When Nick Kirwan, former insurance specialist at the Association of British Insurers and adviser to the International Longevity Centre, left the UK for a new life in Australia, the world was a very different place to how we would view it now.
In one way, he feels the move was “great timing”. He explains: “The UK then was in a very different place. We hadn’t had the vote on Brexit back then and the polls were then looking like an easy win for the Remainers.
“Yes, the move was great timing, but most of all it has given me the chance to live and work in a vibrant city (Sydney) with sunshine and beaches, and all the while learning about an entirely new market where things work very differently.”
Now senior policy manager – life insurance for Australia’s Financial Services Council, Mr Kirwan says he has seen how regulation has shaped the UK and used this experience and knowledge to help build the FSC’s policy work.
But while both countries have had their fair share of wrangling over the future of the advice industry, Mr Kirwan says the UK has, mostly, got it right.
“I think overall the UK is the clear winner on the issue of advice, but perhaps still not perfect. The outcomes of the UK’s comparable Retail Distribution Review and Australia’s Future of Financial Advice came up with very similar outcomes,” he says.
But while commissions are conflicted and banned for most products, he notes Australia went one step further and brought protection business into the scope of the regulation.
He explains: “Australia went further and has capped upfront commissions at 60 per cent, and trail at 20 per cent.
“Much higher upfront protection commission in the UK, and lower trail, incentivises a more transactional approach, whereas the Australian model incentivises service and retention. So there are no ‘non-advisers’ in Australia.”
Different places
As a result, he says the two countries have landed in “very different places on certain types of advice”.
In Australia, for example, transferring a person’s pension could not be easier. Mr Kirwan says: “It’s encouraged, it takes only five minutes online, and no advice is needed, whereas the UK model is the product of its sorry history.”
But giving ‘personal advice’ is “significantly more onerous in Australia and much more tightly regulated”. Meeting the regulatory requirements means a typical statement of advice will run to at least 50 pages.
Add to that, upfront protection commissions are now under threat, and could be banned altogether depending on the outcome of a review in 2022.
Mr Kirwan says he believes this will lead to a raft of advisers “shutting up shop” in droves. Clients will not pay upfront for protection products, which makes it more difficult to advise, while advisers in Australia will soon all require a degree.
This, together with regulatory new requirements, has already seen approximately 5,000 (around 15 per cent) of advisers leave the market, and only 54 new adviser registrations, according to the latest figures.
“That can’t be good and makes the UK the clear winner,” he adds.
According to Mr Kirwan, the biggest challenge is over-regulation. “This means the dwindling numbers of advisers need to focus on increasingly higher-net-worth customers leaving an under-served middle class.
“Fixing it will need policymakers to act, but policymakers are only just beginning to see that the pendulum has swung too far. Right now, as you’d expect, the focus is on other things – like protecting the economy from the ravages of Covid-19.”
Protection gap
But while Australia has a protection gap, it is different to the UK. He says: “Australia has compulsory superannuation with employers required to pay in 9.5 per cent of salary.
“Life cover and total and permanent disability cover, and sometimes income protection, are required to be provided on an opt-out basis with group premiums deducted from each person’s fund.
“This default cover is designed by the scheme trustee and means most working Australians have some protection through their superannuation.”
Is this a perfect solution? Not really, he says. “Having that basic cover leads to more apathy and a lack of engagement, but the default amounts aren’t enough.”
In 2019, Australia introduced legislation to reduce multiple superannuation accounts and prevent people under 25 from getting default insurance in superannuation.
This resulted in a reduction of around 40 per cent of group insurance premiums with a corresponding reduction in cover and a jump in the protection gap.
So has 2020 and Covid-19 changed Australians’ attitude to financial planning and insurance? Mr Kirwan thinks so. “In March there was a spike in people wanting new life insurance and others enquiring about their existing cover. It has also increased engagement.
“Many people have been looking for help due to financial hardship and all life insurers have put in place options for people to keep their individual cover going.”
And the government has also allowed people in hardship to take out two tranches of A$10,000 (£5,500) each from their superannuation. Applications for the second tranche have been running at around 100,000 a week.
Mr Kirwan says: “This has hugely increased people’s engagement with their superannuation fund, especially younger people for whom it has suddenly become real money, not some untouchable pot that is locked away for decades.”
And what of the future? Mr Kirwan is not ruling out a return to the UK, despite the lack of sunshine.
“If nothing else,” Mr Kirwan says, the move to Australia has taught him “there’s more than one way of doing things”. A good mantra for so many aspects of life.
Simoney Kyriakou is editor of Financial Adviser
