Barry Daniels

Although it’s impossible to undo the failures of history, there is hope for the future of financial services with a modern-day adaption of the mutual life insurance model to restore much-needed certainty, trust and confidence to the insurance sector.

For nearly 150 years the financial services industry in Australia prospered immensely from the life insurance mutual companies until the 1990s when the industry lost its sense of purpose and abandoned long-held conservative principles.  Under the direction of a new breed of managers, the industry went on a frenzy devouring itself with one household brand after another lost in a steady stream of amalgamation and buy-outs that saw one group after another disappear.

To compound the dilemma, the situation has worsened since 2001 with the introduction of FSR and ongoing government intervention seeking to improve the performance of the financial sector.

As a consequence of the federal government’s efforts to bring about change and restore confidence, the number of financial advisers has plummeted whilst simultaneously increasing the cost of providing professional advice for consumers.

In hindsight the post mutual era has been a disaster and with major banks announcing they are jettisoning their wealth / insurance arms and many like the AMP restructuring and downsizing their adviser networks.

Industry and consumers are justified in asking what exactly has been the benefit of industry vertical amalgamation and government intervention?

In my recently released white paper ‘Australian Financial Services – an industry that has lost its focus & sense purpose’ I affirm that the re-emergence of the mutual insurance model in Australia is the answer to the industry’s future viability.

For mutual companies to succeed they need to be aligned with the best interests of their policyholder members.  What’s more, mutual companies are owned by their policyholders, not shareholders – and that’s a very important and crucial distinction.

Mutual companies share their profits with policyholder members, look after their interests and needs first and develop products and services accordingly.  This differs from the current bank owned model that sells and markets products to generate profits / dividends for their shareholders without necessarily benefiting policyholders.

Furthermore, the profits of mutual insurance companies are distributed to policyholders in the form of lower premiums or bonuses on policies.

Two further differentiators to shareholder ownership are 1) mutuals are driven by decisions that deliver long-term benefits to their members as opposed to short-term gains to equity holders; and 2) policyholders can be elected to the board as opposed to shareholder owned institutions.

The Hayne Royal Commission and adverse media coverage have highlighted the depth of reputational damage and how much work is needed to restore the public’s trust and confidence in the life insurance sector and industry more broadly.  At the core of the industry’s failings has been the principle that shareholders’ interests are prioritised ahead of those of consumers.

Then there were the revelations surrounding conflicted advice, denial or avoidance of claims that highlighted the misalignment of internal interests that in turn drove the behaviours that adversely impacted on policyholders.

The growing strength of the mutual model in global marketplaces has affirmed my belief of its re-emergence and inevitability in a modern-day format in Australia.

In the International Cooperative and Mutual Insurance Federation (ICMIF) Global Mutual Market Share 10 report released in February, the mutual and cooperative insurance market has been the fastest growing part of the global insurance industry in the ten-year period since the GFC.

• Premium income of the global mutual/cooperative insurance sector grew by a total of 30% over ten years
• The global market share of mutual/cooperative insurers rose to 26.7% in 2017
• 922 million members/policyholders were served by mutual/cooperative insurers in 2017
• 1.16 million people employed by the sector in 2017 – a 24% growth since 2007

In the foreword of the report, ICMIF Chair Hilde Vernaillen said, “At this financially volatile time, as consumer trust, consumer spending and interest rates plummeted, the cooperative/mutual insurance sector began to emerge, even flourish, outperforming the insurance industry average and capturing more market share”.

ICMIF qualitative research suggests that this positive performance is linked to consumers’ preference for providers that demonstrate characteristics most commonly associated with mutuals i.e. trustworthiness, security and service excellence.

By Barry J Daniels, Founder

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Barry Daniels

Whilst the enormity of mental health consequences has rarely received a second thought by legislators as they vehemently imposed non-stop change on the advice sector since 2001 with the FSR Act, even less regard has been given to the impact on the partners and children of financial planners.

There are very few industries, if any, that can compare to the advice sector for the intensity of industry scrutiny, reform, change and compliance demands.

More recently, FoFA, escalating education requirements and plummeting values of businesses after a lifetime of endeavour have quite literally been the final straw that’s shattered the lives of professional, dedicated practitioners – both mentally and financially.

Like so many SMEs, most planners began their self-employed journey as a ‘start up’ and after years of perseverance established successful commercial enterprises. They built an asset that would ultimately fund retirement by sale or BoLR arrangement as a benefit of long-term loyalty.

In order to achieve this, the spouse was critical as sole parent, partner, ‘family rock’ and peacemaker as the planner husband or wife spent so many long hours servicing the complex financial advice needs of clients.

In addition, the partners were often called on to act as the business receptionist, accountant, bookkeeper and general administrative support. This is often an immense role that is regrettably going unrecognised by legislators in their zeal to achieve industry reform.

With the pressure on these life partners so immense and unrelenting, it’s not uncommon for them to have developed serious feelings of guilt and inadequacy about their home environments, parenting skills and role as a spouse. In many instances, these emotions have compounded over many years, resulting in strained relationships where tensions can often flare to dangerous levels.

There’s no doubt a survey would reveal that, included amongst the downsides of an extended career for many planners, the life partner they started the business with is not the one with whom they retire.

The constant spiralling and intensity of demands of a planning business on families of their owners, especially since 2001, have quite literally been staggering – so much so that many planners are required to start the working day before 8:00am, culminating in 12-to-14-hour days, including evening appointments.

Planners’ life partners often have no option but to step in and be the lonely peacemakers keeping the family functioning. For children, the advice practice is the unwelcome demon sibling to whom dad or mum devotes the majority of their time, passion and energy – at their expense!

As planners recovered from the GFC and the collapse of numerous MIS schemes, and while mature age practitioners’ thoughts turned to retirement and the prospect of a well-deserved rest, gracious future and time with family, including making peace with disenfranchised children, along came the perfect storm.

In 2019, FASEA, education requirements and crashing practice values – destroyed through the legislated removal of income from their businesses – mean the planned exit and succession aspirations for many advisers have evaporated, devastating the lives of many planners who can no longer cope.

This cumulative impact on planners cannot be overstated. Far too many are unable to cope and are struggling emotionally with mental illness and distress. Real examples of this inability to cope include:

• Confirmation by practice broking businesses that long-time advisers regularly break down over the phone with them when discussing the sale of their business
• Licensee firms in which up to one third of their advice business practitioners have admitted they are suffering mental anguish, and where some have been hospitalised due to stress

These same advisers, however, often continue to present a stoic persona to their peers and even to their family, while they suffer inner turmoil and pain – in isolation and without help.

Into this battlefield, which is now stressing advisers and their families to breaking point, the adviser’s husband or wife find themselves having to step-in to support their spouse and save the family.

Fearing for the well-being of the planner developing mental health issues that could potentially escalate into depression and the complete destruction of the family ‘…if somebody doesn’t do something’, the planner’s partner feels compelled to rescue both!

It is heartening to see dealer groups, professional associations and media groups reaching out to help planners cope with mental illness. But where is the ally and support structure for planners’ partners to help them save their spouse and their family?

This is one of the dark sides of industry reform when detached legislators, bureaucrats and self-interest/lobby groups (on regular pay packets) seek to impose industry change without any sense or appreciation of the impact their actions may have on the lives of self- employed people and their families.

By Barry J Daniels  

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