A second licensee has voiced support for a separation of risk advisers and financial planners, as part of its submission to the Trowbridge-led Life Insurance Advice Working Group (LIAWG).
Wayne Handley, Bombora Advice Managing Director, told riskinfo that the need for the industry to recognise specialist advisers was a major keystone of the group’s submission to the LIAWG. He said Bombora was 100% in support of the call to separate risk specialists from financial planners, and recommended that a risk-only advice designation be established (see: Trapnell Calls for Separation of Risk Specialists).
“All of the professions to which the financial advice sector aspires have specialisations. Look at accounting, law and medicine – they all have specialist practitioners. Consumers clearly understand that the professionals they deal with are either generalists, or specialists, which means they can make an informed decision about who to see when they have a particular need”, Mr Handley said.
He argued the advice industry needed to acknowledge the. vastly different skill set employed by risk advisers compared with financial planners who sometimes provided risk advice, and how this impacted on the end customer.
“The difference between a client’s experience when they sit in front of a financial planner who does a little bit of risk, versus a risk specialist with decades of insurance-only experience is massive. And at claim time that difference is even more pronounced.
“Historically. the industry has put risk specialists together with financial planners, and ignored the ever growing complexities in insurance advice. The industry is not meeting the need for dedicated training. support and specialist recognition. This may well be one of the reasons we’re seeing issues with the quality of risk advice today- because the industry has had such a focus on financial planning. Bombora also used its submission to caution the UAWG against automatically concluding that upfront commissions are the sole driver of bad advice.
“It’s not surprising, when you reflect on the ASIC research and the current environment, that the majority of cases of poor advice would appear to be linked to upfront commissions. If the majority of advisers are taking upfront commissions, you must expect that’s where you will find the majority of incidences of poor advice to be,” Mr Handley said.
“We argue that you must look at poor advice in isolation, and look at why advisers are taking upfront commission in isolation.
“Poor advice will, in the majority of cases, be causally linked to poor education, training and experience. We should understand the background of those advisers.
Mr Handley explained that the need for upfront commissions is, in the majority of cases, linked to the cost of advice. “This includes the significant cost of compliance, the cost of servicing the client over time (especially at claim time), and the concept of ‘swings and roundabouts’, where, over a period of time, the total commission received for advice and contracts that are placed meets. or hopefully exceeds, the overall costs of the business. He also pointed to the cost of providing advice that is not taken up by the client, or is incurred when the application fails at underwriting stage.
“If you only measure upfront commission on a completed case basis you are not measuring the overall activity, and therefore costs, of the adviser,” he said.
Mr Handley called on licensees and associations to accept the challenge set by the ASIC review and drive improvements to education and standards.
“We must recognise that there is a continuum of professionalism and competency in those licensed to provide risk advice. That is where the problem lies. When we begin to adequately train and support risk advisers, and measure and license for risk competencies, we will see a significant improvement in the quality of advice.
“If there is an advice issue, let’s worry about the advice component, not the remuneration of it. If we fix the advice quality issues. then remuneration will take care of itself. We’re advocating for an informed, balanced debate, not a knee-jerk reaction to a flawed causal link between poor advice and upfront commissions.
“Ultimately this is about education, training, culture and leadership.”