Fees For Risk Advice an Emerging Reality

1. It’s going to be interesting to see how things play out with FFS risk advice. If you charge a fee and dial down this breaks even but then need to charge for maintenance, reviews and adjust and of course claims. This makes how you get paid much clearer which is a good thing but does lead to unexpected costs at a bad times. It also reduces the sale value of a book of clients as there is no automatic revenue.

2. First question-has Mr Murmann any experience for at least 2 years of selling ONLY Risk in the mum & dad market or SME market. The theories are wonderful. And yes I may have a “limiting belief”on fees, but its based on real experience, not some MBA theory.

   In the M&D market, our ideal client is a couple 35 plus, large mortgage, school fees etc. That demographic has probably seen their parents buy life insurance and is certain fees were not involved. Over in the SME market, these guys deal with general insurance brokers who if they charge “brokerage”, limit it to $500. I know, I ran one for 5 years.

   I have been charging an advice fee for 2 years. Depending on my assessment of the client sitting in front of me, it ranges from $750- to $1250 for risk only advice, with commission on top. A fee larger than that with commission is just not on, except perhaps with professional couples and where value can be demonstrated.

   As Guy Mankey noted recently, LIF means reducing costs and sacking staff, or multiplying scale. If you look at FASEA, you will see a bias against large books of business where review is arbitrary. Reviews will cost us more in the future!

   In risk sales, there is no scope for the cross-subsidization of fees favored by some planners and mortgage brokers. The planners could be in strife now because COVID has lessened the spare dollars that average people want to invest, over and above the cost of insurance. And we all know additional retirement planning only occurs when the mortgage is paid and the kids are working- ie over 50. That is the Australian way

   Mr Burmann has a service to sell, and good luck to him. But he offers no solutions

   The real hindrance to advising of any sort and surviving is, as noted, all our extra FEES and compliance costs. Then there is the compliance load itself, where ASIC appears to believe that SOAs are TOO BIG but will not provide sufficiently nailed down guidance to AFSLs and their lawyers to stop the bullshit with the size of advice documents. Yesterday a lawyer told a stockbrokers conference that advisers should NOT just rely on meeting FASEA Standards and Guideline because the courts will interpret them as they please, but that un-certainty will take a decade to resolve

   As Richie would say, “simply marvelous”

   • Old Risky, well done yet again. Between you, Jeremy, ‘A’ and the other great guys I can’t think of anything else to say – you all make ultimate sense. My thinking is clouded these days, I’m not feeling too well, not coping too well with this idiocy from entities like self absorbed ‘Elixir’ and other entities so I’m glad you guys can still put a clear and powerful case. God bless you all and thank you.

3. Elixir Consulting and Sue Viskovic has been driving this agenda for a few years now.
   I have attended presentations of Sue’s almost 4-5 years ago and she was always planting the seed then, but I suspect it was a lot more to do with her drumming up business and being seen as a provocateur to the industry commission based model than actually delivering anything of value other than being seen to be progressive and challenging the status quo.
   I think Sue enjoys the limelight when it comes to this particular topic because she has been pushing it for a while now.
   I think there is a hidden agenda here in that her business can drive consulting fees in order to assist practices or licensees to transition their remuneration model.
   I am unconvinced whether the purpose of these reports is entirely for the benefit of the industry.
   It needs to be clarified of the 48% that supposedly ” charge fees of some sort “, the 21% that ether only offer the client a choice of fees versus commissions , exactly what percentage of those clients elect to pay fees only, commission only or a combination of both ?
   If the clients who are offered a choice elect to pay commission only and not fees, then the statistics must support the benefit of retaining the commission remuneration model.
   It appears that if 17% (of the 48%) are charging only fees and no commissions, this only equates to only 8.16% of the 100% of advisers that would be either offering a choice,charging a combination of fees plus commissions or charging the commission only model (52%).
   If 8.16% of advisers are charging fee only risk insurance advice, this leaves 91.84% of advisers that still rely on risk insurance commissions in some format simply because it is entirely unprofitable to continue placing risk insurance business at the current level of commission under the LIF model.
   I would suspect that perhaps the ideal model is to charge an advice fee plus the commission to ensure the total remuneration equates to at least the former Hybrid commission level to maintain practice and business viability.
   At the current rates of commission under LIF it has been a disaster which is now very evident by the devastating decline in new business volumes and an exodus of experienced risk advisers.
   It has effectively been a massive error driven by ideological agenda and not reality.

   • 100% spot on!!! These reports are generated solely for a self interest and a shift in the landscape means tonnes of lost businesses looking for coaching / guidance. What a farce of data, doesn’t represent reality

   • ‘A’ you are prescient on this matter and I thank you for your post. It is the style of common sense and logic we need so badly in our ‘once great’ industry right now.

4. Any report can be interpreted many ways, though harsh reality is the most comprehensive and balanced analysis.

   273 Business participants is not indicative of how the majority work and even based on this small research study, it clearly shows that charging fees for risk advice, administration, implementation and claims, does not work for the vast majority of Australians, who can not or will not pay a fraction of what it costs to provide.

   The Retail Life Insurance cannot survive on a small, select and elite group of advisers who charge fees.

   It is a numbers Business and when an Industry deals in claims that are in the Billions, then millions of New Business premiums cannot sustain this Business model.

   The solution was and still is, a need for more risk advisers, a Regulatory and commission model that enables the Life Companies and the Advice practices to build sustainable Businesses.

   What we have today is the exact opposite and all the platitudes of Australians being prepared to pay for risk advice, is lost in the harsh world, called reality.

   • Well said Jeremy, thank you!

5. If you want a full hard copy of this report it will set you back $1495 and if you want the ultimate Bundle deal it will cost you $1899.
   If you choose, you can spend this money on something the vast majority of experienced and knowledgeable risk advisers already know.
   That is, for the majority of Risk Insurance customers and prospective customers, the most cost effective method of obtaining advice and product is to have a sustainable commission basis which will ensure the client receives the correct insurance strategy at the lowest possible cost and the adviser is remunerated appropriately for their services.
   At present, this is not the case with the current LIF commission rates and this needs to be reversed to the original Hybrid 80/20 level to ensure sustainability and longevity of quality Risk Insurance advice businesses.
   Take an annual premium of $8000.
   Strip the commission out and the premium may reduce to approx $5600.
   If the commission remains at 60% , the adviser would receive $4800.
   No commission and the client then pays $5600 for the insurance product cost and the adviser provides an invoice for $4800.
   The client is now paying a total of $10,400 compared to the commission only model of $8000.
   This is a cost increase to the client of 30% compared to having the adviser fully remunerated via the current commission basis.
   Guess what…….if the premium was $8000 and the commission rate was 80/20 the adviser would receive $6400 and the client would still only pay $8000 in total.
   If anyone needs to scratch their head regarding this and try and work out why on earth the commission based remuneration model remains in the client’s best interest, when advisers are bound by the BID anyway, then something is seriously wrong.
   In addition, if anyone thinks that removing the commissions entirely and therefore removing choice from the client is somehow going to result in more affordable insurance advice to the consumer then you are grossly mistaken.
   The number of consumers of risk insurance will fall off a cliff along with the specialist risk insurance advisers.
   To date, the intervention and manipulation of the Risk Insurance industry by ideological and misaligned forces has resulted in a declining and dying space.
   This delivers no value to the consumer, no value to the insurers, no value to the advisers and no value to the Govt in regard to people taking responsibility and control over their financial safety net strategy.
   It has to date been a needless, dismal failure that should never have been allowed to manifest.
   it is time to fix the mess.

   • I used a similar example in RiskInfo a couple of years ago, when I asked Chris Unwin, another proponent that clients will pay for their risk advice, how a client is better off in paying a fee AND an insurance premium. He never responded. Also, you are absolutely spot on – this has indeed been a needless, dismal failure that should never have been allowed to manifest.

   • What they will want the adviser to do is to only provide an invoice to the client for $2000 thereby cutting the adviser remuneration to a point of no return.
     This will then result in a mass exodus of advisers and very few left to provide risk advice anyway, regardless of the remuneration type.
     It is a strategic and prolonged culling exercise driven by ideology.

   • While I agree with your sentiment and the outcomes of all the changes as someone that still does a lot of stand-alone risk advice, respectfully, that’s not how the insurance fee model works. It’s not designed to ‘match’ the commission you would otherwise have received, it’s a fee designed to be profitable to the business and reasonable to the client. If you can deliver Risk advice for say $4,000, then that’s the fee that should be charged irrespective of whether the premium was $2,000 or $12,000. This is the point of FASEA stating a “fee must be reasonable and provide value”.

     In your example of an $8,000 premium that reduces to $5,600, a business might charge $3,500 for the initial advice fee, then $1,100 p.a. for annual reviews and servicing.

     In year 1 it costs the client $9,100 (a ‘loss’ of $1,100 compared to paying $8,000 in premiums and the adviser receiving a commission), in year 2 they’d pay $6,700 (a gain of $1,300) ongoing (instead of pay an $8,000 premium), by year 10 they are up $11,700, year 20 $24,700 etc. The client recovers their cost in year 2 and is WAY ahead at that point.

     • So you think that you can charge a client ( in your Assessment ) $1100 on renewal of a life insurance policy ? After a large upfront fee to set it up in the first place?
       Is that per policy ? If you say provide 2 policies to Mr and Mrs Joe average with a premium of $5000 charge a fee of $3000 and the $1100 every year You are a genius ! or your clients gave been brainwashed ! I find it hard to believe whatever the percentage of savings over time. ( sounds like the level premium argument ) The very thought of paying an additional $1100 each year would be frowned on by 99% of clients of this type of mum and dad day to day lifestyles client.
       They have their cover why do they need an $1100 review every year?
       The fee structures I have seen proposed over many years are all faulty! Sorry ! But the only reason this fee business rose it’s ugly head in the first place was greed by the banks and insurance companies to save on outgoings
       The very reason most of this started and I have it on solid advice that ASIC thought we were paid too much for what we did !
       Ridiculous ? They just never bothered to really look into it and were guided by the FSC
       Wake up you proposers of fees For those that will a pay fee there are thousands that wont Not with premiums like they currently are and will only get dearer until someone throws a spanner at this mess and starts again

       • I don’t think it’s possible, I know it is. You talk like it’s impossible, yet a LOT of advisers are, and have been doing this for many years. A client would never pay X, they won’t save money… same rhetoric, but the reality is they will and do.

         I really don’t understand your argument or personal attack, it’s clearly an emotive subject for many people. I’m no genius and no, my clients haven’t been brainwashed. It’s simple math. If turning off my comms saves a client $2,000 p.a. and I charge $1,000 p.a., – that’s half the cost to them! every-single-year.

         You’re argument about why do they need a review, or even an adviser applies whether we receive comms or a fee. They are fee to go. And if a client wants to stop paying me a fee, but wants me to remain their adviser, I simply say, sure, I’ll turn off my $1,000, and your premium will go up by $2,000, what do you want to do? Guess what their answer is?

         Honestly, the only problem I’ve had is not the fee vs comms discussion, or whether or not they’d be better off (and some clients still choose a commission over a fee purely based on up-front cash flow), but it’s the clients ability or often willingness to fund it up front – to be clear, not their willingness to pay a fee, but that it’s all up-front. I regularly have clients say “I see I’d be much better off and I’d only pay as and when I need your services, but I have to pay you $x,xxx, right now?!” Even their insurance premiums are funded monthly, why can’t our fee be. Where we put a monthly DD in place, it removes that barrier.

         If insurer’s can build in an advice fee to their premium/advice fees and fund it that way like investment products, I’d say 100% of my clients would opt for a fee, paid monthly and a significantly reduced insurance premium.

     • Lets try and define ” reasonable and value” from the FASEA perspective will we?
       From an organisation driven by an ideological agenda from the influence of ex-Choice and consumer advocate individuals on the Board, their definition of reasonable and value would comparative to John Trowbridge’s.
       They have little to no understanding of the potential complexity and time spent getting insurance cover in place and what is involved so their parameters would be unrealistic at best.
       Secondly, they would only look at one aspect being the customer should receive the advice and product at the least possible cost, not the cost necessary for the advice process and to ensure the adviser can maintain a profitable business.
       Believe it or not, advisers don’t run their practice to simply provide the advice and service and break even.
       This is a business not a charity and the purpose of being in business is to make money and make a profit.
       It has long been pushed that the lower the cost, the better value.
       This is driven constantly from superannuation commentators and media junkie hounds like Scott Pape ( who only sells books from his barefoot farm and only provides general advice).
       Sometimes paying less might appear to be value, but eventually may cost a whole lot more.

       • I didn’t say anything about having to be ‘low cost’. I’d argue you have more control over your sustainability and profitability on a fee basis than a cross-subsidised comms model. As for managing complexity, see above.

     • This sounds fine in theory Brett, but the big problem I have with fees for insurance advice is that it’s so difficult knowing in advance what your likely costs per client are. (Unlike investment & super advice which is more predictable).

       While an “average” cost might be $3,500 upfront this can vary enormously depending on the complexity of underwriting. Similarly an average ongoing fee of $1,100 pa would be far too low in those years where there is a complex policy variation or a claim. The real costs per client don’t become apparent until well into the process, after the client has been quoted a fee and agreed to proceed on that basis.

       The commission system accounts for these variations through an element of cross subsidy from simple underwriting cases to complex, and from low service years to high service years. It as an extension of the risk sharing model inherent in insurance.

       If you try to apply standard fee based pricing based on average costs you will inevitably be charging some clients too much, and be delivering less service in some years for the same fee. This then creates all sorts of risks in relation to the FASEA Code and ASIC’s “fee for no service” quasi regulations.

       I’d be interested in your views on these matters based on your experiences.

       • Happy to Anon,

         Most of the ‘unknowns’ can be mitigated early on. We ask the client to complete what’s effectively a short-form medical and lifestyle questionnaire. We then determine if they’re a) insurable and b) complex before doing anything. If we need to account for complexity then and there, we can. And for unforeseen complexity, we have a disclaimer in our engagement that states that if they have not disclosed something to us that results in extra work, we will charge for that. Knowing this, it seldom occurs that a client discloses something on the insurance app that they hadn’t already told us. We pretty much know in every instance what we’re up for before we start.

         I disagree that the commission system accounts for these. We’ve all had those clients where we received say $3,000 in comms that cost us far more, and those where we received $10,000 in comms and barely had to do any work for it. I get that the way premiums are paid is built on risk sharing, as it should be, I don’t believe an advisers pay should be based on risk sharing though.

         I believe that if I service 400 clients, and this year none have a claim, I shouldn’t be charging them all (albeit a lower amount) for the ‘potential’ of a claim. I’d rather save them all money, and if someone has a claim, then they manage it themselves, or they pay for the service. If a client of mine has a claim, I provide the claim pack and offer them to either do it themselves at no cost, or I will do it for a fee after they receive their pay-out. I have clients opting to do either quite happily.

         I think it’s clear that one of the aims of recent govt. changes is to move to a fairer ‘user pays’ type model instead of ongoing engagements, trail etc. E.g. if I don’t need an Accountant or a Lawyer every year, I don’t pay them a trail, or a retainer in case I do. But when I do, I pay for it. That’s a professional service and clearly where the govt. wants us to be in the future.

         We should, in theory, be able to charge a client $2,000 for simple (clean skin) insurance advice, or $10,000 for highly complex advice. Similarly, $300 p.a. for a review meeting, or $4,000 p.a. for complex management. If usually the clients cumulative premiums reflect the complexity (I.e. number of policies, sum insured, structures, number of providers etc) and we turn off our commission, they clients invariably save money.

         Re ongoing’s the fee is for servicing and performing an annual review (admin, policy schedules, annual review meeting and a comparison against other providers, minor variations etc.). If they are seeking ‘advice’, it’s a fee. This doesn’t happen every year, and the client understands it’s cheaper for them to pay us a fee when required rather than a higher premium and thereby us indirectly via a commission.

         This is where the trail argument falls down for me. Many adviser’s say the trail covers ‘future work’?! So again many clients are subsidising the few. It should be a user pays model, just like every other profession.

         The issue we currently have is one adviser may charge a fee, the one down the road will ‘do it for free’ (I.e. trail commission) in the clients eyes. But when the time comes that we are all operating the same way, this will change. A client can’t go to one Accountant and get service for free while another charges a fee. They determine if the fee is reasonable and are they getting value, this will be us too.

         • Thanks Brett. Some useful insights.

           In relation to your ongoing service do you explicitly say in your engagement letter that claims assistance is excluded, and they will need to pay an extra fee or do it themselves?

           I think most clients would expect their ongoing service to include claims assistance, and would be surprised and disappointed if asked to pay extra at the time.

         • No problem.

           It actually says “we reserve the right to charge a fee if…..” etc.

           In reality, we make a call based on, again, complexity, and our time cost involved. For a straight forward claim where we may have a meeting, complete a form and expect the insurer to release the benefit easily, no we’d simply provide that service. But for complex, or ongoing (IP claims that run for months or years for example), we trigger our right to charge a fee.

           Anecdotally, I’d say 20% choose DIY, some come back to us willing to pay a fee once they realise what’s involved! Of the remainder, about 40% we do as part of our service, and 60% may attract an additional fee.

           In my experience clients get that we’re trying to run a sustainable business too. I’d simply explain to them that their claim is likely 30+ hours of work, their annual fee was not designed to accommodate an event such as this, and they accept that.

6. You must be kidding with your poll and findings …. sounds a bit like cr** to me.
   I have been a Life insurance adviser for 30+ years and I asked my clients the same thing and 85-90% said no way.
   It’s hard enough having people pay for insurance these days let alone trying to charge them a fee for it… Dream on !!!

7. I have never been a fan of “limited “ survey’s
   Who was asked ? What was asked ? And where were they working when asked and how was the question asked ( or worded) I have tried every angle now for 4 years and have never found anyone happy to pay a fee in fact so many ask don’t you paid a commission for this? They know how it has worked for years. For many this is not the first insurance policy they have taken out and they were not charged previously
   For the very few who said “ how much “ no one was willing to pay anymore than around $300 and we all know that’s not going to cover what has to be done .
   If there are people out there willing to pay a fee For “ Risk only” advice I would like to see what it is that they are paying for I assume a lot more than just a couple of life insurance policies you bought to protect the family You can get that over the phone for free ( right or wrong it’s available)
   Isn’t if time that these fee “ Floggers” woke up and realise commission is not a dirty word it has worked for hundreds of years through every industry and business and continues today In thousands more.
   We seem to be the only profession that gets this “evil commissions “ label And it’s sending this wonderful industry to the wall.

8. “Fees for Risk Advice an Emerging Reality” I call BS.

   Nothing is further from the truth. Sue Viskovic started promoting this concept in October 2011 as per the article in Risk Info archive titled “More Advisers Charging Fees for Insurance Services” That was 9 years ago next month. Lets talk about how successful this concept has been and look at Elixir’s own numbers in their latest report referred to above.

   The latest 2020 Elixir report is based on the findings from 273 Advice businesses made up of 714 Financial Planners and 59 Risk Specialists and some General Insurance advisers. Some businesses would have more than 1 Risk adviser possibly even 3 or more. Therefore we can assume that there are no more than 40 to 45 businesses Australia wide that are functioning this way.

   How many Risk Specialist advisers are there and other holistic financial advisers writing risk?Lets say approx 2,000 risk and 1,000 holistic advisers, there used to be lots more Risk Specialists but they are exiting in droves. How many businesses do the combined 3,000 advisers work for. Probably 2,200 businesses plus, as many risk writers are one person businesses.

   So Elixir thinks that to have approx 40 or 45 businesses Australia wide out of 2200 businesses writing risk using their fee for service model in 9 years is successful?. That works out to be approx 2% of all advisers who write risk. WOW what a raging success. Talk about spreading some fertiliser around.

   It’s not that you can’t do fee for service on risk advice its just that 90% plus of clients don’t like it. Yes there can be savings long term but the way insurance companies are being sold, turning products into legacy business, raising base rate premiums and altering policies how can anyone trust any insurance company. You used to be able but not anymore. Some companies are increasing base rates 3 out of 5 years. So when the fee for service client is not happy with their premium in 2 years then they have to pay again for the business to be moved and the so called cost reduction benefits of fee for service then don’t exist do they?. And also don’t forget the addition of ongoing review fees and a sizeable fee for service for the all important claims advice when they need it. Then wait 2 or 3 more years and repeat changing companies again as premiums become non-competitive and the client wants cheaper premiums.

   What a crock. Please back the Elixir truck into my driveway and drop off a load of fertiliser for my garden. Because that’s what this concept really is – nothing but fertiliser.

9. Viskovic has been sprouting this for years and it is misguided at best. Her reasons are unclear. I have proven to myself, as a pure risk adviser, fees do NOT work with risk client. I spent 10 years attempting to swap over and always reverted to commissions for the mathematical reasons so well detailed by other commenters on this page. I truly gave it my best and I had expert advice from investment advisers who successfully work on fees 100%. Risk clients simply cannot be converted to fees. Sue needs to go away, doing MUCH more harm than good. It is in fact tripe and the last things advisers need right now is more of this from these self interested entities, investment advisers, govts and complicit life coy execs. The risk adviser is under fire and you’re NOT helping Sue, you’re part of the problem we have. Congrats of the other commenters here, you have stated the case VERY well.

   • Perfectly said Squeaky1. Sue Viskovic is indeed part of the problem and in fact she has perpetuated this myth of fees for service for risk because it benefits her business. There is so much conflict in the life insurance industry that it is being systematically ruined.

     • Hi folks,

       Thank you for sharing your thoughts in response to our article. Given the nature of some comments I wanted to personally reply.

       To be clear, the purpose of releasing this finding is not to drum up business for our consulting firm. The purpose of releasing these findings is to demonstrate what some advisers are successfully doing – and to give hope to advisers who may be feeling it’s all too hard. The current 60% upfront commission amount is unlikely to cover the costs to deliver the advice and support to implement the policies – so as a business owner, you have a commercial decision to make. We hope that decision is to be open to new ways of thinking, not to leave the profession. We do not lobby government or insurers or support the view that risk commissions should be removed. We demonstrated in our submission to the Trowbridge enquiry that (at that time) it took on average, 8 hours adviser time, 3 hours paraplanner time and 5 hours of admin time to provide and implement insurance advice. We also shared the challenges with pricing risk advice. If you’d like some more factual information on what we submitted you can read it here – 5 years later, we know that the length of time and complexity in providing risk advice has increased, not improved with advances in technology etc as one might expect.

       Our Pricing Research includes a huge amount of data from a cross-section of firms – we don’t claim it is representative of the entire profession – 714 financial advisers, 59 risk specialists and 46 mortgage brokers from within 273 advice businesses are not the entire industry. Despite the significant team effort to pull this data together, we do it to understand what advisers are doing when it comes to pricing all of their advice. Given Riskinfo is a specialist insurance publication, we shared one of the findings on risk here.

       On a personal note – I’m disheartened to hear that you think I am ‘part of the problem’ when I share your passion to keep this profession alive and ensure that families get insured properly. My ulterior motive is to empower advisers and risk specialists to build sustainable businesses, as I passionately believe in the value of great advice – on insurance and ALL matters to do with family finances.

       Thank you again for your contribution to the discussion,

       Sue

10. The solution is to become a lawyer, collect 40% on lump sum insurance claims while ignoring IP claims. Further, you will have complete immunity from our privileged authorities.

11. It seems to me there are two distinctly different cost elements in the process which need to be viewed as separate matters.

    Firstly there is the cost of advice for the client. Ideally the client should pay this directly to the adviser.

    Secondly there is the cost of the adviser’s assistance with policy implementation and service for the insurer. This is an insurer cost. It is effectively outsourcing a service the insurer would need to provide themselves if the client came to them direct. Therefore it should be paid by the insurer to the adviser. It is not an additional cost to the client, it is built into the product cost, just as implementation and servicing costs are built into direct products.

    How much should the insurer pay the adviser for this outsourced service? On a percentage basis 60/20 is about right to cover this on average, although it is arguable a flat fee payment would be a better model.

    Obviously if the adviser (guided by BID) recommends an insurer that does all their own implementation and servicing directly with clients, then the adviser shouldn’t be paid by the insurer for those elements. But in those cases the adviser doesn’t have to do the (not inconsiderable) work either. The adviser should still be paid directly by the client for their advice in recommending the policy however.

    Historically, insurer commissions were higher because they also included a “sales” element. Whether we like it or not the concept of product sales is no longer applicable in the world of professional advice. So in the new world it is reasonable for insurers to remove that element of commissions and expect the client to pay a fee for professional advice instead.

    However we shouldn’t lose sight of the fact that a large element of commission was never for sales, it was for outsourced implementation and service. That element is still just as relevant and applicable in a professional advice world. Particularly when all insurers that use it pay the same government mandated rates, and legislated BID overrides any consideration of product selection based on revenue generated.

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