Jury Still Out on Future for Risk Advice Specialists

Will the Life Insurance Framework remuneration model allow a risk-focussed advice business to remain sustainable?

  • No (54%)
  • Yes (31%)
  • Not sure (15%)

Adviser opinion is divided on the future outlook for risk-focussed or risk-specialist advice practices under the Life Insurance Framework remuneration reforms.

Risk specialist adviser, consultant and author, Chris Unwin - acknowledges he may have 'rattled a few cages' with his comments last week...

Risk specialist adviser, consultant and author, Chris Unwin – acknowledges he may have ‘rattled a few cages’ with his comments last week…

As we go to print, 47% of advisers taking our poll have said the LIF remuneration model will not allow a risk-focussed advice business to remain sustainable. However, 35% say the 60/20 remuneration model will be sustainable for risk-focussed practices, while almost one in five (18%) remain uncertain about how things will work for risk specialists under the LIF reforms.

One possible post LIF future will see risk-focussed/risk- specialist practices incorporating both commissions and fees in their business model. This has been suggested by risk advice expert, Chris Unwin, whose remarks about the future of specialist risk advice businesses formed the basis for this poll (see: Three-Step Proces to Charging Fees for Risk Advice).

…the large majority of risk advisers will more than likely embrace a commission and fee based remuneration model

In his response to comments from last week, Unwin has made it clear that he is not advocating the removal of commission based remuneration, “…but with all of the changes that the regulators have made and also threatened to make in recent years, I do believe that risk advisers need to prepare themselves for becoming more fee orientated,” he said.

Unwin believes the large majority of risk advisers will more than likely embrace a commission and fee based remuneration model “…especially if they are dealing primarily with Mums & Dads as clients”, he said, adding “I believe that even Mums & Dads would be able to find a way of paying between $500 and $1,000 for the preparation of an SoA and assistance with the underwriting process provided they can see the value of this assistance.”

The need for risk advisers to focus more on creating, adding and communicating value for their clients is a key point Unwin was seeking to make, “…and I believe this is probably more prevalent amongst newer advisers rather than long in the tooth ‘riskies.’” who have historically been much better trained in how to build stronger and more lasting client relationships,” he said.

…even Mums & Dads would be able to find a way of paying between $500 and $1,000 for the preparation of an SoA

Does this perspective contribute to addressing the future vialbility for risk-focussed advice businesses? Will there be a proportion of risk-specialist practices that will operate under a purely commission-based model (60/20) that will deliver a successful business outcome that will be complemented by other risk specialist miodels that will combine commissions and fees? Or is either model a bridge too far for some risk-specialist advice businesses? We welcome your contribution to this issue as our poll remains open for another week…

Or are both of these possible models a bridge too far for some existing risk-specialist advice businesses? We welcome your contribution to this issue as our poll remains open for another week…

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.

  • Jeremy Wright

    I think Life Companies and regulators are of the belief that Australians just walk through our doors with great eagerness and immediately request full advice around all their Life and Disability Insurance needs and have put aside thousands of dollars just to pay us for their wants and needs.

    The sad truth is, most Australians have little understanding, less inclination and are not in the least interested in paying fees for advice, let alone implementation.

    I have also started to see comments that mum and dad clients, maybe cannot afford to pay much in fees, though Business people are happy to pay fees for Business Insurance advice.

    WRONG.

    We have advised on and written Business Insurance for many years and not one Business client has ever agreed to pay sufficient fees that would even cover the time for the first Fact Find appointment, so please do not believe the rubbish that Business clients are happy to pay fees in this area.

    Chris is doing what all the “paid” self help Guru’s have done over the last few years and perpetrated false rumours, of a future full of promise around fee for service in the Life Insurance field, in order to convince Life Companies and Advisers that they need to attend and PAY them of course, for their wonderful advice around the future “as they see it,” around Life Insurance advice, which has also been pushed by out of touch organisations like Choice, who live in a fantasy world of their own making.

    Chris and a few other self help guru’s who have gone down this path, are totally wrong and if they want to push their barrows, then have the decency to get into, or get back into the Life Insurance advice field today, work in the current regime for 12 months, promote your fantasies of a fee for service to Australians, then report back with your REAL, not IMAGINED research and you will find that your previous interpretation, was nothing more than smoke screens and mirrors.

    Then and only then, will you have any credibility.

    • Paul Underwood

      Well said Jeremy.

      I am also sick of hearing from people who no longer work as advisers tell us how easy it is when they have stopped advising.

      If it is all so easy how come these self proclaimed gurus aren’t still advisers? The answer obviously is because it is simply not as easy as they preach.

      But then they wouldn’t be making money telling us at their seminars and training days how easy the solutions are, would they?

      • Ken

        You are all correct why do people still go to these ” Road shows” maybe it’s the carnival atmosphere? There are certainly plenty of “clowns” involved

        • Lester Beling

          I love your comment, been in the insurance business [BROKING] over 40 years, many clowns and many PIMPS commenting to protect the income, bit like CPA

  • Nettie Handley

    The problem with YES or NO and NOT SURE variables in such a poll is it misses nuance.

    YES Some Risk Specialist business will survive – if they only work with the higher value, more sophisticated clients. They will have to avoid looking after the very people who need advice most – Mr & Mrs Consumer. It is these people, the bulk of our community, that government needs to convince to take charge of their financial future so the government does not have to support them with taxpayer money (actually, I think you will find that our government uses debt to fund social welfare).
    That leaves Mr & Mrs Consumer to the super funds, the banks, and ‘Direct’.

    We are still waiting for Minister O’Dwyer to tell us how that is going to solve both the under insurance problem in Australia, and the lack of consumer trust and confident in the insurance industry.
    And we are waiting to hear from our government when they will create a vision for our collective financial wellbeing, to create principled policies and education to support that vision, rather than push through knee-jerk responses that do not give any opportunity to be tested for validity and unintended consequences.
    We are all in this together and together there are solutions. Our government is supporting a culture of divide and conquer so only the few vested interests will benefit.

  • BKY

    I voted no to the survey for a few reasons that I’ll describe later…Jeremy, how in-touch you are…I love reading your comments as they are always reasonable responses to the issue at hand.
    Where does one start responding to the “Guru’s” self interest. A reason they may no longer be advising is because they found it too hard to make a dollar…or maybe it’s due to the “Best Interest Duty” making it harder and harder to comply and make a dollar while not also strategically restructuring a client’s policy…

    NO ONE I”VE EVER MET WHO IS IN THEIR RIGHT MIND HAS CHOSEN FEE’S OVER RISK COMMISSIONS!!!

    Below are other issues I see

    Example 1…rightly or wrongly, I heavily promote the benefits at claim time that a policy which satisfies the 3-year non-disclosure clause provides…the very first thing a claims manager looks at is the age of a policy and this will dictate how intense their medical investigations are. For those that don’t know what I’m referring to, have a look on the front page of every application in the market…it comes under the heading of “Duty of Disclosure” and keep reading past the bit where it says “you must tell the insurer the truth and nothing but the truth so help you God”…yes where it refers to the part about fraud…
    Where I have an in-depth conversation with the client about this Insurance Contracts Act clause, in almost (if not every case), the client choses to maintain their existing policy even when you can show them the premium benefits to switch to another provider…because let’s all face it when a client calls your office, majority of the time it is because they have just received their anniversary notice with details about the 25 to 30% increase in premiums…for some clients it may be more. Now consider this…even though the client “rightly or wrongly” has chosen to maintain the 3-year non-disclosure period and has instructed you to keep their current policy and work on reducing the benefits of their existing policy, then the new best interest rules suggest we still need to conduct research and make reasonably investigations and then create and provide the client with either an SOA or ROA…I still have trouble figuring that one out…my point is there is still a minimum 5 or 6 hour process from go to woe including filenotes etc to reduce the premiums of their current cover…this is 5 to 6 hours of compliance work only to have your renewal revenue decrease…so you are going backwards…if FOFA and LIF were about stopping “Churning”, then I don’t see how the changes are designed to reduce Strategic Reengineering…if anything they are forcing us to work out how to strategically restructure…

    Example 2…what about when the client’s health; or changes to their occupation; or they have level premiums dictates they have no options available…best interest still requires research, reasonably investigations and compliance documents…again hours of pointless work for no additional revenue…to me it doesn’t make a whole lot of sense and I’m sure this wasn’t the intent of the changes, yet another example of unintended consequences to mindless change driven by political overtones. These client’s are not going to pay an adviser fee…

    Example 3…don’t get me started on this extra compliance regime and extra hours producing pointless research all materialising at the same time the pollies thought it was a good idea to extend the claw back period to 3 years…thankfully it reduced to 2 years…I would have though with all the extra compliance and unpaid time Advisers would have seen a reduction in the clawback period not an increase…I know that is just ridiculous to think but the thought has definitely crossed my mind.

    Where does all of that leave me…it leaves me saying that if anyone thinks that pure risk business advisers will survive on fees alone, they are kidding themselves. Some, not all Risk Advisers will survive LIF and FOFA…those that have relied on upfront commissions by switching every 2 -3 years will struggle greatly unless they have a steady stream of purely new business referrals (clients who don’t have existing cover). Those of us who have been writing hybrid commissions have half-a-chance.

    All we can do is sell or keep plugging away…

    • Squeaky_1

      Well and comprehensively said BKY. Thank you. This clawback period disgusts me. Will have minimal impact on me personally – I’ll probably retire in 2020 but it is disgusting for the newer advisers and other honest advisers that will stay in the game longer term than I. Through the actions of an unscrupulous adviser the original writing adviser can potentially have most of an entire monthly income wiped out. This is wholly unacceptable and fully against the spirit of a number of sections of the corporations act.
      .
      If the life companies had fought for advisers to kill this extension from 1 to 2 years then it would still be at 1 year. “Passionately committed to the adviser distribution model” is a common throw-away line by life coy execs at PD days and industry functions. What a pathetic mumble! What other industry has this sort of crime against wage earners or businesses that a good chunk of honestly earned income can be snatched back at up to 2 years after it has been earned, banked and spent? Disgusting. 1 year was bad enough but we learned to live with it and thought it on the edge of fair. Now 2 years. Where will it end. Govt clerks and life groups tried to even float the idea of 3 years for effect. If life companies wanted it we would still have a 1 year period.
      .
      Don’t let the “passionately committed” life company exec tell you otherwise. They are complicit with the government and special interest groups. All want the advisers gone ASAP.

  • NobbyK

    Everyone (including financial advisers) is conditioned to expect to pay fees to doctors, dentists, solicitors, and any other myriad of services which result in an outcome and for that there is no argument.
    People (including most advisers) have become conditioned to expect advisers to be remunerated by commission because thats how it’s always been done.
    Then some smarty comes along with new terminology and calls the income model ‘conflicted’ and not without basis either. The majority of the advisers are honest, hard working and do so in the best interests of their clients and the public. Thats always been acknowledged.
    However, not everyone has always been ethical and a minority have resorted to fraud and churning to gain conflicted income.
    Commissions are not conflicted but merely the reward offered in exchange for the business placed with the insurance company. Commissions are paid in many industries and none of them are considered to be ‘conflicted’ and nor is their industry so heavily regulated and controlled.
    Then of-course there is the media which enjoys a good beat up as long as it sells papers and tends to influence and lead consumers based on the bias of the story and content.
    While the public get up in arms about fees and bank bashing, the same can be applied to the whole financial services industry including advisers.
    If the law is to be fee for service, it makes sense to find the easiest and least disruptive manner of implementation. Fighting the inevitable is a waste of valuable time and energy.
    So it becomes a matter of finding a different way to do business.
    I have worked on a solution to this since 2004 and the reality is that it is easier to do than not. You can change to fee for service by giving clients what they want so you can give them what they need – insurance and financial security.
    It’s going to be hard enough to survive in the new regime, so it’s better to retain your sanity and look at the situation from a different perspective.
    This is about doing the right thing by the client and yourself and getting paid for it.

    • BKY

      Nobby…I’ve read your entire comment and am responding to the part where you refer to your model…I’m assuming you net the insurance product, which will save the client 30% every year…i.e. let’s say with commissions in the policy premiums are $1,000 meaning $700 premiums net of commissions. If you want to kick the premiums up a notch and use the example of let’s say a clients’ spend of $10,000pa with commissions…i.e.$7,000 net of commissions, then adding an adviser’s minimum fee of let’s say $3,000 for the compliance work and time to create and present the SOA, conduct research; spend hours of time helping the client complete an application (yes I see the application process as an opportunity to further develop a long-term trusted relationship) and then responding to UW requests and putting all the filenotes together, then issuing in-force correspondence to ensure the client understands what they committed to perhaps as much as 6 months earlier. At an Adviser fee of $3,000 the client sees no difference but only if they are spending $10,000 with commissions in the product…any client who pays less than $10,000 in premiums will be worse off when the $3,000 is applied, so it makes more sense for the client to pay the adviser via product commissions. What about if the client was declined by UW? Do you still expect your $3,000 fee? On the premise of Fee for advice/service you’d have to say yes because regardless of whether or not the client was successful through UW, the Adviser’s work load is the same…or are we expected to stoop as low as the “No win No fee Lawyers”? Good luck chasing that invoice…This is only the first year…
      What happens when your “ongoing” adviser service fee is due in 12 months…is it 12 months from the in-force date of the policies or is it 12 months from when you first engaged the client? What is the fee? Understanding my expenses, then the minimum fee which would be positioned as a retainer, which provides the client with Claims service and 24/7 access for all administration requirements…NOT including a face-to-face review catch up has to be around $700 to $800 plus gst and that’s minimum…it really should be about $1,000 to $1,200. What happens when the client says we don’t need to meet to review anything this year or next year because let’s face it unless there is Significant & Material changes (whatever that means) in a family’s or personal circumstances then they rarely want to spend anymore money…this means that you don’t have any renewing income, which means you don’t have a business unless you have a very steady stream of good income earning prospects walking through the door that will be happy to pay your fee of $3,000 plus gst. What about when they have a claim or change address or change bank accounts or get divorced or create a new Will which means a change in beneficiary or what about when you receive the anniversary notice and you have responsibilities to process this and send a review letter…what about the expenses just to open your doors??? What about when they receive their anniversary notice and they call and ask what can they do to reduce premiums? Are you going to charge another $3,000 fee to complete the compliance work to either tell them to retain and reduced their current policies or switch???
      …you are not going to be around to help them when they need you most…they will be at the mercy of life companies and we all know how that will turn out in a lot of cases and then the industry and insurers will be more and more in the media attention with the public perception retreating to where it possibly was 30 years ago when TPD products had “vegie” clauses…FEE FOR SERVICE IN RISK DOESN’T WORK!!! I know because I’ve had experience in this since 2004 also…but I wish you well with your model.

      • NobbyK

        BKY … thank you for reading my comment. Please allow me to say first of all that I haven’t been an adviser since 2006. Many I speak to say i was smart at the time. I got out after 19 years when the industry went stupid with compliance and fortunately just before the GFC.
        However, I still have a very strong alliance with advisers as well as clients.
        I appreciate everything you have said DKY, but perhaps you might like to read response to Jeremy. Feel free to get get in touch direct if you prefer.

      • Paul Underwood

        Exceptionally well articulated BKY. As an risk specialist adviser with 28 years experience I know what you say is 100% correct.

        Some successful advisers and businesses will survive the proposed LIF changes by adapting and changing their model. They may even implement new business at a loss in year one knowing that if they write quality business, that they will receive the ongoing 20% over many years and are happy with that outcome. May not be the best business practice but could still be very lucrative long term for certain high quality advisers and businesses.

        The opposite is true for the average adviser or new adviser who not only will struggle to sell a fee for service model but as you rightly point out how do they get paid in year 2 on? They will not survive!

        Don’t get me wrong, its not that you can’t do fee for service on insurance, its just that it only works for a very small percentage of high income earning clients who are happy to pay a fee. Some high income earners are just as reticent as low income earners about paying a fee for insurance advice. For those that say you can for all clients, show me a normal mum and dad who are happy to pay in year 2 and 3 and 4 and so on when there are reviews being conducted but no changes being made to their insurances.

        The FSC have manipulated this outcome as they believe they will be better off without advisers such as ourselves. This remains to be seen.

        The law of unintended consequences will undoubtedly rear its head and in a few years some of these changes may be reversed as the industry realises that they got it very wrong. But I believe it will be too late for the thousands of advisers who have left the industry or stopped advising on risk insurance.

      • Squeaky_1

        Man, you’ve covered ALL the bases there and some I hadn’t heard brought up before. Great points on the renewal commissions Vs fees. Such a shame we can’t ram this common industry sense down the throats of legislators, life company execs and pollies. Thank you for your incredibly detailed, salient and well reasoned contribution BKY. Cheers.

  • Jeremy Wright

    Nobby, I feel that I need to respond to your viewpoint.

    I agree that everyone is conditioned to pay fees to doctors, dentists, solicitors and you can include accountants, Investment advisers etc., though the conditioning is caused by three things.
    1) A need

    2) A want

    3) it is forced.

    Doctors and dentists come under the first category.

    Accountants and Investment advisers fall into the second category.

    Solicitors fall into the third category as it is usually a compulsory requirement due to the complexity of the legal framework we all live under.

    You mentioned commissions are not conflicted, which is 100% correct, though if you
    are a student of history and also follow the current economic and political miasma, you would have seen virtually every industry affected by BAD Government policy, pushed through by VESTED big Business and left wing loony lobbyists.

    The only way to stop BAD POLICY is to fight.

    The newspapers every day, are full of stories of people power, beating bad policy, albeit after a long and painful fight, though the alternative is to sit back and watch the retail Life Industry, that has been the foundation of the industry for over a hundred years, just roll over and die, which I have no intention of doing.

    It does not matter what I think or you think, it is what our clients think and are
    prepared to pay for and many Australians fall into a FOURTH category,
    which is Apathy when it comes to properly protecting themselves, their families
    and their Business if key people can no longer contribute.

    Apathy is not conducive to willingly paying thousands of dollars for something people do not understand or want to spend time thinking about.

    There is a massive difference between Government policy and reality.
    Most of the time, Government policy is reactive, which is never good policy.

    REALITY is what people live by and in our case, a willingness to pay fees for Life
    Insurance advice, that covers a fraction of our costs, is sadly not the case now and will not be in the future, unless there is a major change to how Australians perceive their Life and Disability needs.

    • NobbyK

      Thanks for responding Jeremy, and I agree with you. The public are horrendously underinsured, but they have been brow beaten with all the bad publicity and media surrounding the ‘Insurance/Financial Services’ industry.
      I also agree that commission is a great way to be remunerated for the sale of a product or service.
      What I am saying Jeremy, is don’t talk to prospects about insurance first. Talk to them about what they want, not what they need.
      Imagine if I was a travel agent and you and your wife were sitting with me to plan a trip. You have come to the office knowing it is going to cost you money, but you do it anyway. But I talk to you about the places you’d like to go, the sort of weather you’d like to have, the sights you’d like to see, how much time you’d like to be away for and how you’d like to travel around.
      Once we have sorted out where you are going to go, I’ll talk to you about the paces you can visit, where to get great meals and places to have photos taken so you have long term memories that you might wish to revisit. Everything has been about you and your trip. You are all excited and satisfied I have done the job well for and feel comfortable everything including passports and boarding passes and accommodation and other travel arrangements have been taken care of.
      I’m going through all of this because it is a once or first time lifetime experience for you both.
      You are blown away and excited by what has been arranged for you. So much so that you didn’t even flinch at the invoice because it has all been taken care of for you. In fact, you can’t wait to get started on the trip itself.
      This is not as far fetched as it may seem when you are taking care of a prospects future. It is their life’s journey and if you can paint a picture of how easy you will make it, they won’t resist your fee for service because they know they are in good hands.
      It is very easy to lay out for them. One of the biggest concerns people have today is affordability and handing over money for something they don’t want is only natural. When you can show them how easily it is affordable as well as giving them more money for their future, they will listen to you. In fact, they want to hear you tell them how to do it because you now more than they do and they want to learn.
      If you want to find out more, please feel free to get in touch.
      Think about the travel agency. You could have done it all online, but then would have missed out on the personal experience, knowledge and expertise.
      Thats the difference between a real adviser and online.
      Give them what they want so you you can them them what they need!

  • disqus_sxdzTFJ28Y

    60/20 will work, but not with a 100% claw back over a 2 year period for reasons totally out of the control of the adviser.

  • BKY

    OMG Nobby…you are so far removed from reality it is not funny…sorry but are you seriously comparing a tangible fun filled; once-in-a-life-time experience with an intangible product like life and disability insurance where you have to be dead, dieing or suffer a serious heath issue to experience why you are shelling out all the coin?…have you ever stopped to think why Australia has an under-insurance problem or have you blindly accepted the research shoved in our faces…common’ man be reasonable.

    My observation as to why there are all of these mysterious Australians seeking a relationship with an Adviser but haven’t yet fulfilled this apparent desire is because it costs too much for the average Ozzie…not to mention it’s better to live in ignorant bliss…now what will happen is you will turn it around on me by telling me I should be using the “hocus pocus” positive affirmation philosophy…well all the positive thoughts in the world will not save your bacon if a truck runs over you…you will have to move out of the way when you see it coming just as you apparently did in 2006…and this goes to Jeremy’s point about rolling over…we can all sit here and say all the positive things in the world that effectively amount to nought or we can fight by expressing our views & thoughts which have been developed over many years of working at the coal face talking with the punter. Paying a fee for Insurance Advice is “mamby pamby”…the Average Ozzie will not do it…let me tell you a few stories…I have a couple of clients (who are not the ordinary punter) who I wrote cover for over 10 years ago…both of them will save about $15,000 to $17,000 this year because I wrote the policies net. 1 of them pays a fee each year of around $4,000 and is happy to do so…they other pays $980 for effectively the same service…why does he pay $980 and not what he should…because it was either $980 or nothing so I chose to accept $980…better in my pocket in say. Both of them could turn around this year and say no to paying this year’s fee but they will still save the $17,000…in fact with CPI they will save more…I have more examples that have occurred over the years but I think you will understand what I’m saying.
    FEES & RISK IS LIKE CHALK & CHEESE.
    Then for another time is the education requirements…WOW! Only the banks and the big end of town will have the resources to provide the hand holding necessary to satisfy the professional year…is it just me or have things gone a little crazy? Maybe it’s just me.

    • NobbyK

      I don’t entirely disagree with you BKY. I do agree that most people globally don’t want to pay fee for service on risk.
      What I am saying is that there is another way to present it so that it makes it far more palatable and acceptable.
      It has nothing to do ‘hocus pocus positive affirmation’. Don’t forget, I still agree with commissions and I am on your side. But there is also a reality. Rather than fight the bastards, find another way.
      Get in touch with me and I’ll show you something and then you can decide.

    • Squeaky_1

      Not just you mate . . . you’re spot on in everything. Try and keep the faith.

  • Reality Check

    The hybrid model with 1 year clawback would have worked and a 2 year tiered clawback on current upfront would have worked but the FSC just had to get greedy when they took advantage of the flawed ASIC report. 60/20 with a 2 year clawback is simply not profitable for new business and unfortunately that is the simple fact.
    I predict we will see the vast majority of older risk advisers just sitting on their current books and getting rid of the overheads. We will also see a large number of risk specialist exiting.
    This is a sad result for the mum and dads who were currently able to gain specialist risk advice at no cost.

    • Squeaky_1

      You’re correct RC, I am here to confirm that for you as I am one of the “older risk advisers” of whom you speak. I am not out looking for new business anymore. I will write new business if it is clearly what the client needs upon examination in an annual review however. I will still do everything in my client’s best interests of course but pushing for new business will NOT be a priority.
      .
      I have zero desire to write anything new under the 2 year clawback provisions when another adviser can come and steal that client away with lies for a full 24 months OR a client can have an unplanned change of circumstance anywhere inside the 2 years and I will pay for it.
      .
      These life company execs should be held accountable and made to repay THEIR BONUSES back within a 2 year clawback period for lapses too!! To me it is simply untenable they don’t have this requirement thrust upon them as we do as advisers. They benefit MORE than we do as they have not had to sit with clients at 7,8,9pm at night to bring the business in!
      .
      No, this nonsense and industry killing hubris has confirmed to me that I am happy to sit on my renewals now, see my time out and not write new business. Just not worth the risk (no pun intended). To those of you other ‘old riskies’ if you can maintain enthusiasm in the face of all this idiocy from pollies, legislators and life companies then I truly, hand on heart, salute you. I was once enthusiastic and driven in this wonderful, incredible industry. That was for the first 27 years. The last 2-3 years, not so much. Can you guess why?

      • Reality Check

        And what you are saying is the real shame of this. Think of all of years of vast experience that older risk advisers have that benefits the mum and dad customers. But you are also right. You cannot write new business at a loss. Where is the sense in that?

  • Big Benny

    Can I just say the average adviser writes LESS than $40,000 of risk new business a year (then calculate what 60% looks like). Think about that for a second. I know many of you are good with numbers and what you will know is this. That means the big writers have stuffed up these figure. So take the top 5% of writers out of these figures and a huge % of advisers are struggling to write business at all, let alone charge a fee. Next average case is UNDER $1,500, again take the top 5% big sum insured writers out of this figure and you are looking at average cases well under $1,000. Once again a huge number of cases that aren’t getting near $1,000 and now these clients need to pay $1,500 which is equal or above the premiums? How many clients will find that attractive? Lets go no commission and see how that looks (fee only), $1,000 premium – 30% rebate = $700 + $1,500 fee client worse off. So no there is no way the average risk business can survive on 60-20.
    Some of you will say these “lower end writing advisers” should go anyway. Nice, we all started somewhere, how many of us would still be around if when we started these LIF terms and conditions were given to us? I wouldn’t have even started.
    I think like many of you, fees have issues that are being overlooked by simplified “just put a fee on it”. Mum and Dad clients will not cope a fee, have fun going to a family with 3 children, $500,000 mortgage and $150,000 income and saying by the way BEFORE we start I need to get (approval) for $1,500 fee? Guess what these clients need us most of all.
    Last point, 12 months ago I saved a client $5,500 on his premiums, had a back and mental health exclusion removed. I asked the client at the end of the process. “knowing what you now know I can do. If back when we first met, if I’d said I need to charge you a $150 fee (not a typo) what would you have said?” He said, “I have to be honest with you Ben, I’d have said no thanks”.
    Please don’t tell me it’s easy to just put a fee on it. Incredible issues with it.

    • BKY

      Hey Ben you need to charge more than $1,500 to cover the work load that the best interest duty has created. Also agree with your observations

      • Big Benny

        BKY I agree which makes this argument even worse. The reality is this discussion is not real world. I work in the Mum and Dad market and I’d welcome the fee for risk advice gurus to come and present a fee to any of my clients and see how that goes for them.
        Most of all I’d like to hear what happens when you charge a fee and the client gets a decline? I’ve asked it before and no one can answer it.
        By the way, I spoke to someone at a dealer group who said their gearing up their complaints department to deal with this fee issue.
        And it’s Big Benny by the way. 🙂 I’m anonymous.

        • BKY

          Sorry Big Benny…yes there are so many arguments at present that are potentially all unintended consequences of legislative changes based of political instability…the Pollies are all grappling with social media’s strangle-hold on people’s opinions and belief’s…anyway that’s far too philosophical for 9am in the morning…To your point about collection of your Advice-Fee if the client is declined at the 11th hour…thankfully it never happened to me back in the day when I netted commissions…let me just say back in 2005 before this fee thing was widely discussed and I had no idea of the challenges that lay ahead when netting commissions out of the premium, I stumbled across a few business owners (SMEs) that were healthy enough to slip through UW. At the time I was charging about $3,500 to $4,500 for the advice and implementation of their Risk needs and strategies…this worked for them because at the time they were paying $20,000+ for their Life Risk insurance needs. Now they are paying $70,000+ with the stepped premiums and CPI increases. I’m still charging a fee but as suggested in an earlier post, one pays a reasonable annual fee because they are inter-active and in a different phase of life and business life; but the other doesn’t a reasonable fee because they realise there is really nothing to do for them until they have a problem…I have introduced a % of the payout as a claim management payment, which they have agreed to…now I’m waiting for them to have a problem…just kidding. They both are way ahead with the netted premiums. I’m way behind in income; and the insurance companies…well I’m sure they would like to see them switch to another provider at this time as they have made their money from day one because they didn’t and haven’t paid me a cent in commissions and they sure as hec don’t want to pay a claim.

          The first time a client refused to pay my ongoing fee after saving them $4,000 in the first year by netting the premiums, I stopped netting commissions out because I came to realise that this wasn’t going to work long-term. To add insult, this particular client called the Insurer directly after the fee dispute; the insurer’s customer service representative told the client that they didn’t need to have me as their adviser to maintain the policies and that they can deal directly with the insurer…you can imaging how I felt…yet another example of how the insto’s view advisers…the insto’s think that ALL their lives insured on their books are their customers when in fact the Adviser is their customer and the life insured is the adviser’s customer…but deep down the hierarchy culture doesn’t believe advisers are their customers…so in answer to your question about collecting your fee even if the client is declined…theoretically you should collect your fee just like a surgeon would if the 1st, 2nd or 3rd operation fails but I don’t like your chances of collecting your fees in arrears in this scenario…if you can (HA HA) collect your fees before you get start and you have about as much chance of that as standing on the side of a mountain with mouth open waiting for roast duck to fly in…You could collect a smaller initial fee and then a success fee but we all know that all the work is done prior to the UW decision so you still are going backwards. Good Luck Big Benny

          • Big Benny

            Agree BKY, I’d suggest even the initial smaller fee would have issues if the client has been declined. I know you have the client sign off on it and you have done the work so as you said in theory everyone is happy. Although in practice I’m tipping the client is not, “I paid for nothing”. Not a nice conversation to have. Also, consider where this client might have come from. Your COI sent you the client and the client go back to them not happy, “I paid $500 to be declined. Now your COI is not happy and reluctant to send any more clients to you. Real world. I’ve even been told I need to get better in the pre-assessment so this is not such an issue. I had 5 declines in 6 months last year and 3 of them were fully pre-assessed and still declined. How are you to pre-assess blood tests of PMAR’s? As I said a dealer group I’ve spoken to is getting ready for complaints for this particular issue. Good luck to you too BKY
            By the way I’m not being anonymous, I’m incognito, although I can’t spell incognito so I said anonymous. 🙂 HAHAHAHA

          • BKY

            All great points…all the best out there…it feels like the walls are closing in and nobody but the Adviser cares…

          • Paul Underwood

            Great points “Big Benny” and all the other “advisers”.

            It is not the end of the world for “all” advisers but as BKY says “it feels like the walls are closing in and nobody but the adviser cares”.

            I will continue to grow my business but I predict that there will be far fewer advisers (old and new) in 3 to 5 years time and regrettably, the tens of thousands of clients they used to provide advice to will be uninsured or left to deal with the banks and direct insurance.

            Is that a good outcome for consumers? I don’t think so!

          • Big Benny

            100% agree Paul. So many will leave so few will replace them.