![Risk advisers are outraged by the proposed commissions regime and many are expected to quit the industry.](http://web.archive.org./web/20170714021841/http://www.afr.com/content/dam/images/g/h/q/v/m/v/image.related.afrArticleLead.620x350.gi46lu.png/1455474660162.jpg)
Risk advisers are expected to desert the industry en masse in the next three years, with the proposed commissions regime considered untenable for both independents and the next generation of planners.
In the weeks since Assistant Treasurer Josh Frydenberg gave his endorsement to the new framework, advisers have been reacting with outrage to the cash-flow implications, with some predicting customers will ditch advice and move towards direct channels or away from insurance altogether.
The model, proposed by the Coalition government after a report from John Trowbridge and a consultation process between three industry organisations, will cap upfront commissions at 60 per cent from July 2018 and ongoing commissions at 20 per cent from January 2016. Now advisers can earn up to 120 per cent in upfront commissions, with a 10 per cent trail commission.
The new model also includes a "clawback" provision of up to 100 per cent of the commission paid for policies cancelled within the first year.
The changes follow a scathing report from the Australian Securities and Investments Commission, which found a correlation between high upfront commissions and poor financial advice in more than a third of 200 surveyed cases.
But some advisers feel the new regime unfairly penalises those who have complied by the rules by making their businesses unprofitable.
Crunched the numbers
Ben Day, a specialist risk insurance adviser at Fitzwilliam Financial Services, has crunched the numbers and doesn't think an inexperienced adviser could earn more than about $30,000 a year, after costs, assuming they wrote $80,000 in risk business under the new system.
"One of my main fears is where does that leave the industry going forward? When people like me retire in 10 years, where are the new people going to come from? How are we going to entice new people?"
Established advisers would also struggle to keep up and might move into other forms of advice or leave the sector, he said.
"There will be a lot of advisers who are really trying hard to do the right thing and they will struggle to remain viable under the changes moving forward."
Mr Day estimates a simple life insurance policy would involve about 15 hours of ground work – and that doesn't always mean it is implemented.
"I may come and see you and spend 15-20 hours working on [a case] and the insurance company turns around and says 'this client is uninsurable' and then it's game over. In a fee-for-service environment, how happy will the client be if you've provided them nothing [and charged them]?" he said. "Insurance company exclusions are not unusual."
Norman Howe, managing partner at Azure Group Wealth, estimated advisers would have to reduce their advice and statement of advice preparation cost by about 40 per cent to break even.
Patch the shortfall
Technology changes would help patch the shortfall, but could not alone make up the 40 per cent, Mr Howe said.
"Smaller independent licensees will reduce dramatically ... low-tech advisers will exit the industry almost immediately," he said.
If the changes were introduced, mum and dad insurance would become the domain of the direct channel, he said.
"Personal protection fee for service products will not be highly successful for mums and dads, unless non-advice online solutions become user friendly and accepted as mainstream, [which is] extremely unlikely."
Association of Financial Advisers chief executive Brad Fox agreed "productivity gains are essential" to advisers retaining their businesses.
"If the adviser's revenue goes down, then the time to earn the revenue must also decrease," Mr Fox said.
"As the details of implementation are worked out we will be pushing hard to see that insurers pass on cost savings through lower premiums and that efficiencies are significantly improved for advisers in dealing with insurers," he said.