FAAA is ‘really concerned’ about risk advice, says Abood

The chief executive officer of the Financial Advice Association Australia (FAAA), Sarah Abood, has revealed that the life risk advice space is on the association’s advocacy agenda.

Speaking at the group’s roadshow in Sydney on Monday, Ms Abood explained that the “FAAA is concerned about what’s happening to this space”.

“I’ve seen numbers that as few as 1,200 advisers around the country are specialising in this area. They’re seeing their business go down, more than halved in some cases,” Ms Abood said.

“We’re seeing premiums go up, and go up by a lot, and there are a couple of reasons for that. One is that advisers generally can’t afford to advise someone now unless they’re paying the premium of at least $2,500-$3,000 … The premium pools are changing quite rapidly and it’s becoming harder and harder to run a business in this space,” she said.

Recent analysis from the Australian Prudential Regulation Authority (APRA) revealed that finance workers, including accountants, financial planners, and brokers/dealers have all had an average premium increase of at least 40 per cent since 2015.

Specifically, financial advisers saw average professional indemnity (PI) premiums surge by 43 per cent between 2015 and 2021.

“We really are concerned,” Ms Abood said.

Last year, research from Adviser Ratings showed that there are fewer than 200 “pure risk” advisers in the country.

The firm noted that the pure risk segment has dropped by 67 per cent in less than a year, while the volume of “high-risk” advisers has halved.

“There are now 225 advisers handling a quarter of all in force in Australia — averaging $4 million per adviser,” Adviser Ratings said.

Advisers expect the Quality of Advice Review (QAR) to further exacerbate this problem. Namely, in her final report, reviewer Michelle Levy said while commission and clawback rates should be maintained at the current levels (60 per cent upfront commissions and 20 per cent trailing commissions, with a two-year clawback), advisers should need to seek written, informed consent from clients if receiving them.

“If an adviser will receive a benefit for the sale of a life risk insurance product they recommend to their client, they should have an obligation to tell the client about the benefit and the client should have the opportunity to consent (or not) to the provision of that benefit,” Ms Levy said.

Since her recommendations came to light, advisers have posed many questions in relation to what additional obligations would apply in relation to disclosure, consent, and ongoing services.

Touching on the matter on Monday, Ms Abood said: “We must see commission continue as a way for paying for life risk advisers”.

“There is a lot of evidence that if you don’t make that available, all you do is dry up the number of consumers who are getting advice and we already know that Australians are underinsured.”