What Aviva brings to NAB

Independent financial advisors who helped make Aviva such an attractive asset for National Australia Bank will be feeling nervous today as they contemplate working for MLC's Steve Tucker.

Tucker is one of the industry crusaders for the removal of commission-based financial advice.

He has admitted that his stance on commissions has lost MLC market share in the fast growing life insurance business. The latest figures back that up.

NAB accounted for 28 per cent of total life insurance sales in calendar 2007 and only 24 per cent in 2008, according to research group Plan for Life. It lost market share to a host of smaller players and to the industry giant CBA's Comminsure.

Its market share of in-force annual premiums fell in 2008. But its purchase of Aviva for $925 million will lift it to number one in the industry with in-force annual premiums of $1.39 billion, just ahead of Comminsure with $1.26 billion.

Comminsure has not only lost its position as number one in life insurance, but is searching for a new chief executive following the sudden departure of the incredibly successful Simon Swanson.

Tucker's hard line on commissions will continue to hurt the MLC business, but it is the right approach in the long term.

The difficulty he faces is that by being an industry crusader he has pushed MLC too far ahead of the IFAs and, to some extent, ahead of consumer preferences, particularly in life insurance.

A seasoned observer says that when it comes to the crunch, someone buying a life insurance policy, given a choice between an upfront payment and a commission out of proceeds, will opt for the commission. Some opt for a combination of both but payment up front is not the preferred option.

That is why Tucker's campaign against commissions is, at this stage, limited to superannuation investment products.

Tucker says that life insurance is different because although the trail is built into the product, as it is with retail super, the client must pay a premium each year. If the client does not like the trail being taken paid to the adviser he or she can cancel the policy.

With super the trail commission is locked in for up to 40 years unless they switch super funds. Also, the money flow is forced by law.

Tucker's two tiered approach to banning commissions is pragmatic but it if he wants to win credibility in political circles he will be under pressure to bring life insurance commissions into line with super. In any event his stance may be overtaken by events with the federal government intent on cracking down on commissions.

The Aviva acquisition will give NAB ownership of Norwich Union Life, the Navigator investment administration platform and equity stakes in four independent financial advisory firms.

MLC has also lost market share because it has been slow to introduce more efficient back office technologies such as straight-through processing.

The Aviva purchase will provide the necessary capabilities to lift MLC's service levels and speed of processing new business.

In financial planning, Tucker will be able to ensure that the four financial planning businesses owned by Aviva come into line with his pay-for-service approach.

The four companies – Meritum Financial Group, Infocus Wealth Management, Financial Technology Securities and AG Private Advisory – will also come under pressure to give preference to the NAB suite of financial products.