The team at Astute Wheel challenge advisers to consider what it may take to complete a risk SoA in 60 minutes, and they also reflect on issues impacting when and how often advisers need to review their clients’ life insurance needs…
Risk Advice in 60 Minutes. Think it Can’t be Done? Think Again.
The Astute Wheel’s Michael Topper takes advisers through a step-by-step consideration of what it takes to produce and deliver life insurance advice in 60 minutes…
Standard 5 of the Code of Ethics requires that:
All advice and financial product recommendations that you give to a client must be in the best interests of the client and appropriate to the client’s individual circumstances. You must be satisfied that the client understands your advice, and the benefits, costs and risks of the financial products that you recommend, and you must have reasonable grounds to be satisfied.
The FPA’s Explanatory Statement for Standard 5 goes further and says:
This means that your advice must be clear and simple.
ASIC found that of 202 life insurance advice files reviewed as part of its controversial Report 413 Review of retail life insurance advice, 37% failed to meet the relevant standard for compliance with the law and of the 63% that passed, there was significant room for improvement with regard to the quality of advice provided.
Poor advice highlighted in the report included:
- ‘the complexity of the client’s personal circumstances was not taken into account’ and,
- ‘industry participants employed “rules of thumb” to provide guidance about appropriate levels of insurance, for example – a multiple of the insured person’s annual income’.
To stay in business, risk advisers are going to have to find a way to strike a commercial balance between these competing forces and rethink traditional paper-based processes that are both time-consuming and inflexible, requiring, as they do, information to be captured and re-entered multiple times from initial fact find through to the statement of advice.
But how are risk advisers to find the extra time to provide a higher standard of advice and adhere to the more stringent level of compliance?
Providing compliant life insurance advice that is focussed on client needs and meets today’s standards means having very efficient, effective, compliant and valuable software and processes.
Then you will be able to provide valuable advice efficiently, including generating short and simple, comprehensive and compliant, risk SOAs.
To do it, you need electronic tools that allow you to quickly and efficiently:
Gather key client information electronically prior to the meeting – after all there is no value in having a client watch you fill out a paper-based fact find for 40 minutes
Conduct a comprehensive, compliant and efficient Risk Needs Analysis in the client meeting (face-to-face or Zoom) using integrated Insurance Calculator Software
Undertake product research to find the best value-for-money policies
Generate a compliant Risk SOA quickly because all the required information is in the database
The key to success is employing a process whereby each of the above steps is conducted thoroughly and efficiently with data flowing seamlessly to the next part of the process, while simultaneously and automatically producing an all-important audit trail.
Do it well and you will not only be able to provide comprehensive and compliant risk advice in 60 minutes, including generating a short, simple, compliant and plain English SOA, you will also create an interesting, interactive and visual experience which will be educational and valuable for your clients and become part of the value chain of your advice.
To provide insurance advice, be it part of a scaled or comprehensive advice process, you need to complete a number of steps. Many of these steps can now be handled, either fully or partially, electronically. Each step should need to be done only once and the information should automatically flow into the downstream tools, reports, file notes and documents.
|1||Determine the client’s financial circumstances through an electronic fact find process||Have clients complete an electronic About You Questionnaire prior to the meeting|
|2||Determine the client’s objectives and needs||Have clients complete an electronic Goals Questionnaire that contains short prompts to assist them|
|3||Determine the subject matter of the advice sought||Discuss the client’s circumstances and goals, either in person or virtually using video meeting technology, for example Zoom, Skype, Webex, etc.|
|4||Determine the scope and scale of advice||Use an electronic Scoping & Scaling Tool to determine the segments of advice to be addressed and what specific aspects of life insurance will and won’t be covered.|
|5||Prepare a letter of engagement and an authority to proceed||This should be automatically generated by the system you are using, populated with relevant information from the above steps|
|6||Conduct a live insurance needs analysis meeting identifying what the client wants to achieve and the types and amounts of insurance required||Use a comprehensive and compliant Electronic Insurance Calculator|
|7||Determine the best ownership structure for the insurance||Use the Electronic Insurance Calculator to determine the best ownership structure and record the decisions made in the calculator|
|8||Conduct research regarding the best product options for the client and the implications of cancelling any existing insurance and enter key information into the software||Use Risk Researcher, OmniLife or research direct with Insurer|
|9||Auto-generate a compliant strategy paper, or….||Use a Strategy Paper Generator|
|10||Auto-generate a short, compliant SOA in plain English, so that your advice is clear and simple||Use a Statement of Advice Generator that brings all the required information together|
|11||Present recommendations to the client||Either in person or virtually using screenshare meeting technology|
|12||Complete and submit application forms and follow up an any issues until completion||Usually electronically. Either in person or virtually using video meeting technology|
Michael Topper is a Director of AstuteWheel. AstuteWheel has developed a next generation technology-based solution that allows information to flow seamlessly along a workflow path from beginning to end.
Are You at Risk if You Don’t Regularly Review Your Client’s Life Insurance?
The Astute Wheel’s Hans Egger reflects on when and how often advisers need to review their clients’ life insurance needs – especially when their circumstances haven’t changed to any significant degree – and how to manage the process as efficiently as possible…
It’s generally accepted that you should review your client’s life insurance whenever there is a significant change in the client’s circumstances that warrants a review. But what if there are no significant changes? What is a reasonable amount of time that you can leave your client’s insurance in place without a review?
First, let’s agree that a review involves a complete needs analysis of the client’s insurance requirements and not simply a confirmation of the insurance levels and premiums being charged.
The modern adviser now has access to sophisticated needs analysis calculators that can determine a client’s annual cashflow requirements and caters for expected changes in income and one-off expenses to understand the client’s life insurance needs.
Let’s say, for simplicity, that your clients are both 50 years of age and both earn $100,000pa. Last year you conducted a thorough needs analysis and for each client implemented $2M in death cover, $1.5M TPD, income protection of $6,250pcm and trauma of $300K. Is a review worthwhile a year or two later?
Perhaps not for income protection and trauma insurance. However, there’s a strong argument for death and TPD insurance to be reviewed more regularly even if no significant changes have occurred.
The table below shows that as each year progresses there are some expense items in the insurance analysis that will automatically drop off even if no significant change has occurred. We would also expect the mortgage to reduce and superannuation investments to increase annually. The table below shows the impact of these changes each year over a three-year period.
|Adjustments in annual costs||Year 1||Year 2||Year 3|
|Annual family living costs – no longer required||$80,000||$160,000||$240,000|
|Annual children’s education costs – no longer required||$15,000||$30,000||$45,000|
|Annual increase in superannuation funds*||$28,150||$56,300||$84,450|
|Annual decrease in home mortgage**||$33,000||$66,000||$99,000|
|Total possible reduction in Death & TPD||$156,150||$312,300||$468,450|
* Employer Contributions of $9,500 (net $8,075) each and 6% (net) growth on $100,000 fund balance each (non-compounding for simplicity) **$500k debt P&I at 3% interest 20yr loan term
The table below shows the reduction in death and TPD and the subsequent savings in premiums that could be achieved for this couple if we applied the reduction in regular insurance reviews.
|Insurance type||Current||Year 1||Year 2||Year 3|
|Combined Annual Premiums*||$8,271||$7,596||$6,803||$6,069|
*Premiums determined from Omnilife quoting and from the top 8 insurers taking the mid-range insurer in terms of cost. Clients were both business managers on a salary of $100,000 and the premiums (non-super) represent combined husband and wife.
From the table above the combined savings in premiums for this couple could justify an annual insurance review, is definitely worthwhile every two years, and if not done at least every three years may result in the client being significantly over-insured and paying too much in premiums.
The problem for most advisers is that a recommendation to reduce a client’s insurance needs to be well documented (just in case something happens to trigger a claim) and the insurance needs analysis process is time consuming.
In an environment of ‘client’s best interests’ and ‘fee for service’ however, this is exactly what is expected of the modern adviser.
Letting technology take control of the risk review process
The key to making the risk review process efficient and cost-effective is to use software that automates that process as much as possible. The software should allow clients to update their own information using an electronic reverse fact find. This will save you 20-30 minutes per review meeting.
The changed data should automatically update the fact find database and then flow into the risk needs analysis calculator. For greater client engagement, the needs analysis should be conducted via visual, interactive, client-facing software in a face-to-face meeting using a big screen TV in the office, or virtually, using a video meeting platform such as Zoom. This approach will mean the needs analysis process can be completed within 20-30 minutes.
The software should also allow file notes containing all the calculations and decisions to be automatically generated. This creates an audit trail. It should also be capable of automatically generating the strategy paper and a succinct (around 12 pages), plain English statement of advice (SOA) within minutes. Customising/editing the SOA should only take a further 15 or so minutes.
This kind of approach will help you to not only provide high quality life insurance reviews in a cost effective and compliant way, it will also help you demonstrate the value of your advice to your clients and justify a fee-based approach.
The more efficient and thorough your review process is, the more clients you will be able to service and the more those clients will value your advice.
Hans Egger is Managing Director of AstuteWheel. AstuteWheel has developed a next generation technology-based solution that allows information to flow seamlessly along a workflow path from beginning to end.
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Standard 5 of the FASEA Code of Ethics requires that all advice and financial product recommendations that you give to a client must be:CorrectIncorrect
According to Michael Topper, providing compliant life insurance advice that’s focussed on client needs and meets today’s standards means:CorrectIncorrect
Hans Egger says it’s generally accepted that you should review your client’s life insurance:CorrectIncorrect
Even if no significant changes have occurred with regard your client’s circumstances, Egger recommends the following products be reviewed:CorrectIncorrect
Egger says if an adviser recommends a client’s insurance be reduced then they should:CorrectIncorrect