Commissions ban to shake risk market

A survey of life risk advisers has confirmed the Government’s Future of Financial Advice (FOFA) changes to commissions within superannuation will have a significant impact on not only the amount of risk they write, but also the structure of the industry.

While it focused on a total ban on life risk commissions, the Beaton IFA Market Pulse Survey also indicated the dramatic impact the proposed FOFA changes were likely to have on the industry. The FOFA proposals involve banning commissions on life risk products within superannuation – both group and individually advised.

The survey, released exclusively to Money Management, found that if life risk sales commissions were banned, 77 per cent of respondents expected a decrease in the amount of life risk they wrote, with 61 per cent estimating the decrease could be in excess of 40 per cent.

As well, the survey found that the advisers surveyed believed the banning of life risk commissions would result in widespread changes to the current market dynamics in the sector, as well as the competitive landscape and consumer behaviour.

Importantly, the survey data noted that while life risk insurance represented on average 55 per cent of advisers’ new business remuneration, its contribution to total remuneration was almost equal to that of wealth management.

The survey questioned 528 life risk advisers with the results being provided to major insurance providers such as Asteron, AIA Life, CommInsure, Macquarie Life, OnePath and Zurich.

A number of the advisers surveyed suggested a ban on commissions would result in changes to the insurance advice process, something that would require significant customer education.

As well, it said many advisers had predicted a flight to retirement or a ‘mass exodus’ from the industry due to the challenges of selling insurance with a direct fee to end-customers.

It said advisers believed that the banks and the other big institutional players with big marketing budgets would dominate the industry using TV and other mainstream media to influence consumers.

On the question of an up-front fee-only model, the survey found that more than 70 per cent of respondents disagreed with the model, but that a number of advisers aged 65 and over supported the concept.

Among the reasons given for supporting the concept was that a fee-for-service model would better protect clients down the track, with reduced premiums at times when they were needed most.

Others suggested the fee-for-service model was better for clients in the medium- to long-term and would prove to be more transparent with less potential for bias.