Why are life insurers exiting advice?
ANALYSIS
With TAL’s sale of its Affinia business to CountPlus, there are now only two life insurance companies with a foot in the financial planning space – AIA Australia and Zurich Financial.
Perhaps just as importantly, AIA Australia and Zurich have those financial planning stakes as a result of their acquisition of life insurance businesses from banks with AIA having picked up the CommInsure business and with Zurich having picked up ANZ’s OnePath Life insurance business.
By selling the Affinia business to CountPlus, TAL has joined ClearView in exiting direct involvement in running a financial advice licensee, with ClearView offloading ClearView Advice to Centrepoint Alliance.
Then, too MLC Wealth’s financial planning businesses were acquired by Insignia Financial, with MLC Wealth largely standing alone in the life insurance space.
In the end, the decisions taken by the life insurers were balance sheet driven – advice is costly and carries substantial regulatory risk.
While early analyst reports on the sale of Affinia to CountPlus have been positive, nowhere in the transaction announcement to the Australian Securities Exchange (ASX) last Friday would anyone find the key phrase – “earnings accretive”.
Indeed, on the available evidence, CountPlus will have to work hard to bring the revenue per adviser up to the same level as that of Count Financial advisers in circumstances where analyst reports are citing Affinia RPA to be around $25,000 compared to Count RPA of $60,000.
The initial analyst reports of the transaction have been generally positive with given that Affinia generates about 50% of its fees from risk advice compared to Count which accounts for just 20%.
According to an E&P analysis there is a likelihood CountPlus will look to lift revenue per adviser closer to that of Count through the provision of additional services (compliance, training, IT, outsource paraplanning etc) alongside an increase in the price of the licence to reflect the genuine cost of licensing.
The E&P analysis said: While not disclosed, we see little chance Affinia was profitable under TAL (given Count is expected to earn $2.5m EBIT on $17m rev in FY23).”
“Only a handful of employees are coming across from TAL, so we see prospects for the business to earn a reasonable incremental return (similar EBIT $ per adviser as Count) as good, assuming CUP collapses the 2nd licence into Count.”
if you have not seen enough evidence to date to convince you that the days of the life advisers is over then these two sales provide it. TAL grew Affinia from the ground up when NB sales was what it was about, service, service service, the advisers were king, they are no longer. TAL made redundant their National Dealer Group relationship manager last week as well, they don’t need to concentrate on dealer groups ie distribution, far too expensive and LIV and cut any prospect of a return from that endeavor to nil. It is inevitable that life companies will remove commission from all products as that remains their greatest controllable expense. It won’t come as a result of government legislation, insurers will act independently, and the government may throw in the sweetener of advice tax deductibility. This last step in the puzzle won’t take long.
Aren’t we all in financial advice. Time to split insurance and investment
They know that Annual Fee Renewal Forms are highly inefficient & do not exist in any other nation apart from Australia – hence this ridiculous & unique red tape makes it impossible to run a profitable business model.