Why risk advisers are losing faith

Although the Coalition appears to be the better bet for the financial advice industry, Risk Hub founder Marc Fabris told ifa that a Coalition win currently looks less likely, which ultimately spells trouble for risk advisers.

Looking at Labor’s plans, Fabris suggested that outgoing Financial Services Minister Stephen Jones’ actions over the last three years have shown that reviewing the risk advice industry is not a priority for Labor.

In fact, Jones at Momentum Media’s Election 2025 event just two weeks ago said Labor has “no plans for making any changes in that area”.

Fabris believes that while life insurers were warming to the idea of lifting commission caps, the current government has actually dissuaded the Council of Australian Life Insurers (CALI) from making any meaningful efforts in this regard.

“Unfortunately, CALI aren’t pushing it because they’ve had the government say, ‘Don’t bother pushing it.’ So they haven’t been pushing it but CALI are supportive, supposedly, of a LIF review. They’re just not pushing it as a policy,” Fabris said.

As such, Fabris said there is little hope for achieving any meaningful change under a continued Labor government.

“I don’t hold out any hope in the next year or two that we’re going to see any change in commissions,” he said.

On the other hand, the Coalition has promised to review risk advice commissions, as professed by shadow treasurer Angus Taylor, although he was slim on details.

While not committing to any specific measures, he said earlier this year that any changes to risk insurance regulation will need to be “affordable, accessible and advisable”.

Meanwhile, shadow financial services minister Luke Howarth argued at an Association of Independently Owned Financial Professionals dinner late last year that the 60 per cent upfront commission cap “has made it unviable for advisers to sell life insurance to some people”.

“The upfront commission means it isn’t worth doing the work involved,” he said.

Responding to this, Fabris said: “I have some level of confidence that the Coalition is going to do something. We’ve certainly got different people in the responsible positions than were around when LIF happened, and a fair bit of water has gone under the bridge.

“My feeling is that what we’re hearing from the Coalition certainly sounds a lot more positive from the risk perspective.”

Fabris shared that the shadow minister has been very receptive to discussion pertaining to commission levels and clawback periods, among other issues raised by the risk advice sector.

“You just kind of hope that the current government, if they are successful, which is most likely, that they’re hearing the challenges, the issues. They’re hearing what the Coalition is talking about and recognising it, and the bottom line is the population is disadvantaged at the moment by this regulation,” he said.

However, Fabris highlighted that advisers lack trust in both sides of government, having been let down by both Labor and the Coalition in the past.

Digging deeper on the big issues

According to Fabris, no matter who wins the next election, commission levels, clawbacks and process inefficiencies desperately need to be addressed to save what is a deeply struggling risk advice sector.

When it comes to commissions, there has been considerable back and forth since the Life Insurance Framework (LIF) in 2018 that, after a transitional period, capped risk advice commissions at 60 per cent for upfront and 20 per cent for trailing commissions.

While the trailing commissions are more or less widely accepted, Fabris argued that the lower level for upfront commissions is in serious need of addressing in order to make the provision of risk advice financially viable for holistic advisers.

He explained that raising the upfront commission from 66 per cent to 88 per cent (figures inclusive of GST) would make a considerable difference and provide enough incentive to get more advisers operating in this space.

Fabris said the two-year clawback period also acts as a significant barrier, given it heightens the risk for holistic advisers.

As such, he suggested that this should be reduced to 12 months, arguing that life insurers should have a wide enough margin in their business to absorb the losses if and when policies are cancelled.

“There’s a lot of advisers that do not write risk business because of clawbacks, because it’s hard enough to make a buck as it is, and then if I do and the carpet gets ripped under me, it’s outside of my control if something changes with the client,” he said.

The final piece of the puzzle, Fabris said, is slashing unnecessary processes that drive up the time it takes to provide advice, while providing little to no value to clients.

While this has certainly been a goal the profession and the government has been chasing with the Delivering Better Financial Outcomes reforms, he opined that not much has changed to date.

“Despite the pressure, despite the crap, a big chunk of advisers do actually want to grow their focus on risk. They just need help, they need encouragement, they need it to be worthwhile,” he said.

Ultimately, according to him, it’s all about taking small steps to effect change.

“How do you eat an elephant? One bite at a time.”