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Three-Step Process to Charging Fees for Risk Advice

Risk specialist adviser and consultant, Chris Unwin, has put forward a strategy that he says can form the basis for a business model under which risk-focussed advisers can charge fees for their advice solutions.

Risk specialist adviser, consultant and author, Chris Unwin - fees for specialist risk advice are possible...

Risk specialist adviser, consultant and author, Chris Unwin – fees for specialist risk advice are possible…

Operating under his view that “…commission-based remuneration for risk advice is on its way out,” and that fee based remuneration is just around the corner, Unwin says he has found that many risk advisers are struggling with the concept of charging a fee for risk advice:

“More often than not, this will be because the value that a risk adviser represents to their client is not as tangible as the value that an investment adviser represents,” said Unwin, who added that the monetary value of ‘peace of mind’ is not as tangible as that of investment returns and the gradual achievement of specified financial goals.

Unwin also believes the public perception is that “…the only monetary or quantifiable value in risk advice is in the event of claim – which ironically is the one situation that the client hopes will not happen!”

Based on his premise that risk-focussed advisers will need to find a way to charge fees for their advice in future, Unwin advocates a three-step process to achieve this outcome:

Step 1: Appreciate the value you are already delivering to your clients in the risk advice process

Step 2: Add more value to your risk advice process – both initial and ongoing

Step 3: Communicate that value more effectively

…the large majority of the problems around the value associated with risk advice are in the adviser’s head

In relation to the first step, Unwin says he believes that the large majority of the problems around the value associated with risk advice are in the adviser’s head; not their client’s: “You are almost certainly already giving value,” says Unwin, “…therefore any changes needed will be in your mindset; not your process.”

Unwin sees no reason why the professional advice delivered by a risk adviser should be viewed any differently than advice provided by other professionals: “…clients are perfectly happy to pay a fair price for quality service and advice,” says Unwin, who challenges risk advisers to reflect on the professional services they themselves receive: “Ask yourself: who are you a client of? Whose fees are you paying on a regular basis and why are you happy to pay those fees?”

He continues: “Also ask yourself: why do you go back to a favourite restaurant again and again? Is it just the food? No, of course not – it’s also the service, the ambience, the pricing – it’s the whole experience.”

Unwin says he believes there are numerous ways in which advisers can take the second step of adding more value to their risk advice process, and that the answers to adding more value to the process will vary depending on the adviser and the nature of their business.

In terms of the third step of communicating your value, Unwin says it is crucial to understand that value is not specified like a ‘tick in the box’ scenario – it is perceived. Unwin: “…that is to say it is an awareness on the part of the client that comes with enjoying a quality experience rather than just experiencing a transaction.”

Chris Unwin is running a series of Risk Workshops in all five major capitals in July/August, during which he will focus to a large extent on Step 2 of his three-stage process for charging a fee for risk advice, ie how to add more value.

  • Warren B

    I would like to focus on your comment – “clients are perfectly happy to pay a fair price for quality service and advice” – I asked you the following question some time ago Chris in Risk Info and with all due respect I did not get an answer at the time.

    The question is an example. Let’s assume that the first year annual premium is $3,000. Under the current regime, the client pays the $3,000 and if the adviser chooses upfront commission, then the adviser will be paid roughly that amount (leaving aside stamp duty, policy fees, etc).

    If the adviser chooses to take no commission and charges a fee, then as we all know, the premium will reduce by 30% only, i.e. it will reduce to $2,100. The adviser still needs to be remunerated and in the example you used some time ago, you stated that if it takes you 10 hours from fact find to the issuing of a policy and you charge $300 per hour, then the fee to the client is $3,000.
    So can you please explain in simple terms how a client will be “happy” to pay $5,100 over the current situation where they are only paying $3,000?
    Also, how do trail commissions (or fees) fit into this?

    • BKY

      Warren you waiting for a logical response from Chris is like the Chinese proverb of standing on side of mountain with mouth open waiting for roast duck to fly in.

      Not sure where it went but I tried to reply to your post about an hour ago…maybe the powers to be don’t like it…It referenced the differences between General (GI) & Life Insurance…Trowbridge’s slant towards GI is not realistic because GI brokers have total control over whether a client keeps their cover each year…won’t go into the detail but let’s just say there is a window that opens and then shuts and clients can be left uninsured unless they pay the Broker’s fee…which incidentally is combined with product premiums and commissions. For a Riskie (AKA Financial Adviser) to be able to charge a fee and have the confidence that the fee will be paid by the client, then the Federal Government needs to change the Life Insurance Contracts Act in some way that enables Life companies to make a life insured uninsured unless they pay an adviser’s fee…but wait isn’t that the same as what “Trail Commissions” do…remember the roast duck.

      • Jason Spits

        BKY – I have been keeping an eye on the comments and have checked through our systems and we don’t have anything from you prior to this comment.

      • Brian Howard

        Quite a good point BKY! I’d never considered that before. What guarantee do we have, like most businesses, that the client will pay the fee? Will we be busy chasing down 90 day accounts too?! The more we consider it the more we can see the wonderful function of the ‘current’ commissions system (with only 1 yr clawbacks!)

  • Alleycat

    @ Warren B,

    You won’t get an answer from him or S.V., that other advocate of charging fees for Risk only advisers.
    And here’s why,….. just like going to your favourite restaurant in his example, if the owner jacked up the price of your meals by 80.0%,… do you think you’d still go there ??
    Not bleeding likely,… and that’s why these people promote a concept that unrealistic.

  • Ken

    I applaud Chris for putting his opion forward whether feasible or not he is the first one to at least offer an option
    However I to find it “flawed” in many ways as well
    Firstly I have never heard a client say they are HAPPY to pay fees they don’t like it but in many cases there is no option
    Take an accountant as an example who lodges your return they get paid whether you get a refund or not who is happy about that ? No one ! So why do they pay it ? They have to !!! lodging a tax return is compulsory and failure to do so can have fines ( or goal terms) incurred if you don’t
    Life insurance ( risk cover) is not so The unfortunate mindset for many is if I don’t have to have it I won’t ! let alone pay another fee on top I have better things to spend my money on they say !
    I’m not just making this up the under insurance mess we have here in Australia holds clarity to my statements
    Taking out insurance is like giving up smoking to many there will always be a thousand reasons not to but it’s not until something serious happens that they think I should stop ( or take out cover) whack a fee on the premium and suddenly it’s not as important anymore
    Until life insurance not just in super but life insurance Trauma etc is made compulsory and/ or tax deductible the chances of charging fees is obherent to most Australians
    They want a deposit for a house not life cover? Right or wrong
    Wake up you politicians and make some moves on your own without the pushing of the banks trying to raise their bottom line at our clients expense

  • Roger Smith

    I wonder if someone would continue going to their favourite restaurant if a “fee” was imposed which equated to potentially doubling the cost of their meal?
    The knowledge and experience that I have accumulated over the past 50 years in this Industry tells me very clearly that you CANNOT change fees for Risk Insurance no matter how good a job you do. It’s a different ball game if your service offering is both Risk and Financial Planning where the fees charged “get caught up in the mix”.
    I’ll say it again Commission for Risk Insurance is nothing other than “a fee for service” paid by the Life Office to the Adviser for the procurement of the business. What’s the problem with that?

  • Jeremy Wright

    To make a comment that commissions are on their way out, shows how out of touch, Chris is.

    As regards to the Chris Unwin, 3 step solution. It is not a solution, they are a compilation of vague words that have no bearing in the real world.

    Why?

    Step 1.
    There is a major difference between appreciating the value in our service, as a
    problem that lies in advisers heads and a change in mindset will alter what clients will pay, though unfortunately does not correlate with what clients say.

    100% of clients have said they will either pay nothing, or if they will pay a fee, it is a tiny fraction of what it costs to provide the advice and administration.

    Step 2 –
    “Add more value” is simplistic and an insult to our intelligence.

    Chris, you appear to be too far removed from the coal face to even understand your own words.

    You told us previously you have no staff and no large Business outgoings to pay and if you did, then you would know, that “adding more value”, equates to higher costs and time and expertise required in different fields, to be able to provide a professional service to clients.

    Step 3 –
    You are right that “perception” is important and amongst nearly all Australians,
    “it is perceived” that our service is provided free as part of the Insurance advice and products being recommended and clients “know” they do not pay for that.

    We can “communicate” our value effectively, that does not change a thing.

    Clients do not and will not pay for compliance, red tape, bureaucratic processes and
    inefficient Life Companies, which when combined, are the cause of most of the time and cost to provide a Best Interest Duty service to clients.

    So Chris, why don’t you climb down from your lofty position and try for12 months
    getting your hands dirty, get staff, lease an office and put your money where your words are and then after One year, come back to tell us your story, though this time from real work experience, not the theory that you are espousing, which clearly is wrong.

    • Brian Howard

      In defence of Chris, Jeremy, he is indeed a specialist risk adviser so he knows very well what being at the coalface is like. This is why to see him suggest commissions are on the way out is odd and his esoteric solutions perplex me. All your other points are entirely valid in my view and also well expressed in the ‘Squeaky_1’ comments above.

  • Squeaky_1

    Chris, I’ve been to your seminars over the decades and marvelled at your innate talent of selling, client comforting/hand-holding, and general skills in the area of people management. I’ve nothing but respect and admiration for you in this regard. It is always great to see you teaching the ‘old religion’ of proper sales and people skills that we leaned back in the 80’s and 90’s with a modern bent that perfectly gels with today’s expectations. I think you are the only one doing it the ‘proper’ way these days.
    .
    I will, however, simply have to take you to task on this fee concept for pure risk business. In all conscience I can’t let this slide by. I reject outright your assertion that ‘most’ clients will pay this fee for pure risk advice. Warren B, in the comments here, sums it up well. I would encourage you to reply to him and the other commentators here. I fully understand where you’re coming from in your article Chris however I think you are missing one or two things. That’s OK, happens to the best of us and you are, indeed, one of the very best.
    .
    To illustrate my point I would just mention a few things. Firstly, the 3 steps you mention; they are predominantly focused on the thinking of the adviser, as you point out. Most advisers I know, and myself, do not have any issue with the value of their service. Their value propositions are clearly portrayed with caring, understanding and cognisance of the need to show the client they are getting value. This is woven into the fabric of every single interaction I and these other advisers have with a client. It is intrinsic in what we have done for 30 years+.
    .
    I’ve no idea of the demographic of your client base Chris. I will however tell you about a good portion of mine and that of many other risk-only adviser client bases. They consist of the quintessential ‘mums and dads’, young people starting out in jobs, older people looking to reduce expenses and more. Let’s take one example – mums and dads. I will sit with a family for 2 hours in their home and have a wonderful start to our relationship. I’ll then go away and come back some day later to show them the results of the research I’ve done for them – the solution to their family security concerns (insurance). We will go through it in detail and they’ll love it. They’ll love how I’ve found the best value on the market and lowest premiums possible for that value. As explained to them on previous occasions there will be a fee for this valuable service I am providing. This is where the rubber hits the road. I will now show them what this means in addition to the newly discovered premiums they will be paying. What do we have? We have $4,500 per year to protect the family ‘properly’. We have $3,500 to pay me for all his hard work in bringing this information to them. Therefore we have an $8000-00 bill for them tonight! Well, if there was ever a better reason for them to trot out the old chestnut of “we’ll think about it” then I don’t know when there was. I’m not discussing objections here – just the concept of fees.
    .
    I have no negative preconceptions about my value to them at all. None about the products or about the service I’ll give them over the years. My head and conscience are clear and full of concern and caring for that client and I clearly and pasionately relay this to them. I’m sorry Chris but these mums and dads do NOT have the luxury of bundling their risk fee in with their yearly financial planning ‘advice’ fee to amortise the cost like some others can. They will now simply get on the web and source their insurance themselves if I am unwilling to do it for them without a fee. THIS is where everyone pushing for no commissions should feel abjectly ashamed of themselves as these clients will now go direct, get inferior products and run the very real – VERY REAL – risk of being under-insured and/or getting shafted at claim time with a policy that underwrites at time of claim! So much for ‘client best interest’ from the life companies and industry shrills. Yeah . . . let’s ban commissions, that should work better . . .

    I could go on. Don’t tempt me. I will however finish by saying that, on this singular subject Chris, I have no doubt whatsoever that you are (quite unusually) in error. I don’t know what has prompted this in you or if the dark-side has encroached and the corporates have affected you in some way (no intimation intended) but you are wrong mate. If risk insurance commissions go away then advisers and the insurance industry as we know it will also disappear. IT IS AS SIMPLE AS THAT, DO NOT FOOL YOURSELF OR TELL YOURSELF AND OTHERS HAPPY STORIES. This will be a catastrophic disaster for the great unwashed as they will have to depend on life company algorithms to ensure their best interests are catered for. If that’s a situation you are good with then ban commissions tomorrow.
    .
    I welcome your acknowledgement of this Chris . . . OR . . . please tell me where I am wrong. Please tell me how I can ‘value’ my service to clients more highly than I currently do (not possible) and how I can “communicate this” to them better (already been done). Your assertions come across on this as fanciful at best Chris, highly dangerous and damaging to clients at worst. Remove commissions and you remove the good professional advisers – the best protection a client can have next to a good policy. You will FORCE clients into the arms of the robo-machines. Life companies can then rightly be called ‘terminators’.