Value of Advice Moving From Sale of Insurance

Financial advisers will struggle to demonstrate the value of their advice if they believe it lies in helping people purchase life insurance or delivering claims cheques, a US financial adviser has claimed.

Pinnacle Advisory Group partner, Michael Kitces

Pinnacle Advisory Group partner, Michael Kitces said the idea that ‘insurance is not bought, it is sold’ is because the insurance sector had made it difficult and inefficient to purchase cover and “…it was not that insurance had to be sold, but the process of insurance had to be sold because it is a bad process.”

“The ‘value add’ of financial advisers for some time has been to overcome things that were inefficient in the first place –  such as finding the right policy for a particular situation or getting an application through an underwriting process that is stupid and long winded and takes weeks,” Kitces said.

Speaking at the recent AFA Connect Roadshow in Sydney, Kitces, who began his advice career in the life insurance sector, said the increasing use of technology would reduce the value proposition of advisers unless they were able to offer bona-fide advice that went beyond insurance, and may not even be related to it.

“…the idea that ‘insurance is sold, not bought’ is the result of bad processes that made it ‘painfully hard’ for people to buy life insurance…”

“Technology will change the life insurance sector and it will become easier and cheaper for people to purchase their own products, but there is still a place for advice if advisers can see past the product,” he said.

“Imagine, as an adviser, that you were only to be compensated from advice and not from commissions. What has not changed is that clients still need life insurance and the need for products will remain but what has changed is the value an adviser brings to a client before they get to the products,” Kitces said.

“Salespeople sell products, but advisers are the gatekeepers that prevent bad products and solutions being offered to their clients,” he added.

He said that in the past investment advisers also considered that managed funds were sold instead of bought but the introduction of technology into that part of the advice market forced investment advisers to look at holistic advice.

“The life insurance sector has been slower to make this transition but advisers will be forced to expand their offerings. However, there will always be people with very complex needs who will need an expert in that area, and technology will not be able to fill that space for some time,” Kitces said.

He cautioned advisers who believed they could survive into the future by concentrating on a single market or client set and said these “…’product specific domain experts’ would require a level of expertise that goes beyond all others…” but were also likely to find they only had a limited number of sales.

  • BKY

    Without wasting too much of people’s time, I think Michael is another typical American that thinks the US knows everything…If Michael had been in Oz for longer than a minute, then he would realise that Ozzie’s do and always will value an advisr’s opinion when it comes to protecting their family and loved ones in the event of a crisis. Technology is making it more likely that when the time comes for the average consumer to take risk protection seriously, then this is the moment they will seek out a valued relationship with a human that cares about them and not rely of a insensitive machine for such a critical component of their financial security. How about the AFA inspire us with some positive news instead of the continued doom-and-gloom that seems to be the message being trotted out on a continuous basis.

  • Ken

    Dear me everyone’s an expert “don” the suit and find some new way to annoy people who have lived their lives in this industry and know what it takes to convince people to do what they really know they should do and need
    Until the con job of trying to substantiate your position for charging a fee is fully recognised as fantasy and only pushed along by the life offices and banks who want to retain more profit for less expense than things will eventually decay into pandemonium The clients are not stupid and if they can buy insurance without getting charged a fee they will do it regardless of the proposition you propose to them to validate your work.
    What is wrong with saying you have a mortgage a wonderful wife and family don’t you think you need to protect them if your not here!
    Have had very few ever say no !
    Cut the “crap” and get back to basics and support your client with good old fashioned advice without all the “How good am I this is why you have to pay me “
    Insurers start working out why you are loosing business it’s not the advisers fault but it’s us you hit first time every time when things don’t work out

  • disqus_sxdzTFJ28Y

    I made a good living pointing out the short comings of retail and on line insurance (on line is gold) to clients. I believe that only 14% of Aussies with mortgage debt have trauma insurance, but around 95% of my clients with debt have trauma. Err derr, are my health professional and business clients really dumb and fall for any adviser B.S.? I think not.

  • Jeremy Wright

    I find it hard to fathom how so many “experts”, can decide that one of the biggest
    Industries, that has survived two centuries and generates multi billions of dollars each year, all of a sudden, can no longer afford to, or should have to, pay the people who actually generate revenues for the Life Companies.

    Quite frankly, it makes me angry at how naïve many people who work for the life
    Insurance Companies are and when we ignore actual experts, in favour of listening to people with NIL experience and their opinions based on ridiculous assumptions, or Full service Financial Planners who provide the full Gamut of services, which for Life specialists would mean spending a fortune having to build expertise to provide these extra services, that also involves great risk to provide that advice.

    Technology advances will kick the Life Industry up the backside to force them to get their act together and streamline inefficiencies, though this does not mean that the
    Australian public are all of a sudden, going to be interested enough or knowledgeable enough to spend time learning what they need to know, just because it is easier to process policies.

    Michael is missing the point.

    What he interprets as important in a client’s decision making, does not reflect what
    most Australians actually do when it comes to Insurance decisions.

    There has never been one Australian, other than advisers themselves, who has, off
    their own initiative, completed all their own research and purchased the correct types and levels of Life and Disability Insurances to suit their personal and Business needs, so all the efficiencies in the world will not change that.

    All the advice that provides the Best Interest for clients, is not worth the paper it is written on, if a client does not take the product, yet the Gurus are saying “see past the product”.

    Michael states sales people sell products, but advisers are gatekeepers. In other
    words, don’t taint yourself by being seen as someone who, “god forbid” is trying to sell a Life Insurance product.

    Michael, once you cut through the plethora of wonderful advice and words, at the end of the day, if a product is not solid, then the great advice, falls on its face.

    He states the Life Insurance sector will be forced to expand their offerings.

    To do what? Sell bananas?

    If the Life Insurance sector cannot survive as a standalone Business by selling Life
    Insurance, then it beggars belief.

    Michael, so many “experts” look at what they do and assume that the Life Industry cannot possibly survive as a standalone Business.

    You are right, in that the Retail Life Insurance Industry will not survive, if the belief that the best way to help the Industry is to continually reduce or stop paying commission to advisers who bring in the revenues, as I can tell you now, Australians WILL NOT PAY A FRACTION OF WHAT IT COSTS TO DO ALL THE WORK and if the Life Industry is stupid enough to believe anything else, then say good bye to quality advice and quality

  • Ken

    Way off the track here ! But just wanted to say I read in great interest the comments made in risk info may not always agree but it’s a great avenue to vent some anger at times or make some really informed comments
    I don’t think I know of any other article that gets the response from advisers as this does
    Keep sending us these challenges
    The only real thing in all this backwards and forwards debating is I hope someone in power is listening and taking notes
    Otherwise we are just a bunch of weekly wingers hoping for change

  • NobbyK

    There’s plenty of experts in America an globally watching whats happening in Australia so they can learn and perpetuate the mistakes.
    Such as in England which is now reversing the previous harsh and cruel impositions so financial advisers can again earn a living.
    People like Michael, while well meaning, have used the power of the platform to speak and become noticed. Nothing wrong with that and perhaps more Australians should do it in order to also put across their own point of view. Rather than denegrate the opinion of one person who considers himself knowledgeable on a subject and puts forth is own opinion, get on the front foot and step up with your opinion on why the opposite is true and correct.
    Until then, the opinions of people lie Michael will always be considered as gospel while others sit there seething in frustration about their own opinion.
    What is happening in Australia is also affect overseas advisers, and the regulators often find it is easier to emulate what some other government has done because they think it must be right.
    The biggest problem is that those who have no idea (politicians) are overriding the lives of those (advisers) doing it every day.
    Regulation to protect consumers is one thing, but draconian imposition by temporary politicians is a waste and does not benefit those who need it most – the consumer!