‘Disastrous’ risk advice policy settings must be fixed: AIOFP

According to Association of Independently Owned Financial Professionals (AIOFP) executive director Peter Johnston, when the Delivering Better Financial Outcomes Act was passed on 4 July, the changes to fee consent forms were “snuck through”.

“Another example of politicians not understanding their brief and blindly voting on legislation that negatively affects consumers with the cost of advice,” Johnston said.

“This is also another example of the Minister’s Treasury bureaucrat advisers having no idea about our industry, and more importantly, not listening to those at the ‘coal face’ with keeping down the cost of advice and operating a profitable business.”

The AIOFP had previously signalled its concerns with the additional impost on risk advice from the fee consents ahead of the act being passed.

“With all the noise around 99FA and CSLR, the next calamity for the industry and consumers has been temporarily muted,” Johnston said.

“The proposed s963BB legislation demanding fee consent forms for risk cover will only increase the cost and complexity of advice with no real benefit for consumers.”

The struggles of the risk advice sector are not new, with the reduction of both upfront and trail commission levels drastically impacting the number of advisers writing risk. Indeed, Adviser Ratings revealed earlier this year that just 480 advisers were responsible for writing half of the new business during 2023.

AIOFP chair of technical services Lionel Rodrigues said the “decline in the number of lives insured and a corresponding substantial increase in premiums all evidences a failure of policy”.

He added that, in many respects, the recommendations on life insurance in the Quality of Advice Review (QAR) are “contradictory”.

QAR reviewer Michelle Levy, in her final report, acknowledged that both the cost of providing advice has increased and the number of risk advisers has declined, however said “this alone is not reason to recommend that commissions continue”.

Levy also acknowledged that many consumers would opt for a commission to be paid rather than an advice fee, adding that there is a “real risk that fewer people would get that advice if commissions were banned”.

Despite this, Levy recommended that the current level of commissions would be retained, as well as the addition of a fee consent form for life insurance.

“There is sufficient evidence demonstrating a direct link between underinsurance, the increasing cost of insurance, the increasing cost of advice and insufficient compensation for the risk adviser,” Rodrigues said.

“This is acknowledged by the reviewer. Nevertheless, the recommendation is to maintain the status quo for remunerating the professional risk adviser, whilst simultaneously increasing the compliance burden, and cost, by the introduction of a fee consent requirement.”

According to Johnston, this is another example that Financial Services Minister Stephen Jones and Treasury officials have “forgotten about who they are meant to be serving”.

“With exception of the education pathways legislation, the minister has only increased the cost of advice during his tenure by creating more red tape – a very disappointing ‘hot mess’ outcome,” he said.

“It is now critically important for the future of the risk industry to keep all sides of politics aware leading into the next election of why the policy settings over the past 10 years have been disastrous for all stakeholders and what must be done to revive it.”