QAR must deliver sustainable affordable advice model says MLC Life

The continuing exit of financial advisers is not sustainable if Australians are to have access to quality, affordable advice, according to major life insurer, MLC Life.

Just weeks out from the expected release of the preliminary position of the Quality of Advice Review (QAR), MLC Life said that its key focus should be on ensuring more access to financial advice for all Australians, regardless of their wealth.

“All options should be considered to make advice more affordable for those that receive it, and more cost-effective for those that provide it,” MLC Wealth general manager of Retail Distribution Partnerships, Michael Downey said.

“Extensive research shows unequivocally that people have greater peace of mind when they receive quality, life-long, financial advice. But after years of inordinate regulation, however well intentioned, we are haemorrhaging advisers who provide critical advice to clients in their time of need. The trend is not sustainable,” he said.

“Unless we take steps to reduce the cost of advice, I have a real fear that only the wealthiest Australians will be able to afford to see an adviser. That means fewer people will have appropriate life insurance protection for their needs and they will fall through the cracks. Where is the fairness in that outcome?”

Downey referenced 2019 benchmarking research by MLC Life into the cost of advice which found that 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.

It found that, on average, a total of 10 hours is required by a risk adviser to prepare and implement life insurance advice for a client in simple cases, and up to 15 hours for more complex cases.”

Explaining its approach to the QAR, MLC Life said it was seeking to achieve consumer choice in how to pay for advice, noting that “to have a sustainable advice sector, commissions must continue to remain an option that supports everyday Australians having access to much-needed financial advice during key life moments”.

“This includes maintaining the Life Insurance Framework (LIF),” it said.

The MLC Life position also advocated for “scaled advice tailored to specific customer need” which it said could be as a “‘Life Cover Assessment’ that may or may not include a product recommendation”.

“Despite consumers calling out for this style of advice, current regulation and guidance makes this difficult in practice, with often the only options provided being costly full, holistic personal advice or no advice/support at all,” it said.

Also on the MLC Life wish list are:

Tax deductibility of advice – The cost of obtaining personal financial advice should be tax deductible, to increase affordability and accessibility. It may be appropriate to target this assistance to ensure it has the effect of enabling those who cannot currently afford advice, rather than subsidising those who already pay for financial advice.

Increased use of technology and digital solutions – Legislation and regulatory practice should support innovation and enable technology to provide solutions to industry challenges. Digital solutions, which aim to address the complexities of the advice process, deliver cost-effective compliant advice journeys, that are adviser-led, technology driven and supported by regulator and industry stakeholders.