Risk advisers were once a staple of the advice industry, but they now make up less than a tenth of the market, Adviser Ratings' analysis shows.
In fact, research from our recently released 2022 Australian Financial Advice Landscape Report shows there are now about 1,200 risk advisers operating across Australia, with more than a third of their workforce departing last year.
Given changes to revenue structures and increasing risk and complexity, it’s difficult to argue these mass exits were unforeseen. In 2019 and 2020, risk advisers were exiting at a rate 2.4 times that of ‘holistic’ advisers, and last year that climbed to 2.48 times.
As we’ve noted in the past, the Life Insurance Framework has been a key catalyst for adviser exits from this market, especially when combined with the other factors affecting advisers in general.
As the final deadline for passing the exam approaches (for those who have failed twice), we expect further departures from the risk space.
What it means
The rapid change to the makeup of the industry has implications for orphaned clients, insurers and other advisers.
Insurers are now reporting that between 40 and 50 per cent of policies in some segments are being categorised as “orphaned”. In other words, they are not being overseen by an adviser.
For advisers, things are becoming complicated. Advisers may correctly point out that you don’t have to be a specialist to write risk; however, we are increasingly seeing non-risk advisers step away from that part of the business, largely due to complexity, cost and compliance. As figure 1 shows, more than 60 per cent of advisers do not advise on life or do so in a very limited capacity.
Figure 1 – Risky business: Proportions of risk advisers in Australia
Source: Adviser Ratings' 2022 Australian Financial Advice Landscape Report
Figure 2 – Classification of different risk models
Source: Adviser Ratings' 2022 Australian Financial Advice Landscape Report
As for insurers, despite the contraction of the risk market, our surveys show they are bolstering their distribution channels. Most have told us they see the relationship with advisers and their practice as the top component of selling policies, but are naturally concerned about the falling risk adviser universe and its effects on commissions. Interestingly, the shrinking risk advice market has not made insurers any less aggressive in their sales targets.
Amid this market change, insurers will face increased pressure to improve their offerings. Advisers who do write risk are increasingly demanding better technology, service standards and ongoing support from insurers. In fact, advisers said that support and the ability to come to a decision quickly were their most prized attributes from insurers.
There is little on the horizon to suggest a significant turnaround for the fate of the risk advice industry. By this time next year, we may be facing a scenario where there are just a few hundred risk specialists left.
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Comments6
"One thing is certain, if you have inefficient business practices, your margin has and will be squeezed on risk insurance business. After the cost of an Adviser, Support Staff, Licensee Fees, PI Insurance, Rent, Technology, Education, which is then crossed with lower upfront cash flows, premium rises and a greater compliance burden, it has been a difficult time. To flourish, you must improve productivity, which can only be done through specialisation and technology. The Adviser that places some insurance, will find it difficult to continue to offer risk, with the cost and the complexity of the new IP contracts. If you are a Risk Adviser or part of a risk insurance specialist business, and you are not innovating right now, you are in trouble."
Risky 21:54 on 18 May 22
"I recently retired as a life risk adviser, after 35 years in the business. I am very lucky to have been at retirement age when this FASEA farce came to a head. Risk insurance advice is not rocket science. The compliance regime, people with vested interests (FASEA board), regulators, and politicians have done an incredible job of wrecking a most noble profession. Incredibly, a Royal Commission recommended fee for service instead of commission, which was just preposterous. Life Risk should never have been put into the same category as planning. Qualifications should have always been based on knowledge of the product and service, and good ethical behaviour. I believe that the change to the commission structure was for the better. That was all the industry needed. Churning was the main problem always. Businesses could thrive on this structure if they didn't have to hire an army of people to provided services such as paraplanning etc. A risk insurance SoA should be 5 pages, not 45. "
Deputy 10:09 on 05 May 22
"Well, being part of the 3% as a young adviser may not bode a lot of confidence for some. However, our business is transitioning to tech driven processes which not only is exciting, but highly efficient (nearly 5 times more efficient), will be far more engaging with clients than before and highly compliant. So I welcome, with confidence, the new age. I believe that our business will be well placed for not only organic growth but also for acquisitions. If any holistic planners are out there and want to remove risk from their advice and/or want refer to specialised advisers who only deal in risk (so no drama about stealing your precious fum or fee for service) reach out. "
Jeff 08:06 on 05 May 22
"Risk insurance is on a slope to extinction. This is what both insurers and the government wanted as it was the only outcome which was to come from the changes they made. I used to write a lot of risk but am moving away from it post 1/10/2021 as it is physically impossible to compliantly provide income protection advice without a large fee being charged, which clients won't pay."
Scott 19:34 on 04 May 22
"I don't provide risk advice any longer, not because of LIF and not because of fees or the removal of commissions, but because of the onerous compliance obligations and the requirement to discuss the pro's and con's of circa 55 variables in providing risk advice. The solution is not carve outs or exemptions. If anything Risk advice is more riskier than Investment and Superannuation Advice, and let's not forget inappropriate selling of Insurance by Bank Advisers and a certain well known CBA case lead us to the Government stepping in. Expecting some carve out or exemption is not the way to go unless it leads to greater consumer protection mechanisms being put in place. "
Jason 16:10 on 04 May 22
"Is a pretty obvious solution to the demise of life risk advisers but I doubt life insurers are ready to take action. LIF has to be restored to 80/20 because Mum and dad risk clients will not pay fees . Still the CEOs resist! What also has to occur is that the government has to agree to licensing specialities – risk advisers, stockbrokers, investment advisers et cetera. With that should be specific educational requirements and acknowledgement and recognition of experience in the particular speciality. Any risk advisor licensing should not require the passing of the FASEA type exam (and yes I have passed) where only 3 questions in 75 questions can be in any way related to risk advice. Certainly ask ethical questions based on the FASEA standards and Corps Act. But please don't provide scenarios in the questions for which specialist advisers have absolutely no experience, and whats more, have never needed any experience in that particular area. Risk business that "sticks" is sold on relationships. Policies purchased on Robo advice will not cut it in the long term sustainability of a book. It's the strength of those adviser/client relationships that will protect insurers from lapses as the impact of interest rate increases on family budgets becomes even more stark over the next 12 months. A call from the "retention team" where everybody including the sales managers are on retention bonuses, will not stop casual purchasers of life products from cancelling the policy to save money to keep their home"
Bill Brown 15:09 on 04 May 22