As financial advisers adjust their business models to the Life Insurance Framework, many fear the Royal Commission's recommendations will further undermine the viability of their practices.
This is according to ClearView's latest survey of 630 financial advisers interviewed between April and May 2019. It found the majority are worried the Royal Commission's recommendations on life risk commissions will have an adverse impact on their business if introduced in the next 12 months.
The 2019 Adviser Experience Survey found the changes will threaten the commercial viability of many advice practices, as over 98% are reliant on life insurance commissions. Fewer than 2% are currently charging a fee for service.
ClearView estimates advisers charge $3450 per annum on average for ongoing advice fees.
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Upfront costs for a typical life insurance policy on the other hand, sit roughly between $1750 and $2875.
Putting aside the difficulties of implementing a fee-only advice model, if commissions were reduced further, the industry may be forced to shift to a salaried adviser model, ClearView said.
This not only increases business risks and costs for life insurers, which will ultimately be borne by consumers, but will also see less innovation and competition, as only the largest institutions will be able to survive, it said.
Under Recommendation 2.5, Commissioner Kenneth Hayne said ASIC should consider further reducing the cap on commissions for life risk insurance products - unless there is a clear justification for retaining those commissions, the cap should be ultimately reduced to zero.
Meanwhile, advisers are still coming to terms with the Life Insurance Framework which, as of 1 January 2019, meant premiums had to be capped at 70%; a 20% trailing commission is charged thereafter.
From 1 January 2020, the cap reduces to 60%, with a 20% trailing commission thereafter.
"The commission model gets the blame for poor advice, poorly documented and delivered advice, no advice and lapse rates when objectively it isn't responsible for the life insurance industry's myriad of problems," ClearView said.