LIF diminishing risk advice provision


By Daniel Paperny

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The contribution of risk advice to adviser revenue streams had fallen to its lowest level in years in the wake of the incoming life insurance framework (LIF), according to Investment Trends.

This was one of the key findings of the research house’s “2016 Planner Risk Report”, released yesterday, which in June surveyed 620 Australian financial planners on their use of life insurance.

According to the survey, risk advice fell from comprising 35 per cent of total practice revenue for planners in 2015 to 28 per cent this year, the lowest it had been since 2013.

In addition, the report found a growing number of advisers had stopped giving risk advice altogether, with 12 per cent not writing any risk business in the past year.

That number was up from 10 per cent last year, Investment Trends noted.

Speaking to financialobserver, Investment Trends senior analyst King Loong Choi said advisers were intending to charge more for holistic advice, as well as focus on higher-balance and higher-insured clients.

“Financial planners were saying they were looking to provide less stand-alone insurance advice, which would become part of a broader holistic package,” Choi said.

“Over the last two years alone, we’ve already started to see planners shift away from [upfront commissions], and what had been growing was really a trend towards hybrid commissions.

“By 2019, planners were saying they were looking to derive half of their revenues from a hybrid commission [structure].”

The survey found hybrid commissions made up 36 per cent of adviser revenue streams in 2016, which was up from 20 per cent two years ago.

An increasingly important challenge insurers needed to address was customer retention, with the survey finding half of planners stopped writing new insurance business with at least one insurer in the past year.

According to Investment Trends, the onus was on insurers to actively promote the competitiveness of their offerings, particularly given planners were increasingly looking to alternative providers for a better deal for their clients.

If the LIF legislation was introduced, Choi said a likely effect on the industry would be growing collaboration between insurers and planners to absorb the new reforms into their businesses, particularly as more than two in five planners expected their practice's profitability to decline as a result of the laws.

“Insurers [want to] improve the process efficiencies for financial planners, allowing them to spend less time on administrative work and more time on face-to-face interactions with their clients.

“This is a trend that we’re observing with financial planning practices across the industry in general … making sure they are engaging with their clients and seeing them more [regularly] as well.”

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