Advisers have been challenged to consider developing a future advice model that is based on a package of pre-paid fees for advice.
The gauntlet has been thrown down by highly successful Queensland adviser, Mark Westcott. Speaking to advisers at the 2013 MLC Risk Specialist Network Retreat this week, Mr Westcott shared his view that risk commission levels will reduce significantly, as will the ‘commodity-based’ advice proposition.
Until now, Mr Westcott says many advisers in Australia have failed to properly appreciate the value of the financial advice services they provide. While the industry is transitioning to a fee-based model for investment and superannuation advice, Mr Westcott advocates the principle of providing values-based advice, and charging upfront, pre-paid fees for that advice across the board, including advice that spans life insurance needs.
… clients are ready to pay us money when we provide value to them
Mr Wescott told advisers that “… clients are ready to pay us money when we provide value to them.” While this is a simple message it assumes that the adviser has arrived at a point at which he or she appreciates the value of the advice and ‘wisdom’ they are able to share with their clients. He told his 100-plus audience he has achieved significant value from operating a business model that names and packages the various value-added services he delivers, using phrases that exclude industry jargon. (Trademarked) examples include: ‘The Peace of Mind Plan’, ‘The Saving Grace’, ‘The Discovery Diagnostic’ and ‘The Four Envelopes’.
The various service packages, some of which may include insurance and/or investment product solutions, are facilitated by the adviser on behalf of the client, with the client paying the adviser a fee for the facilitation of these services and the advice and wisdom that accompanies them.
According to Mr Westcott, the key for any adviser seeking to successfully operate a fee-based advice business is to ensure they have determined the value of their services and developed a sequential process that delivers the various service packages. He also advocates the value in offering clients a selection of packages from which to choose – small, medium or large, noting that the majority of clients opt for the medium-size package.
His other key message to advisers is to keep evolving, in order to ensure their own advice proposition remains unique. In future, according to Mr Westcott, it will not be a case of whether advisers will transition to a fee-based model, but simply when and how they will do it.
Interesting comments from Mark. It’s something to think about, particularly for those with a largish client base.
My feeling is that for newer advisers using such an approach will make their starting off very difficult, if not impossible, unless they work off an adviser with an extensive cleint base. Why? Because it takes time to build relationships with clients/prospective ones, and few new advisers have that luxury when they first of all have to make a living. Time will tell…
Interesting article. my only question is; is Mark laying the foundations on which the product providers will use to introduce a fee for service only basis for risk advice thus cutting the commissions altogether?
I have known Mark for a long time, I agree with the things he says although recognise that his experience gives his gravitas significant weight.
It may be possible for experienced advisers to move from the commission model due to experience coupled with a fairly steady stream of new clients who seek advice from the adviser due to a strong reputation.
I think new or less self confident (not to be confused with less competent) advisers would struggle in such a universe and there are not enough of the ‘Mark Wescott’s’ around to make it a viable advice model for all – but it is certainly something to consider aiming for.
What a great opportunity for advisers to prove their worth!
But, will clients really pay for it? Let’s face it, in the ‘old days’ the comments were always that “insurance isn’t bought, it is sold.” And that clients need to be guided into what they really need. So therefore they wouldn’t buy insurance in the local supermarket! Really?
It is without doubt that consumers are already way underinsured, and removing commissions is just making it even harder for anyone to want to be involved in sitting with prospects and taking the time to give full and proper advice without being properly compensated for that time and effort.
So then the question becomes, how to add value so that people can more easily see the need for how much insurance is needed and how to justfy it.
It is not impossible, and in fact, is really quite easy. Have them go through their commitments and debts, and provide the information themselves.
And that is exactly what my program does. But at the risk of self promotion, I won’t expand further, except to say, the need for this program was necessary but unavailable while I was a financial planner. When I started, we used a fact finder that was simple and easy to follow.
Technology and legislation made giving simple advice too complicated and overwhelming, and therefore lost the consumer in a sea of useless paperwork they don’t understand or need.
Go back to basics, provide simple advice and show your value by then adding furhter value which cannot be accessed anywhere else.
It isn’t rocket science!
I appreciate the concept and wish it could work.
Australians are generally averse to fees, which is the result of years of conditioning, most notably by the banks in the early 1990’s. Moving forward to the 2000’s, we are now encouraged to ‘haggle’ on everything from small whitegoods to car purchases. The focus at the time of purchase is on ‘getting a deal’ but the mindset quickly swings to that of a consumer who ‘wanted advice’ when something goes wrong.
If we strip risk commissions, lets forge ahead and strip the margin from EVERYTHING we buy and pay fees on what we perceive the value to be at the time of purchase. Cars, restaurant meals, clothing…you name it.
Stripping margins from all goods and services and reverting to a fee based society won’t work and I wouldn’t want to see it implemented. The effect on employment, rents and society overall would make it unsustainable. So why remove risk commission unless we are prepared to completely overhaul the way in which we buy products and services in this country?
Interesting proposition from Mark.
I agree with the first comment from Paul, having been a start up not long ago it is very difficult to get traction unless you have positioned yourself with and established adviser or you are willing to take the plunge and take on board significant debt and buy a client base.
All due respect to Mark, and I am also being a bit of a cyinic on this point, but is this not the basis on which Mark’s business is built and might he not be positioning himself to grow his business on the basis of his beliefs by presenting at such events as the Risk Retreat…not that I am saying the Mark’s point of view is wrong, he has obviously built a very successful business of the back of his belief and it is always good to get fresh ideas, but I think that to date we as an industry need to draw the line somewhere. The government has been, some good and some bad, dictating to our industry how we are to be remunerated, probably one of the very few industries for this to happen to. I am a firm believer in presenting the facts to a client and allowing the client to make the choice, as an extension to this to only offer a client one way to pay for our services/value add is restricting their choice and may also restrict the number of Australian’s who can afford to seek such advice.
Additionally if this proposal were to eventually be implemented across the industry, it would be interesting to see if the insurance providers would come to the table on this and strip out 100% of the impact of an adviser taking a commission on an insurance policy…i think not!
Sean & Grant you are spot on,
I also agree it should be up to the consumer as to how they pay. I believe stripping commissions out of insurance will well and truly devalue the industry as a whole.
The result of this will be leaving only the industry funds and banks left to play the game. Unfortunately this is the agenda of the big end of town and this generally means ‘vanilla advice’, and ‘cookie cutter plans’ for those who need it most. It would take us right back to the days of product flogging, which was the problem the industry started with.
If the consumer wants to pay for decent advice you must give them the freedom of choice in the way they pay for it. If all your planners end up salaried advisers for the corporates you will lose diversity and as we all know with the ‘supermarket duopoly’ experience this leads to every consumer paying more when the market has been cornered.
If advisers want to keep this business a ‘proffesion’ we really need to avoid having just a few dominant players. A simple example is that the biggest industry fund in the country currently has more than 75% of their clients stuck in a ‘default option’ within their super. That screams to me that these people are simply not been given any advice by Industry funds yet they are paying for it. What do they actually pay for with industry funds??????????
Avoid this mistake at all costs
I fully agree Consumers want value for their money but at the same time want to pay less for it ! It is an unfortunate state of affairs we have brought on our selves by constant media deals being thrown at us every day from motor cars to milk.
The money for life insurance Income Protection TPD and Trauma is paid to provide a benefit and assist the spouse and or family in event of a claim! it has no future value like Super or Shares, why should it not be divided on equal value by the insurance company who bare the risk and the advisor who sends the business their way. With all the direct selling on media channels today it simply wont work for the majority. Will the insurance companies reduce their rates ? I think not !
Well said Grant…….Unfortunately, the majority of our clients do not want to pay for risk insurance premiums, let alone pay for the advice of a “professional” to source cover and review it regularly.
No surprise really….clients are being conditioned to believe they can (1) get “you beaut” insurance in minutes on the phone, with no paperwork, medicals or needles, no catches and no fees….or (2) their Super can fund it………seems they don’t value what we do or need us to implement cover.
With all this happening, we are under constant pressure to only deal with the “elite” client , be more professional and charge higher hourly rates…how is a “fee only” based practice possible?
Fees alone will not work in our industry.
Perhaps we should adopt the approach of general insurance advisers….they still receive commissions, plus many add on a broker fee. There is also serious money to be made on “premium funding” where a high renewal commission is paid on the 8% fee charged on yearly premiums to pay monthly…I wonder if the life companies are prepared to give up a share of this.
We all appreciate the concept of a fee based practice and wish it could work, but if we are pushed into this scenario, the consequences for our society will be dire.
I proudly take commission. I consider that insurance companies outsource to a consultant such myself and then pay me for providing them with premium paying clients. Hey, the insurance company executives and their shareholders continue to passively take profit from my work; why shouldn’t I? I have heard Mark Wescott speak many times over the years and he is impressive, but not all of us are blessed with his skills (unless of course we pay for his program). Even with Mark’s program there is no guarantee that we can replicate his successful formula.
Well written Mark you have been a risk adviser for 25 or so years and are good at what you do.
If they take away commissions I cant afford to give advise.
So I guess unless we stand up now and say no we will have no industry to live on as we know it.
Without commissions the industry and the public will suffer a great blow, underinsurance will just be a start.
My priority is to service my clients and that includes staying in Business “Dr Frank Hiob”
Fees may be an appropriate way to charge clients:
1.When risk advice is bundled together with investment advice and strategy
2.For High Net Worth clients who what an adviser to look after them for their risk issues
Where fees are less effective, is where clients are not “High Net Worth”, and are largely unaware of the risk issues they face, and where risk is covered as stand -alone advice.
With only 4% of Australians adequately insured, fees are not going to increase the number of Australians seeking advice.
The fee for service model appears to work for Mark’s business.
It would not, however, work for my business. However, whilst it is different to my remuneration model, without knowing more about his business, I wouldn’t presume to comment.
Specialisation is an important hallmark of a professional industry and, along with higher levels of minimum education and experience and effective self-regulation, is one of the features that will lead to our industry becoming more professional.
However, as with other professions, the generalists still have an important role to play.
To that effect, just as with the other professions, it is important that the industry had sufficient flexibility for practitioners to implement a remuneration method that works for our business. I would no more suggest that a business like Mark’s should charge in the same was as I do than I would suggest that a GP should charge in the same was an obstetrician.
As a risk specialist, a one off fee would not work for my business.
Whilst it might compensate me for my time and my expertise, it is a poor mechanism for compensating me for the risk that I take on board as a specialist adviser who takes responsibility for the advice I provide. Commissions, whilst by no means perfect, is the best remuneration model for my business.
So, whilst I respect Mark’s comments and understand that a fee-for-service model works for his business, it won’t work for me. Nor do I believe it would work for other risk specialist businesses.
Hi Sean.
I’m not sure how you may know or not know how my business is built and this is probably not the forum for such discussion. I wouldn’t make public comments about your personal or business situation in this forum and I am surprised you are assuming to know my position and as such make uninformed public comment. I’d be happy to set the record straight off line with you.
The facts are that I have sold my risk practice over eighteen months ago and I now live and die financially by the process which I spoke about at the MLC conference. I do not hold an AFSL and all my income is now derived by clients paying me for the value I create in their lives. I have been using my ‘values based’ process with clients for over 12 years and a significant portion of my income for many years has been based on providing value for clients which has nothing to do with commodity (product) or commission!
Normally I don’t respond to comments here, but I will to defend my reputation.
Best wishes,
Mark Westcott B.Ec.
Fair comments Mark. Clearly your model works for you and your clients and you are right to defend it.
However, in suggesting that your remuneration model adds value because you don’t take commissions, you are suggesting something very unsavoury about those of us that do: that is, that we don’t add value. You should not therefore be surprised when those people you implicitly criticise take offense.
Like you, I also make my living from the value I create in the lives of my clients.
I have been using a values based process from the first day I became an adviser and 100% of my remuneration has been based on providing value for clients. I have not based the value of my advice on my method of remuneration but, amongst other things, by being a highly qualified, highly experienced adviser and an accredited specialist in the area in which I provide advice.
Furthermore, my advisory approach has always been based on the principal that the client’s interests must come first and governed by a rigid and formal ethical framework. In fact, so rigid and formal is my ethical framework that I don’t need to rely on artificial guidelines, such as remuneration method, to moderate my personal or professional ethics.
You are suggesting that the only way that an adviser can provide value for their client is if they are fee for service, the implication being that if an adviser is remunerated by way of commission does not add value.
I can’t see any way not to take offense at that implication and, like you, will defend my reputation.
I won’t, however, defend it by criticising someone who takes a different view to me.
In my experience the only people who care about how we are paid are us as an industry and a terrible government.
I’ve implemented both models and can I say whether it is a fee or commission, the client doesn’t care…let’s move on people.
Well said BK.
Professionalism does not rely on removing conflicts of interests. The common elements shared by the established professions are high minimum levels of competence (including education and experience), putting client’s interests first and self-regulation. Mandated methods of remuneration are not a feature of any established profession.
Furthermore, practitioner members of the established professions (including doctors, dentists, lawyers and accountants) live with and manage a conflict between their interests and their client’s interests multiple times every day. None of them try to manage this conflict via their method of remuneration. Rather they do so by having established ethical principals and meaningful self-regulation.
Whilst I am interested in hearing how other advisers manage their businesses, the remuneration debate has become puerile, facile and unsophisticated. Worse still, it has diverted out attention from undertaking the meaningful reform that would make our industry truly professional: competence, self-regulated and client-focussed.
Rather than look at what the other professions do and learn from those lessons, our discussions on what it means to be a profession have been dominated by remuneration, something that is not a feature of any established profession.
If the decision on commission or fee is determined by the client and clients will not pay a fee that covers all the work involved in life risk advise, then commission is the only way to enable risk advisers to work in this field.
Investment advise iis completely different to life risk advise and whereas clients will pay for advise on Investments, loans, budgeting etc, there is not enough interest and the majority of clients do not have enough money to pay for all the other services, then be expected to pay hundreds or thousands for something they find hard to be interested in, or a priority to do now, especially when they can pick up a phone and get Insurance in 90 seconds with no medicals or nasty forms to fill in, with no fee’s, though god help them when they go to claim.
All extremely interesting comments to read through! Jeremy Wright hits the nail on the head as do a number of others (Hi Jeremy!). As usual there are two viewpoints which will not be reconciled overnight.
To add my little bit . . . I’ve been a ‘risk and simple super’ adviser for 28 years and for the last aprox 10 years I have been polling clients (both new and existing) on how they would prefer to pay for my advice and help (at claim time too!). I have also kept detailed records of client answers. Long story short, the overwhelming response (97.3%) has been for a preference through commissions within the product. I give the client a very balanced and impartial explanation of coms Vs fees to the client. Based on my research over the 10 years or so I have no doubt whatsoever that if commissions were removed or significantly reduced for risk advisers then 2 things would occur:
1. there would be a significant reduction in the number of new clients obtaining IP, trauma and to a lesser extent death+TPD. In other words the under-insurance problem would worsen to a major degree
2. There would be a lot of risk client bases for sale! I for one and many other (if not MOST other) risk advisers would leave the industry. People (in general) will simply not pay for something they can get for nothing at the life company counter.
To say to a client that, in addition to the $2K p.a premium for his IP he will pay another $1K for my fee will simply not fly. Do the maths and you’ll see. Now, I’m protected somewhat by my (grandfathered??) client base of renewals but what will become of the advisers who don’t have such an advantage? The newer advisers will never get a chance to develop as top-flight risk advisers. The client will be the client losing out due to good advisers leaving the industry.
These bleeding heart politicians angling for the next election have a lot to answer for. As for Mark and his original comments, well, let’s just say, in summary, I respectfully disagree and he should be careful with such comments and ideas – a politician may be listening – and I’m not joking! Cheers all, -Brian.
Well said Brian. Did Mark build his business on commissions and now sees another way forward for him to profit?
Good comments Brian
To those consequences of removing commissions I would also suggest that there would be far fewer non-aligned advisers in the market leading to:
(i) Reduced pressure on insurers leading to less pressure to innovate.
(ii) Reduced competitive pressure on premium costs.
(iii) Reduced client advocacy at claim time by an independent adviser not employed by the insurer.
I also believe that expecting an adviser to take responsibility for their advice but not be compensated for the risk involved is not a sustainable business model.
All advice (whether it is tax, medical, financial or whatever) involves risk. That is why professional indemnity insurance exists. That is why obstetricians charge more than pathologists. They are both medical specialists but there is simply more risk in being an obstetrician.
I can’t imagine being responsible for a significant risk insurance client base build up over many years and not being paid for that responsibility.
An adviser could expect to be responsible for in excess of $10m of premiums amounting to billions of dollars of potential liabilities in just a twenty year career.
And not be paid for the risk involved in such a significant responsibility is not for me.
I’d add one other point to my comment just above . . .
Of course, I have always explained my (quite good) value proposition to my clients along with the discussion on potentially charging fees. Fees still don’t get off the ground as far as the client is concerned. My reading between the lines in the conversation says to me that until a client has been through a claim they really don’t appreciate the value of paying for someone to ‘be there for them’ to help manage a claim. The bottom line is they don’t want to pay for it ahead of time as they’ve never **experienced** the need for such a fee. 100% of clients I have helped through a claim have stated they would pay a fee if it was required going forward – how about that! Sadly, I don’t see a way we can get such a concession from a client who has never been through a claim . . . claims can be a life changing experience for a lot of clients, depending on severity of course.
We can dance around our ‘value propositions’ all we like but in truth they mean more to us and somewhat less to the client. Until they claim of course. Even the DVD presentations of claims experiences with a client only go so far and only work with some clients. Anyone suggesting risk commissions should go needs to do some in depth quizzing of mums and dad clients. They would find the right answers then.
I have known Mark for 25 years, and I know his process and have used his program. If you actually see what his process is you would not criticize him. He has a valid argument for charging a client for work that he does that has nothing to do with insurance. I have seen financial planners charge $20,000 for a financial plan, for what? If you value your advice and want to get paid for it, try it, some people actually see value and pay the fee willingly, I know I have clients who have. The absurd comment that it would make it easy for insurance companies to cut commissions is laughable. Oh, and by the way Sean, have the fits to put your surname to a post if you want to have a go at someone
Damian Eales
I live in Mackay
Damian
I, like you, prefer when people get into a debate. However, anonymity doesn’t necessarily invalidate their comment.
I, like you, prefer that the facts are debated and not the person.
However, Mark has opened himself up to criticism by implicitly attacking those of us who charge differently to him.
I, like you, am familiar with the system that Mark uses and believe in its merits.
I, like Mark (and I am sure you), have a valid reason for charging clients what I charge them.
Mark has no more knowledge of my business than I do of his. He has no more basis for suggesting that I don’t add value to my client relationships than he does suggesting it of me. And yet he does. Of course people are going to react.
Jamie,
Mark did not suggest for one second Risk Advisers should give up commission, he has offered up an alternative way of remuneration, one which many of us , including myself have taken up. Mate, try asking your clients for a fee, you might be surprised, they may actually pay you for work not related to Risk. I think we have all beaten this topic to death and should agree to disagree on both sides. Like to meet you all at the next AFA conference
Hi Damian
“According to Mr Westcott, the key for any adviser seeking to successfully operate a fee-based advice business is to ensure they have determined the value of their services and developed a sequential process that delivers the various service packages.”
Mark seems to suggest that the an adviser can only add value if they are using his model of remuneration. Ipso facto, other methods of remuneration, including commissions, can’t relate to client value-add.
If he didn’t mean that, he should come out and say so. If he does believe that there are other legitimate methods of remuneration, including commissions, he should say so.
As to your suggestion that I try charging a fee, you presume to know a lot about me and my business.
After a fifteen year career in compliance, strategy and senior management I became an adviser.
I have charged fee-for-service, where it was appropriate, from the day I became an adviser – well before FOFA – and continue to do so, where appropriate. I never beat my chest about it, used it to take a faux moral high ground or used it to disparage my competitors or colleagues. True professionals don’t conduct themselves like that.
As my knowledge and experience developed, I have become increasingly specialised – this is something else professionals do. I therefore have no interest in advising in areas not related to risk just to earn a buck: that, in my opinion would be grossly unprofessional. Instead, taking my lead from the established professions, I refer that work to a qualified, competent specialist.
It is my view that fee for service is a very poor way to charge for risk insurance advice. Whilst it may adequately reflect the time spent (assuming every adviser spends precisely the same amount of time as any other adviser on a given piece of advice) and their expertise (assuming advisers are fair and balanced judges of their own expertise). It doesn’t adequately compensate the adviser for the risk involved in taking responsibility for their advice, particularly if a policy is in-force for more than one year (they often are).
Like you, I think “we have all beaten this topic to death and should agree to disagree on both sides”. I therefore invite those people who continue to raise it to shut up, lest those of us who simply respond suspect them of less than altruistic motives.
Comments are closed.