The status quo for life insurance and risk advice remuneration is “flawed” and an alternative model is needed to replace it, says business coaching firm Elixir Consulting.
In a submission to the Life Insurance and Advice Working Group – in response to the interim Trowbridge report – Elixir managing director Sue Viskovic said while hesitant to suggest an alternative model there is “no doubt the current status quo is unsustainable”.
“There is overwhelming evidence that the current model is indeed flawed,” the submission said.
The submission also pointed out that in some cases a fee-for-service model can work as an appropriate alternative but could also act as a deterrent for clients seeking advice.
“I have witnessed, and indeed assisted advisers to replace commissions with fees; this model works well for clients who see the value in insurance and in seeking expert guidance from an adviser,” it said.
“Where clients are apathetic or simply not motivated to get their affairs in order, I fear that the prospect of paying a fee to review their needs, regardless of whether they successfully get insurance placed, may be a deterrent to engage,” it added.
The most common remuneration model used by “progressive advisers” is to charge a nominal fee to take on the client, then take a hybrid or level commission option and offset other advice fees against this commission, the submission explained.
“It is rare, however, to see an adviser cap the insurance commission they earn from a client, usually as their larger cases are considered to be offsetting the clients who take up a lot of time, and don’t get insurance in place,” it said.
“The businesses we have seen that have completely removed commissions (and write policies on a nil-commission basis for reduced premiums) typically provide insurance as part of a comprehensive financial plan.”