Australian insurer, ClearView, has released new research which reveals that any additional changes to adviser remuneration will neither lift advice quality nor result in improved client outcomes.
Rather, according to the wealth firm’s white paper called Advice Culture and Remuneration: The Shameless Truth About Life Insurance Commissions, ClearView says its findings indicate additional changes to adviser remuneration will only:
- Drive up costs
- Cripple the advice industry
- Compound the Government’s social security liabilities
According to ClearView, the paper presents the case for life insurance commissions as an efficient, widely-accepted remuneration model, tracing its origins as a legitimate business risk management tool.
It cites the science of psychology to demonstrate that human beings are motivated ‘reasoners’ but their motivation is rarely simply financial. It says the three key determinants of human behaviour are:
- Tribal membership and alignment
- A sense of belonging
Greg Martin, Chief Actuary and Risk Officer at ClearView, said it was unfortunate that much of the public discourse around the behaviour of Australian financial advisers is disproportionately focused on remuneration and not the role of industry culture and norms:
“If a culture is unsound then a remuneration structure won’t fix it but if a culture is sound, the remuneration structure shouldn’t matter much,” said Martin, who added “It is critical that any reform agenda addresses the real problems and enacts real change to avoid unnecessarily increasing business costs, which means higher costs to consumers.”
…if a culture is sound, the remuneration structure shouldn’t matter much
ClearView says its paper seeks to disprove that commissions lead to poor client outcomes. It also seeks to identify the real cause of poor advice and to emphasise the benefits of variable remuneration structures.
According to ClearView proprietary research, the vast majority of advice practices depend on upfront commissions and only two percent of firms charge a flat fee for life insurance advice.
It found over 80 percent of advisers do not believe consumers will pay a fee for insurance advice, which it says indicates further reductions in commission caps will force them to focus only on affluent clients who are willing and able to pay a fee.
“Sensible public policy should encourage and facilitate the purchase of appropriate life insurance coverage by more Australian households,” said Martin, who concluded:
“…The current upfront commission structure is widely-accepted, economically rational and reflects what consumers actually want.”
Click here to access a full copy of ClearView’s white paper on Advice, Culture and Remuneration.