The Global Financial Crisis has led to a renewed respect from many planning firms for the value of life insurance portfolios within their practice, according to a leading industry contributor.
Kenyon Prendeville founder, Steve Prendeville, told riskinfo he has seen what he believes to be a new ‘humility’ developing within many financial planning firms who are seeking to re-shape their practices, post GFC, in a way that will deliver more stable revenue streams in future.
Mr Prendeville said many more planners were now viewing life insurance advice and its associated revenue streams as one key component in the drive to develop these more consistent income streams.
… planning firms need to either grow or go
But Mr Prendeville warned it wasn’t enough for planning firms just to develop more consistent revenue. In a pointed reference to his observation that so many firms were surviving off revenues generated by existing clients, he said that “… planning firms need to either grow or go.”
The combined impact of the need to develop more consistent revenue streams and the need to develop new client bases in order to cross market financial services has seen the demand for life insurance practices outstripping the available supply.
According to Mr Prendeville, the value of risk practices is presently at a premium because of what he refers to as the scarcity factor created by this current market demand and under-supply.
Put simply, Mr Prendeville said, “There is a huge and unsatisfied list of planning firms looking to buy a risk practice.”
On the other side of the equation, Mr Prendeville predicted the coming few years may see more practice principals deciding to exit the market, citing factors such as:
- A proportion of principals will not have the energy to transition their practice from commission to fee for service revenue
- The present average age of a practice owner is 58+ and a proportion will decide to exit now, rather than re-build and/or initiate further growth
- Rising Professional Indemnity costs brought about by increased client litigation flowing from the fallout from the GSC
- Heightened personal stress levels
