher they’ve now got a lapse exposure
- Changing their business mix because focusing on life/risk had become too hard, making it easier to focus on superannuation; or
- Exiting the industry because the LIF when combined with higher education had simply made it unattractive to remain.
Swanson said he was not in a position to predict which of the three options most planners would select, but he believed that, irrespective, the outcome would present insurance companies and the life/risk sector in general with new challenges.
“The industry will need to get very serious about people coming into the industry,” he said. “The reaction of the industry has to be ‘how do we assist with succession planning and how do we recruit into the industry’”.
Swanson is not alone in his concerns about the impact of the LIF, with the other major insurers having moved to assist advisers in dealing with the consequences of the legislative and regulatory changes inherent in the LIF.
TAL moved in September, last year, to launch its Risk Academy which it said was designed to help advisers come to terms with not only the changed commercial realities attaching to the LIF but also the changes to adviser education standards flowing from the new Financial Adviser Standards and Education Authority (FASEA) regime.
Read more of this feature here.
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