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.