Life/risk changes short-term pain, long-term gain
Advisers could expect to be paid more total commission than is currently the case under the new life risk reforms but should brace themselves for short-term pain, according to Asteron Life.
The firm's executive manager, Mark Vilo, said while emotions had run high among advisers, the proposed remuneration changes, which come into effect from 1 January 2016, could boost their business.
But he warned there would be short-term challenges as they transitioned away from higher upfront commissions and adapted to new clawback conditions.
"Advisers who see life risk as a long-term business proposition will benefit from reform, which can increase the value of their book over time," Vilo said.
"However, there will be a few leaner years from a cash flow perspective as they adjust to new conditions."
His comments were based on the launch of a remuneration modeller by Asteron Life, which estimates the effect of the remuneration changes.
Vilo said the modelling showed advisers would be paid more total commission than they currently received.
"We have every reason to feel optimistic about our industry's future," he said.
The modelling tool asks questions about an adviser's new business, in-force premiums, number of clients, remuneration types, and lapse rates. It then forecasts revenues and lets advisers measure the effect of different clawback scenarios.
The comments were in line with those made by the Association of Financial Advisers (AFA) last month, which said life/risk advisers who had moved to the new hybrid remuneration models saw better recurring cash flows and business valuations.
Investment Trends research showed many advisers had already started moving to the new remuneration model, with many diversifying into holistic advice to cushion themselves from the impact of the chnages.
AUTHOR
Malavika Santhebennur
Recommended for you
ASIC has cancelled a Sydney AFSL for failing to pay a $64,000 AFCA determination related to inappropriate advice, which then had to be paid by the CSLR.
A former Brisbane financial adviser has been charged with 26 counts of dishonest conduct regarding a failure to disclose he would receive substantial commission payments for investments.
Inefficient data processes and systems mean advisers are spending over half of their time on product implementation and administration at the expense of clients, according to research.
With the regulator announcing its enforcement focus for 2025 last week, law firm Hall & Wilcox examines the areas which have dropped down the list in priority for the regulator.
