Commission-only risk advisers may need to reduce their expenses by as much as 20-25% to return to profitability, a new MLC Life Insurance-commissioned whitepaper has suggested.
With maximum upfront commissions decreasing to 60% (plus GST) for new life insurance policies from Jan. 01 as part of the Life Insurance Framework reforms (LIF), the whitepaper said that not addressing this cost gap may lead to advisers charge their clients a fee in addition to commissions received from product issuers to remain sustainable – a practice that would impact accessibility of advice for all Australians.
“What is clear from the research is that there is a need for more detailed knowledge of the true operating costs associated with providing advice, and how each facet of the process – such as marketing, administration, client servicing, and compliance, can impact overall profitability,” said Sean McCormack, chief of group and retail partners at MLC Life Insurance. “With upfront commissions reducing further next year, it is imperative that advisers act. The analysis shows these advisers should take the opportunity to better understand peer relative industry averages and use this information to review their own business’ costs and, potentially, make changes to their business model.”
McCormack said costs need to be reduced, or else commissions alone would be unlikely to support the profitability of current advice models.
“We strongly believe in the value of quality, lifelong financial advice and believe more Australians would benefit from receiving it,” McCormack said. “However, unless advisers can remove 20-25% of the current cost base for each business, advice will not be profitable, leaving many Australians to make important financial decisions on their own.”
The MLC Life leader said the best way for life insurers to reduce cost, improve their efficiencies, and better serve advisers is to invest in technology, including digital and data, infrastructure, and support services.
“Our new digital underwriting platform, for example, can now assess and admit a customer’s life insurance application in just seven days, down from 15,” McCormack said. “In the last 12 months, more than 7,200 policies have been accepted automatically without the need for any manual underwriting. While this is only the beginning, we believe that delivering an efficient experience that is digitally enabled can reduce the cost of advice and give advisers confidence that their businesses can be sustainable in the future.”
