Is it a realistic expectation that a risk-focussed advice practice should be able to develop a sustainable business model based on a combination of advice fees and commissions?
- No (63%)
- Yes (31%)
- Not sure (6%)
This poll is asking whether you think fees for risk advice will work.
Elixir Consulting’s new Adviser Pricing Models Research Report, which found that more advisers are building fees into their risk-only advice proposition has elicited huge debate from Riskinfo commentators in the past week (see: Fees for Risk Advice an Emerging Reality).
The report looks at the pricing models used by 273 advice businesses around Australia and at how advisers charge for their life insurance advice.
In focusing on the relevant findings for insurance-only advice the report found that 52 percent of advisers surveyed said they operate on a commission-only model and never charge a fee for insurance-only advice.
However, the report says this means 48 percent of the participating advisers charge fees of some sort. Of these the report says 17 percent charge fees alone; 21 percent give clients a choice of a fee or a commission while 62 percent charge fees in addition to commissions.
But this is hardly a new debate. Research from MetLife released in January 2020 suggested many Australians would prefer to pay an upfront free for life insurance advice if this translated into lower premiums over the lifetime of the policy (see: Fees versus Commissions).
At that time when we asked advisers about the proportion of clients they estimated would be prepared to pay a fee for life insurance advice an overwhelming majority shot down the notion, with 69 percent saying less than 20 percent of clients would (see: Fees For Risk Advice Not Realistic).
And as one commentator noted last week: “… 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 commentators … 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…”
Another commentator to our story stated: “… If you compare the cost of commission-paying policies to direct policies with similar features, they are not more expensive. In most cases they are actually cheaper, in spite of the commission. This is because direct insurers need to cover all the costs of onboarding and servicing a client. Commission paying policies outsource much of this work to advisers. But it is still a necessary product cost either way, whether it is absorbed internally by the insurer as an operating cost, or paid by commission to an adviser…”
So, do you think fees for risk advice would work? We are keen to know your views and will report back on the outcome next week…