If all commissions were banned, would your practice be able to survive and prosper under a fee for advice structure?
- No (77%)
- Yes (14%)
- Not sure (9%)
Renowned US business coach, Dan Sullivan, says all financial advisers must get used to a future without commissions.
Mr Sullivan advocates the need for all advisers, irrespective of the nature of their services, to charge a fee for the wisdom and advice they deliver to clients and that they should move away from commission-based remuneration.
Mr Sullivan says there is an inevitability that all commissions will eventually be banned, in what is a world-wide trend, and suggests advisers accept that an ‘old game’ is ending and a ‘new game’ is beginning.
Our latest poll question asks:
If all commissions were banned, would your practice be able to survive and prosper under a fee for advice structure?
In a brief, 7-minute message to Australian advisers, courtesy of Leading Minds Academy (click here), Mr Sullivan articulates the logic of his position and tells advisers that now is the time for them to consider their ‘Plan B’.
While Mr Sullivan encourages advisers to maximise the remaining opportunities associated with a commission-based remuneration structure, he says their Plan B should involve setting up their advice proposition in which clients remunerate the adviser for the wisdom, thoughts and advice they deliver, rather than for the commoditised product that is usually associated with that advice.
Within the life insurance sector, Mr Sullivan’s implied message is that insurance advice will be sufficiently valued by clients, who will be prepared to pay for that advice and adopt insurance products appropriate to their needs.
Do you agree? Do you accept that banning all commissions, including risk commissions, is inevitable? Could your advice practice operate and be profitable if all commissions are banned? Let us know what you think…
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16 Comments
In the prefect world its a good idea ~ we don’t live in a prefect world ~ as long as there is one Insurance Company offering commission the idea of a fee only will not work ~ personally I have never been ashamed to say I earn commission for a job well done !
To use terms like ‘inevitable’ and ‘world wide trend’ are baseless and untrue. They may suit people outside the industry looking in who think they know it all, but they don’t hold any weight with the majority within the industry - not being paid salaries by banks and union funds - to ultimately deliver a commercial product to a client. Commissions exist in just about every aspect of commerce as well as in Government! Is not any fee, such as a bank fee, that is priced at a percentage of the amount in question not a ‘commission’? Buy something on a credit card overseas and you are charged a percetage of the value of those goods. Why? Is there more work done by the bank if the item purchased is more expensive? Stamp Duty is a commission. Does a government department do any more work for a house sold for $400k as opposed to one sold for $800k. No, but it takes more than twice the anmount in fees. The travel industry survives on commissions, yet some egghead yesterday cited them as the industry we should emulate to survive post FOFA?? No other business model on this planet would see people directing billions of dollars of business to companies for no financial reward, but this is what these critics say is inevitable. Go and spruik somewhere else Dan. Obviously your country is in such good shape they don’t need your advice at present!
Agree 100% with Greg F. Consumers really dont care how we get paid: the real difference here on OZ is they get full disclosure from us but tell me how many other retail goods providers, including your friendly chemist, have to disclose their supply chain volume and incentive based mark-ups that are otherwise a commission/ procurement entitlement. It is all about the zealots of the purist world with their truly non- enterprise agendas that are driving this want for control.
All due respects to Dan Sullivan and his views of tomorrow in Advice land. I think he may be mixing his facts in that we Advisers do NOT value sufficiently the ADICE we provide, which is a totally different consideration to how we get paid for what we do. We can give our consumers choice of payment at the moment… remove that choice and the under-insurance facts will monumental for middle Australia. They will simply not pay for the real value of what we do. OK for the 5% who have the rattles and may pay out of the BIG cheque book. Suffer the rest!!
EFFECT ON MY BUSINESS CAN ONLY BE NEGATIVE ESPECIALLY IF LIKE OUR CURRENT WISDOM BASED LEGISLATORS in Canberra it is done by decree with a short lead-in to adjust.
More to it than Dan can see and I think he should be sticking to the SALES SKILLSETS rather than venturing into the dangerous zone of international commercial predictions. Not at all helpfull… and I have viewed his video!!
Dan Sullivan is correct about charging fee’s for Investment advise and wrong on Insurance advise.
He is making an assumption that Investment and Insurance advising are the same in a clients mind and that they are happy to pay for both.
This could not be further from the truth. Theoretical debate is a waste of time, unless the client, who pays for advise, is included in the discussion.
This discussion is about labels and choice. There is plenty of research to confirm that when the public is given “choice”, it will choose to underinsure. Our country cannot afford the selfishness that will follow from decades of further financial ignorance. The majority of the public will not insure adequately without an adviser to promote the decision. The “label”, be it called commission or fee for service, will destroy BOTH the industry and the clients that we serve if premiums and adviser remuneration are forced to become separate transactions.
Absolutely agree with GregF & Kenn above - clients will pay a fee for investment and strategic adice but not for risk. If commissions are banned - especially through Super, it wil result in massive underinsurance. The issue isn’t about the fee per se but how much it hurts the hip pocket. The people who most need insurance (young married with families and a mortgage) are the very people who can’t afford to pay an up-front fee or an ongoing advice fee out of post tax dollars. Therefore they see using super funds as a very real advantage - and it is in those years. If this avenue is closed off to advisers because they can’t be remunerated, it will also be closed off to the gen X & Y’s who most need access to insurance.
The government’s determination to move a larger proportion fo super investments to industry funds is largely ideology based. The several trillion dollars of money in the super pot is seen as being better in the hands of industry fund managers than bankers. Perhaps they are right!
Well, time to move on to working for one insurance company again, back to the Nat Mut amp sole agency again but on salary with bonus im sure . But I want about 200k package. No worries. And clients well, they get less choice lest competition maybe cost them more. But only I will know so I may loose confidence in industry and move on anyway and new recruits from insurance companies wont know the difference. Those who brought this in wont be around ither in few years, then the cycle will begin again for consumerism to bring competition back into industry but in the mean time im selling real estate or some thing else lol.
Advisers with a multi facet practice including mostly financial planning may be able to include the cost of life cover advice in an overall program.
My business is mostly business insurance Buy- Sell ect, which often take some time to pull together. If I was to try to charge what the time was really worth commercially i dont think I could get the price. Then have you ever looked at the discount some companies offer for nil commission products ? It does’nt work out in the clients favour. Why should it allways be the adviser making the sacrifice for the sake of the alledged public view of our business. Let the life companies play a part . They are pretty quick to go into business with sub standard product on their net offers.
So far, nobody has addressed the option of the insurance company collecting our fee as part of the premium. As long as premium rates are reduced commensurate with the saving on commission, clients will still be able to afford adequate insurance protection as well as our fees.
Given the underinsurance problem that already exists in this country and the difficulty to get clients to review their insurance when it the review will cost them nothing, the effect of a fee for service on risk commissions will be significant and the underinsurance problem will just escalate. Pity that no-one seems to be able to make our current Federal Government see this. Do they realise that it will then become their problem - who is someone with no insurance going to turn to if sick or injured and can’t work - Centrelink (and the taxpayers of Australia).
Risk without commissions appears to be a nonsense. Listen to Senator Cormann - he has no vested interest and he is crystal clear about what is driving the proposed ban on comms in super. It is the industry funds lobbying the minister as they want to get rid of any and all competition. Make no mistake - they want to see you and me out of business. Unless life offices come up with ways of making it easy for clients to pay a fee in addition to the base cost of cover - if the 2 main negative aspects of FOFA get up it will mean the end to any transactional type clients from engaging an adviser. The only adviser who would survive would be offering higher end holisitic advice with clients paying a fee to package services - with accounting, wealth creation, protection and estate advice being offered. That would restrict advice to all but the top 15% of the population - no other country in the world had done this - yet in America they had people like Bernie Maddoff! This is not public policy driven by a desire to see the public access better advice, its a move set against the backdrop of Storm (to give it legitemacy) but which is intented to effectively institutionalise financial advice and wipe out smaller players. GET INVOLVED AND MAKE YOUR VOICE HEARD BY YOUR LOCAL MEMBER - ESPECIALLY IF YOU HAVE ACCESS TO INDEPENDENTS, BACK BENCHERS OR MARGINAL SEAT HOLDERS.
Why are we listening to an American drip under preasure about how to work our businesses.Our sytem is not the same –or maybe it is their parlimnt does not seem to be working any better than ours. Think I will turn my super to cash!Now there’s a thought how do I suggest to my super clientsthat we all go to cash until we get over the obama/ congress prob. If it wasn;t for obstuctional legislation I could shift them all, BUT HOW DO YOU DO IT WITH A FEW HUNDRED SOA’s in a few days and fact finders etc…
THE SAME BRAINS WANT TO DENY US COMMISSIONS FOR WORK DONE.
Dan is asking us the advisers “very, very, key questions” about our businesses in the hope that this will help us perceive value in his advice and pay a fee for it! I am sure the Leading Minds Academy is very successful but how would they go if they were entering a coaching environment where for over 100 years coaching was on a fee for success basis, a commission based on the annual turnover of the businesses he coached?
I read all this and listen to what is being said about commisions and my opinion is as follows…
The adviser see the client and completes Financial Needs Analysis.
The Adviser then completes the research that is required to ensure their advise is complete and beneficial for their client. Research that involves finding the righ investment, insurance, superannuation so on vehicle that will provide financial benefits and security to their client moving forward.
The adviser then puts together the Para Plan
The Para Plan is used to create the Statement of Advise, completed by adviser, their para planner or by their dealer groups para planner any way its done it is paid for by the Adviser
The Adviser then presents the advise to their client. Ensuring that their client understands clearly what they are being advised to do .
Client agrees with advise and adviser now sells the clients the vehicles by which their goals will be achieve ie the PRODUCTS or as Dan Sullivan stated COMODITIES that will assist client to achieve their goals.
Once client agrees to the vehicles the adviser helps the client to complete the applications and collect and collate all the required paperwork.
Adviser returns to office places copies of documentation on file sends original applications to Product or Comodity company provider.
Adviser then follows up of the applications processing with the company providing any further information that they require to complete the application all the while keeping their client up to date on what is happening.
Application complete,Business in place company recieving payment from advisers client in form of fees or premiums.
During the whole process not once does the company providing the vehicle ie Product or Comodity have one of their PAID staff speak with the advisers client to explain their product or comodity, complete applications, collect information or generally create a relationship with their new consumer. NO
All communication is between adviser and client. And with the new system all monies earned for product or comodity being put in place is earned by the company providing the product or comodity while all the work is done by the ADVISER.
every year adviser does review with client and continues to build on the relationship.Every year company providing product or comodity has their computer generate a statement for a number on their system that is mailed to client or better put the companies NUMBERED MONEY MAKER.
if its insurance and claim is made the adviser again does all the paperwork and has the face to face or phone to phone contact with their client. The company just processes another NUMBERED APPLICATION FOR CLAIM….
My question here is this…………
WHAT ARE THE COMPANIES PROVIDING THE PRODUCTS OR COMODITIES PAYING THE ADVISER FOR ADVISING THEIR CLIENT TO USE THAT COMPANIES PRODUCT, THAT THE ADVISER HAS KNOWLEDGE OF TO ENSURE THEY ARE GIVING THE RIGHT VEHICLE TO THEIR CLIENT FOR THEIR GOALS ????
ANSWER —— NOTHING…….
WHAT TYPE OF WORKING SYSTEM IS THIS CALLED?????
WELL ILL GIVE YOU A HINT………..
IT WAS FINALLY DESTROYED BY THE CIVIL WAR IN AMERICA WHICH RESULTED IN THE DEATH OF ONE………..
ABRAHAM LICOLN
COMPANIES GET MONEY FROM ADVISERS WORK………
ADVISER GETS NOTHING FROM COMPANY
= SLAVE LABOUR
this new system of fee for advise should also include fee for advisers sale of companies product….. oh wait that would be classed as incentive to sell product and remove fiduciary responsibility……
so SLAVE LABOUR IT IS AND ITS COMMING TO YOU OH SO LUCKY AND FREE AUSTRALIAN ADVISER IN 2012
The cold hard fact is the value of any insurance is intangible until a claim is paid. Most clients will never make a claim. In contrast smart capital related strategies provide very real tangible benefits such as reducing tax, providing capital growth etc. Clients are able to easily make a value judgement when considering whether they should pay a fee for this type of advice. The value judgement a client needs to make regarding paying a fee for intangible benefits is a very different scenario and one that is very difficult for them. I doubt that full fee based insurance advice will ever be widely accepted, although a combination of fee / commission may be.
Whether Government, Consumer organisations & Industry Funds especially like it or not, insurance products still have to be sold in a sales like sense. As advisors of any type, we all have to be able to sell ourselves and our services, but no one has endurance like those who sell insurance. People don’t really like accepting that they need to buy a product that they hope they will never use - that is what makes insurance unique to almost every other product. Take away the commission and what incentive is left for an adviser to go through needs analysis, product feature selling, the underwriting & claims process, as how many people will pay a fee to find out whether or not they need a product they don’t really want to own, then pay the product premium as well? We all know that reducing commission to nil doesn’t substantially reduce the premium to the policy-owner.