A seismic shift in the advice industry is already underway and we are at the dawn of a new era for advisers. This transformation is being driven by an urgent need to repair the fracture in consumer trust across the financial services industry. There is a universal agreement that, in order to achieve this, measures must first be put in place so the needs of consumers are the priority. This will ensure that businesses act fairly, honestly and transparently in the best interest of consumers.

Legislative guardrails are being put in place, with the banning of grandfathered commissions across wealth more broadly one such example of these protection measures. But whilst adviser commissions have become a controversial issue amid fears they encourage mis-selling and other anti-consumer behaviour, the evidence is indisputable that the advice industry, built primarily on a commission structure, has had a profoundly positive impact on the finances of Australians who receive advice.

Banning commissions has a far-reaching impact on the entire industry, largely because there is, as yet, no alternative remuneration structure accepted. We know that upfront fees are not popular. For consumers, going from paying nothing upfront to potentially paying thousands is an almighty jump – particularly given a general unwillingness and lack of precedence in paying for advice.

Fee for service models are standard across so many industries – consumers are happy to pay lawyers, plumbers, designers, marketeers and many other occupation groups for their time. So why not advisers? A lack of immediate reward or gratification is likely to be part of the issue, but we also have an image problem. It is difficult for our industry to tell the good stories of when insurance has helped, because death and illness are still very much taboo topics. We also face headwinds from the commoditisation of life insurance, and this undermines the value of advice in helping consumers select a policy appropriate to their needs.

We are left in a difficult situation and advisers could be forgiven for feeling like they can’t win – consumers are disapproving of hidden or opaque remuneration structures but extremely unreceptive to the idea of being presented with a bill. Clearly something has to give.

In order to ensure the advice industry is sustainable, the industry must change perceptions around the value of advice and the role it plays in helping consumers to obtain products suited to their circumstances.

It is clear that consumers need more time to get comfortable with paying an upfront fee for advice so for now, it may be that commissions are the preferred remuneration structure, but with far greater transparency, in order to build trust in the adviser consumer relationship. As well as having full visibility of adviser remuneration, consumer choice should be an important factor to winning back trust. Giving the client choice in the way they pay for insurance advice puts the power back in their hands.

At Integrity, we recognise that change has been a long time coming. We’ve built our systems with a huge amount of flexibility in mind to allow a variety of fee options with the basics like commission, fees, a mix of both, and even split commissions We are trying to make it easier for advisers to build those great relationships with their clients, ones that are based on trust and transparency. This also means simplifying the process for both parties. Advisers are able to give their clients full visibility of premiums and the factors that impact their calculation.

Resolving the complex issue of remuneration will require insurers and advisers to work together in consultation, collaboration and education with consumers. To ensure our industry moves forward with consumers it’s essential that we move to a model where advisers are remunerated fairly – and where their clients see the value of their adviser’s fee.

As a key strategy to protect a client’s wealth on an ongoing basis, life insurance is an important purchase. It is, after all, a product ‘for life’. This means that it should be priced on a long-term and sustainable basis. Yet, we currently see life insurers offering big upfront price discounts to make life insurance look cheap.

This ignores the enduring nature of life insurance. It is an ongoing contract that must be paid for year after year in order to continue cover. After the initial discount has exhausted comes the “sticker shock” to the client when the real cost of the policy appears in years two, three or four. For those clients whose health or other circumstances have changed, it may then be too late to move to another insurer. Such purchases, based on a discounted year one price, are often not in the client’s best long-term interests.

So, what do we mean by ‘sustainable pricing’?

There are a number of issues that undermine sustainable pricing. The first is the practice of cross-subsidisation, where an insurer increases prices on other products or books of business in order to artificially reduce the price of another product (for example, income protection) as it is the more popular cover when advisers are designing a package of insurance for their clients. As insurers are directed to disentangle these types of subsidies, we expect more pain for advisers and their customers as prices go up, products are redesigned with reduced benefits, or both. APRA recently wrote to all life insurers outlining their requirements for the future state of income protection (APRA letter ‘Thematic Review of Individual Disability Income Insurance – Phase Two’ 2 May) clearly articulating a concern with the current pricing and cross-subsidisation practices across the industry. APRA is now directing insurers to price sustainably or face regulatory consequences.

The second connected (and intertwined) issue is heavy initial discounts, which, while initially appearing very attractive, are gradually removed over time. There are a number of issues with insurers providing heavy upfront discounts. These issues impact both customers and advisers.

Upfront discounts hurt advisers.

Advisers have told us that earnings don’t align with the workload carried out for their client when they provide advice at the start of the relationship. Even though a discounted product enables an easier upfront sale, these products don’t help build long-term relationships with customers as advisers are the ones who have to deliver the bad news when discounts expire.

If insurers use initial discounts to try and lock customers into a ‘set and forget’ mentality (and ultimately to claw back the discount with large step increases), this erodes the trust of advisers in the eyes of the community and their customers.

Upfront discounts hurt customers.

Upfront discounts encourage customers to switch providers every few years to chase further discounts. The impact of this for customers is that they may end up paying more over the life of a policy as they age and are re-costed for coverage and health problems that arise after a policy is issued, which makes it harder for the client to find a new policy with the same pricing and benefits.

Short-term offers or incentives create a poor experience for customers as they go through premium ‘sticker shock’ when the true price becomes evident around years three to four after re-costing for coverage has been undertaken. In the end this penalises loyal customers so the insurer can attract new customers.

One of the benefits of being a new entrant to the industry is that we’ve been able to ensure cover is priced individually and sustainably. We hope that our 8 per cent discount for the lifetime of a policy across lump sum products (life, critical illness and TPD) shows the industry what sustainability looks like while helping advisers in selling life insurance the way it was designed to be sold. We also believe this will enable advisers to have better conversations with their customers and create better lifetime outcomes for their clients – all of which strongly aligns with “client’s best interests”.