- No (54%)
- Yes (31%)
- Not sure (15%)
Our latest poll seeks your view on whether a risk-focussed advice business will remain viable following the implementation of the Life Insurance Framework remuneration reforms.
Opinion is currently divided as to whether risk-focussed or risk-only advice businesses will be able to survive and thrive in a post LIF world, with some industry stakeholders, including some advisers, suggesting the days of specialist risk advice practices are numbered.
…this move to fee-based advice is only a viable option for the more holistic advice proposition
While there is an emerging body of evidence that suggests advice businesses will be able to compensate for a reduction in upfront life insurance commissions by supplementing their commission income with fees, there has also been a consistent response by many advisers that this move to fee-based advice is only a viable option for the more holistic advice proposition; not for risk-focussed businesses.
This week, we’ve reported that specialist risk adviser and industry consultant, Chris Unwin, contends that a sustainable fee-based business model for risk-focussed or risk-only advice practices is indeed achievable. His model is based on a three-step process, part of which includes the need for the adviser to add more value to their existing services, both initially and on an ongoing basis (see: Three-Step Process to Charging Fees for Risk Advice).
Unwin projects a future in which all risk commissions will one day be banned, but believes a risk-focussed advice business will remain a viable option if the risk specialist adviser is able to articulate to the consumer the value that they provide, to the extent that the consumer will be willing to pay a fee for that service.
What does your own experience lead you to believe? Can you see a future in which a 60/20 commission model under the LIF remuneration reforms will still allow an environment in which risk-focussed or risk-only advice businesses can operate successfully and profitably? Or are the days of specialist risk advisers, at least in their current form, indeed numbered?
Tell us what you think and we’ll report back to you next week…
A $1,500 premium with the commission at 60%, equates to $900 commission for all the work the Adviser practice has to provide.
Currently, it costs thousands of dollars to provide best interest advice, complete all the
onerous compliance requirements and if the client agrees to the recommendations, complete applications and do all the administration tasks that can take weeks to complete, with no guarantee of policies being accepted.
So based on the 60% rate, unless the adviser works from a spare bedroom in his or her house and is prepared to not be paid for their time, then the 60% rate is insufficient.
The only way the 60/20 model will work is when the Life Companies improve their New
Business and ongoing administration processes, with technology that creates a more cohesive automated and efficient flow through protocol, that enables all the departments who are involved in New Business, renewals and administration of policies within the Life Company, to know what the other departments are doing and can communicate more effectively with the advisers to enable them to write more Business and time efficiently look after existing clients.
Currently, the system has many flaws that adds time and costs to advisers practices that will not be able to be absorbed when the commission rate drops.
It is all very well to say that the higher trail will offset upfront losses, though for all start up and establishing practices that do not have a reasonable trail, this is a certain death sentence and for established practices, the inefficiencies of Life Companies will continue to drain revenues, with no profitable cash injections from New Business to offset increasing costs.
For those practises who have taken out loans, the figures will point to a loss position also, as the capital repayment of loans must be included in the Business plan and as they are paid from after Tax Dollars, this leads us back to the obvious answer.
If the LIF 60/20 continues, then the Life Companies must spend the hundreds of millions of dollars taken from adviser practices and invest that to improve their systems, or watch the exodus of thousands of advisers when they do their sums and realise a loss is a loss is a loss.
Jeremy you are spot on- the service from life companies is CRAP !
Here is the real deal. A doctor client of mine turns 65 on 26 July. He has a legacy income protection policy with the option of extending to Age 70-no underwriting. He was interested. I asked for quotes on a 30/90 WP basis. The policy admin team said they would pass it on to the new business team, and promised results in “a few days”. After 12 business days, numerous phone calls, I got my reply. Seems this company has had a re-organization to save money to pay more bonuses to the recently departed CEO.
So far I have spent 4 hours on this project. I may get limited-term commission, if the commission team still exists. The process of obtaining a simple quote on the in-house system is a joke. The company has set up not to communicate internally, segmented by glass walls.
Yesterday APRA confirmed this company was apparently profitable. You have to wonder how ? LIF will reduce business acquisition costs for life insurers. I will bet London to a brick NONE of that profit will be ploughed back to improving performance.
Agree Jeremy, but lets not forget that if 1 in 10 clients cancel in year 2 (10% which can be a reasonable assumption) then we have actually lost money in writing those clients. My view is that this is unworkable unless you are either writing other business or have a healthy trail already to ride it out.
But if you have a healthy trail already then why bother with new business? You would be financially better off closing your office and just looking after existing customers from the spare bedroom.
For example if you have a 200k trail income and you normally write 250k new business but have office and staff costs of say 150k and that new business is now going to be 150k in the future, the sums are very easy. Close the office, get rid of the staff and sit on your trails.
Well reasoned RC. This is happening more than anyone cares to publicise. I feel it will continue to keep happening too, until the life offices are no more!
Great words Jeremy. An article was released today in this publication about how pure risk advisers can charge fees-only. Unbelievable. It never ends. The interesting thing this time is that it is Chris Unwin writing that article. he’s missed the mark on this one though. Surprises me he looks to have rolled over to the dark side. This ‘pure riskies can live off fees only’ brigade is usually only trumpeted by Life companies and industry consultants and special interest groups with an agenda. Strange for Chris to sound like he believes it. When Chris Unwin starts drinking the cool aid of the corporates you KNOW it is time to get out!
The current players like AFA & FPA are not working in the interest of the client or the adviser, like always they are protecting their FUNDING. Kelly should get some idea of this before she attends the conference. I am a life & general insurance BROKER. The system will continue to work, only if the legislators get it right. My suggestion is that they differentiate between INSURANCE & FINANCIAL Services. Insurance has been conveniently rolled in with financial services, so that the likes of AFA & FPA can continue the rogue state.
Good to hear someone saying this Lester! Helping a family with correct, appropriate and quality insurance protection is an art and science with a different discipline to the more academic traditional ‘financial planning’ and ‘advice’ which is usually investment based. The fact that ‘riskies’ have to qualify using exactly the same exams now AND going forward as full financial planners is perplexing at best and an unnecessary burden on riskies at worst. Please will someone explain to me why, as a pure risk adviser, I must be examined on my knowledge of derivatives, credit default swaps, currency exchange and trading, securities, margin lending etc, etc in order to help my clients with such specialized instruments as life cover, trauma and income protection?!
.
Why oh why haven’t these academics and pollies who make our industry and career changing decisions for us yet created a separate licence and exam regime for pure risk advisers. In the main, our discipline has nothing to do with the discussions FP’s have with their clients. Oh, sure, FP’s should ensure insurance is in place but how many of them do that PROPERLY? It would be great to see these academics and politicians do something actually WORTHWHILE for once and create a regime/licencing/exams for pure risk writers. Why haven’t the life companies championed this cause for us – it would seem to be in their interests and support their common war cry of “we are passionately committed to supporting our advisers”. We’ve all heard that one a ‘few’ times, haven’t we?
Comments are closed.