Based on previously published articles in Riskinfo, these two contributions explore various issues relating to the prospect of charging fees for life insurance advice. While some time has elapsed since the articles were originally published, the messages remain current…
Why Would a Client Pay For Insurance Advice?
Elixir Consulting’s Sue Viskovic highlights eight distinct elements of life insurance-related advice for which she says clients would (and do) pay a fee to their advisers. Sue argues that while commissions can certainly remain a part of the advice business equation, advisers should nonetheless be thinking in terms of the fact that it’s the quality of their advice which holds the value, and for which their clients are ultimately prepared to pay…
In a changing world where all life insurance advisers are now legally and ethically expected to act in the best interests of their clients, your aim should be to deliver a service that people are willing to pay for – even if you choose to continue to receive commissions for what you do.
Do you represent the vendor or the client?
In every instance I can think of outside of the financial services sector in which people are paid a commission, they are paid by the vendor of a product on a commission basis when they successfully move the product on behalf of the vendor. The purpose of the commission structure is to motivate them to either sell higher volumes of the product or to secure the highest price.
So, it’s not that hard to make the link: if you expect a salesperson on commission to be acting on behalf of the vendor, all they want to do is sell you their product.
Is that really what you do? Are you just an insurance salesperson? Of course, you’re not. Yes, you use insurance as the means to an end to help your clients cover the risks they face, but just about every adviser I know does so much more than simply ‘sell insurance’. Before they get anywhere near an insurance product, they provide a lot of value to clients in even getting them to consider their own mortality and put some type of plan in place to help them and their families in the event a tragedy occurs.
The days of tied agents are long gone. Today, advisers act in the interests of their client and source the best product, keeping the insurers accountable and making sure their clients get the best cover they can afford. Advisers have changed, but their remuneration model hasn’t necessarily kept up.
One objection I hear often is: “Charging a fee is not in my clients’ best interests because they will have to pay my fee in addition to the insurance premium, and they won’t want to do that – plus it will end up being more expensive than it is now.”
The challenge here is to separate out your advice from the product itself.
We can take a lesson from the advisers who are successfully charging a fee for their insurance advice, both those who are subsidizing their commissions with an advice fee, and those who have replaced commissions entirely. The greatest distinction is that these advisers separate out the value of their service from the value and cost of the insurance premium itself. In one respect, they are actually ‘selling’ two different things: their advice and service, and the insurance.
Their clients understand their adviser works for them (not the insurer). The client doesn’t compare this to insurance by itself because they have chosen to have their adviser in their corner to ensure it is all set up properly, and when it is positioned properly to them, they understand the requirement to pay for this professional service.
I’ve heard on many occasions that insurance needs to be sold – not bought. I’ve heard that people don’t wake up one morning and think ‘I want to buy life insurance today’. That is probably right, but I guarantee you that people do lie awake at night thinking ‘What will happen to my kids if something happened to me?’, especially if they have someone in their close network who has suffered a catastrophe that has brought home the reality that they aren’t, after all, bulletproof, and that sometimes bad things do happen to good people.
So, let’s summarise the sort of professional service and advice that clients will pay you for:
- Helping them confront their own mortality
Many people don’t like taking the emotional journey of confronting their own mortality and imagining a world in which their children don’t get to grow up with them in their life. Left to their own devices, many couples would prefer to even start an argument over who does the dishes or simply watch mindless TV rather than have that conversation. A great adviser will support their clients through that emotional discussion of confronting the what-if’s, gently forcing them to voice their fears in a safe environment and empowering them to quantify the risks and put a plan in place to manage them as best as possible.
- Determining all the options relevant to their circumstances
A great adviser will quantify the risks and reveal the alternatives that clients have in different scenarios (either one dies, both die, either/or are incapacitated). If your proposition was to analyse the risks a family faces and put solutions in place to mitigate those risks in the best way possible, insurance becomes a tool in your kitbag. Your advice includes the alternatives the family has, even if they don’t get new insurance cover – most people nowadays will already have some level of cover, however insufficient that may be, and they may have some assets they can liquidate. You can also help by providing them information on what government assistance they may apply for in the event of a catastrophe.
- Analysing the options and making a decision
You help them analyse whatever cover they currently have, educate them about what types of cover there are and what is the optimum mix for them and then crunch the numbers to determine not only the right levels of cover but the right types of cover, with the right features and benefits to suit their unique situation and budget.
- Ensuring the best structure for ownership, beneficiaries, tax optimization etc.
You’ll ensure all the technical details of their cover are handled properly. Without you, most clients would be lost when determining the best way to structure the ownership of their policies so that they can minimise tax payable, both on the premiums they pay and also on any payout that they may receive. You can assist them to understand the pros and cons of holding insurance via superannuation, considering such things as the harsh conditions of release for TPD, and the likely time frames for claims payouts based on ownership structure. You can also help them make an informed decision about whether to select level or stepped premiums, agreed value or indemnity, any-or own-occupation, bundled or standalone policies, and so on.
- Selecting the best product to match the client’s needs
You help them determine the right insurer for their needs and, if you’re doing your job well, work with them to determine the right balance between the optimum mix of cover and what they can actually afford. You’ll ensure that their policies are underwritten at time of application rather than claim, whilst helping them understand the power and importance of this fact.
Here’s a tip
If you find that you have a high percentage of clients who only implement a portion of what you recommend, you need to rethink your approach. This is not about ‘pitch high and hope for the best’ – when you truly act as your clients’ adviser, you certainly highlight the optimum cover but also work with them to find the levels that will be adequate and not send them broke. (Understanding their cashflows and living expenses plays a critical role here)
- Facilitating the application and underwriting processes
Once you’ve helped them decide on what, how, and how much to implement, you help them to understand and work through the underwriting and application process, keeping it moving and often negotiating with the underwriters to get the best offer possible. If there are any exclusions or loadings, you’ll help the client understand these and make an informed decision about proceeding. This process sometimes results in early detection of health concerns which, whilst potentially delaying insurance implementation, can improve the quality and length of clients’ lives.
- Claims advocacy and support
Perhaps one of the most valuable things about having an adviser is the ability to call on you when something goes wrong. Your clients take satisfaction that you will know if they should make a claim, and you will handle the paperwork and act as their advocate to liaise with the insurer on their behalf. Whilst you can’t guarantee a successful claim, you certainly can guarantee less stress and more time to focus on their recovery.
- Managing the claim benefit proceeds to optimize value
When that claim is paid, a good adviser will help ensure the proceeds are received and utilised in the most tax-effective way that will achieve the best outcome for the remaining family (think lump sum, reversionary pension, early release, and all the other options that confuse even the healthiest of people).
None of these important, achievable goals can be done through direct insurance, and they most certainly are not done when a client simply has default cover in their super fund.
Great advisers teach their clients (and prospects) that there is no point in seeking the cheapest insurance policy without an adviser, as insurance gets really expensive if it doesn’t pay out at claim time.
You inherently know that the value of your advice is really important and there are statistics to back you up.
Did you know that in 2015*, of the $7.2 billion in claims payouts to clients in need, $5.3 billion of that went to clients who had their policies put in place by an adviser? Think about how powerful that is, and what great value that represents!
This article is based on an extract from the third chapter of Worth Paying For (2016), written by Sue Viskovic. Sue is the founder of national consulting business Elixir Consulting.
Sue recently launched the fifth edition of the Adviser Pricing Models Research Report.
Who Will Pay For Advice?
WA adviser, Mark Rando, says there’s a misconception that people won’t pay for risk advice and uses his own business experience as an example of how it can be done…
An article in the West Australian in November last year, citing a report by Investment Trends, stated that there was a big gap between what Australians are willing to pay for advice and what it costs advisers.
According to Investment Trends, $750 was what people would pay, while the average adviser quoted a cost of $2,500.
I’d consider that conservative, to be honest! I find it’s more in the realm of $3,500 on average, and up to $5,500 for very complex advice.
I have written previously on the importance of making advice more affordable for people and while I think that government strategies that increase equity of access is important, there is a misconception that people won’t pay for advice.
I should know! When we looked at moving too a fee for service model in 2012, I spent a number of sleepless nights saying the same thing to myself.
But in the wake of legislative changes, I was also worried that a business model heavily reliant on ever declining commissions wasn’t going to work either. The reforms forced us to price every aspect of our service and become more business-like.
This shift was essential to developing a sustainable business model. The increase in the compliance burden required the hiring of two extra staff in our business and as a result our fees have increased by 40% over the last six years. Our doors wouldn’t have stayed open if we hadn’t made the change.
The fee we charge for our Statement of Advice service now ranges anywhere between $1,500 – $5,500.
You might think this deters people from agreeing to become our clients, but 95% of our clients remain average Australian families; not those of high net worth. And in the last five years we’ve experienced a steady growth of 5% per annum.
I’ve learnt not to assume what people are prepared to pay. They will – depending on what is most important to them.
I won’t tell you charging fees hasn’t been more difficult at times. Just recently I met with a new client who was hesitant about signing – it related to the implementation fee (about $5,500 in her case).
As a result of claw back, we now charge people the balance of the cost of implementing advice if they abandon their policies within two years. Previously, we didn’t recoup this cost. Even writing that these days surprises me!
While getting people over the line as clients has been harder at times, it’s not impossible. In the case of this client, she did go ahead and opted to pay the implementation fee on signing.
Overall, the outcome wasn’t surprising, given her age. As an aside, I find younger clients expect to pay for advice up front, as they would any other professional service. They don’t have the generational legacy of a ‘free advice’ mentality.
So, reforms aside, your business will have a bottom line. Know what it is and work your way back from there. Don’t be driven by the fear of what people will and won’t pay. If your service is where it needs to be, people will.
Mark Rando is the Senior Adviser and Managing Director of Rando and Associates (www.rando.com.au) based in Bunbury WA. He is a finalist of the AFA Adviser of the Year 2011, 2012 and 2013, a finalist in the 2016 Telstra Business Awards and is a former State Chair of the MDRT. He was recognised at the 2017 M3 National Conference, where he won a practice award for Outstanding Performance. Mark currently mentors other advisers in Australia and overseas. He can be contacted on (08) 9792 4800 or firstname.lastname@example.org
The views expressed in this publication are solely those of the author; they are not reflective or indicative of Millennium3 Financial Service’s position, and are not to be attributed to Millennium3. They cannot be reproduced in any form without the express written consent of the author.
This information (including taxation) is general in nature and does not consider your individual circumstances or needs. Do not act until you seek professional advice and consider a Product Disclosure Statement.
Rancol Pty Ltd as Trustee for The Rando Family Trust T/as Rando & Associates is a Corporate Authorised Representative of Millennium3 Financial Services Pty Ltd. ABN 61 094 529 987. Australian Financial Services Licensee, Licence No: 244252.
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