Proposed changes to the way financial planners who sell retail life insurance are remunerated could allow super funds to draw more members into group policies, says Rice Warner.
Commenting on the recommendations made in the Trowbridge Report – which was released last week – Rice Warner chief executive Michael Rice said while introducing a level commission structure will be disruptive, it is a “necessary improvement”.
Mr Rice further pointed out that this change in remuneration, while necessary, could spell an opportunity for super funds to capitalise on bringing more members into group life policies.
“The disruption that this change inevitably will cause in the retail market may create an opportunity for superannuation funds to increase members' awareness of their ability to take up greater levels of insurance through their group life schemes,” Mr Rice said.
He added, however, that it “remains to be seen” whether the remuneration structures proposed in the report will be endorsed by ASIC and also whether they can be implemented seamlessly.
“We may still see a number of advisers choosing to exit the market. However, the proposed structure is a necessary improvement,” Mr Rice said.
Mr Rice added that one of the main advantages of introducing a 20 per cent level commission structure would ensure a reduced incentive for planners to churn clients into new policies every few years.
“We can expect lapse rates to fall, making retail life insurance more profitable and possibly cheaper for consumers in the long term," he said.
“The difficulty for advisers if they earn renewal commissions is that they will not get fully paid at the time they do the work. They will need to borrow against future cash flow to pay their bills.
“[However, Mr] Trowbridge recognises this and suggests a fee of $1,200 per client be paid by the insurer in addition to the commission,” Mr Rice added.
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