Fees For Risk Advice?

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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…



14 COMMENTS

  1. What does the article mean by Fees? Are you dialing out commissions 100% for all years? Are you still taking commissions upfront and trail? Are you taking commissions only in the 2nd and subsequent years? All these questions are paramount when discussing a risk only fee for service model.

    With compliance being so onerous now, doing anything for a client involves a minimum of 10 to 15 hours from start to policy issue. That’s somewhere between $1,500 to $3,000 depending on your chosen hourly rate. Many would argue that with the advent of increased compliance, the Education Standards, the Entrance Exam and the 12 months supervision and most importantly FASEA’s ridiculous 12 Standards, then a very base level hourly rate needs to be $200 ph +GST (I’m suggesting more but lets leave it at the bare minimum) making the total minimum advice fee for Risk only approx. $2,200…and that’s absolute rock bottom minimum. If we assume you are dialing out 100% commissions for all years, then the premium savings are approx. 30%…30% was what is was years ago but I have not and will not net an insurance product premium ever again unless it is the law, so I’m assuming it is the same now. When a fee of $2,200 is charged, the premiums the client pays needs to be $7,333 to break-even compared with commissions. i.e. When the $7,333 is netted it equals $5,133, so whether you charge a $2,200 fee or take full commissions, then client is at break-even in the first year. But you as the adviser are down by approx $2,000 if you took the 60% upfront comm. That’s the first year…Then you have the difficult conversation with the client in 12 months time at anniversary, when you go back to them and ask them to pay a renewal fee for potential claims management and policy maintenance. Question…how much is this renewal fee for risk only going to be? Most of the time the client will question what you will do this next year because it took 6 months for you to get the policy completed and issued, so arguably unless you are sorting out a claim, then you are going to find it very difficult to continue to charge a fee that will assist you to stay in business…remember we are only referring to Risk ONLY clients and not other rubbish like the adviser positioning themselves as the investment guru who outperforms the managers and the market…you all now what I mean. RISK ONLY FEES and no commission is NOT VIABLE…EVER!!!

    • In your – completely reasonable – scenario, you’ve assumed the case goes through, highlighting the difference for the client.

      But what about when the case doesn’t go through? You’ve then incurred those costs with no return.

      I know the answer is always to pre-assess carefully, etc – but even so, you’re still investing time, effort and risk up to that stage.

      Put aside the perceived benefits to the client and focus on the costs you incur as an adviser.

      Why should you not be paid your true worth simply because an insurer declines a case? Have you not committed hours of your valuable time and energy? Have you not brought years of experience and knowledge to the client? Are you not saving them the hassle of dealing with an insurer on their own? Are you not taking on the entire liability of making sure this advice is in their own best interests?

      We need to stop devaluing what we do – it’s not easy or simple! Sure, it might be for us, but that’s the value for clients.

      You deserve – we all do – to not have your income dictated by factors outside your control.

  2. Even if the argument being presented, is a fantasy of a combination of fees and the full current commission structure, it still falls back on clients being willing to pay for the shortfall, which they are not.

    This continual theme of clients paying for advice, ignores that the advice component is the least cost to a practice.

    Life Insurers are inefficient and incapable of clear and concise correspondence to us and our clients, which adds a considerable amount of time and cost to advice practices, who must fix up and make sense of the convoluted jargon issued, then try and appease clients who either confused, outraged or both.

    Inefficient Life Company systems, is a major cost and time impost on advice practices, so who pays for this?

    It appears that the fee for advice advocates, are happy for clients to pay. Wrong.

    The Life Companies are on a road to perdition and cannot see, or refuse to see that they have sown the seeds of their own demise if they do not change their attitude and start implementing proper systems and efficiencies so the Industry can move forward.

    Fees for Life risk advice, up to a very small fee, could be achieved for some Australians and will alienate the majority, who will walk away. Hardly a success story.

    • Do we really know that clients are unwilling to pay a small advice fee, while the adviser retains the reduced 60/20 commission for implementation and service?

      I have seen a lot of commentary about adviser’s experiences in charging a large fee for advice and service combined, while dialling down the commission. Most say that clients reject it because the total upfront amount is too high.

      But I’ve not heard of any adviser experiences trying to charge a small fee for the advice component alone. I’m not sure it’s reasonable to assume high client rejection rates of a large fee covering everything, would translate to similar rejection rates of a more hybrid model involving lower fees and lower commission.

      • My experience is it doesn’t work. I had 2 referrals last week and their insurance quotes came in at less than $70pm. I told them i would charge a small fee on top of the commission i would receive and both said they would look elsewhere. I don’t blame them when they could go online to one of the direct insurers and end up taking out cover with no fee involved.

        • I’m not sure that’s such a good example. For only $840 pa premium no adviser is likely to cover their costs even in the old world of 100% commission.

          The idea of a hybrid fees/commission model is to restore profitability in an environment of declining commissions, and to clearly delineate between advice & service components. It is not to turn opportunities that are so small they would never have been profitable under the old rules anyway, into newly viable opportunities.

          • Hence why i was going to charge them a fee as I don’t enjoy turning people away who need access to competent risk advice. Whilst i agree a premium that low would still not have been possible on 100% upfront commission my point is that the majority of people are not willing to pay a fee for risk advice. Happy to hear about some of your experiences ‘real world’ experiences…..

  3. Elixir Consulting and Sue Viskovic has been trying to ram this Fee for Service on Risk for years! Seems like they’re trying to make themselves revolutionists and relevant to the Financial Services Industry. Move on Sue, the bus has left on this one as fee for service on risk will leave people who cant afford to pay fee for service on risk vulnerable and without any suitable and appropriate insurance cover. Sometimes I wonder whether you’re pushing your barrel for the FSC on this one!

  4. The only thing this repetitive conversation on fees for risk only insurance is doing is keeping us all commenting week after week .
    And yes we all keep saying the same thing It won’t work and change is needed!!
    If you have not already read the interesting comments in relation to the removal of risk commissions in New Zealand ! Do it now ! It’s not going to work is the resounding message that they see from what appears to be a far more involved assessment of clients and the effect on under insurance and the effect the removal of this form of remuneration will have on society and the country. Far from the “ flawed” reports that started this whole outrageous issue here and continue to show their ugly head time and time again.
    FASEA legislation is a joke ! Not a clue on how the industry and those in it work or actually treat their clients!
    99.9 % with respect and their clients best interests at the forefront . No industry is perfect and never will be no matter how much so called education is pumped into them . We don’t need exams and in depth study to know right from wrong but it’s getting shoved down our throats anyway. It should state “ be warned” do the wrong thing and your gone !! Not for 3 or 5 years “ Gorn” full stop !!
    I think every comment so far says in some part of the commentary states that fees do not work on risk cover alone but can be incorporated into a histolic advice process including Super investment advice home loans and god knows what else with a bit of let’s put some life cover into all this for good measure and that will cost you X ! We do not all want to be Financial planners with more letters after our name then brain cells and have no conception of Empathy or true client assistance apart from supplying a “ bunch” of figures and an invoice !!
    What is this ongoing BS about commissions being the “root” of all evil ?!
    Give it a rest !!!
    Accept it as part of the solution not the problem !

  5. For some time now, there has been tremendous discussion on this subject between proponents of fees for life-risk insurance and those who say it doesn’t work.

    To my mind, the only advisers who will effectively move clients to pay risk insurance fees are those who provide holistic advice, namely, financial planners offering both investment advice and insurance advice. Perhaps a complex formula might be reached to offset commission loss, but I haven’t seen one yet that seems feasible.

    As it stands, selling the concept of fees instead of commissions for risk-only advisers delivers the death knell for their businesses. Such businesses are no longer viable EXCEPT for those who deliver advice for HNW clients or have affiliations with financial planners. By itself other than
    those, the future isn’t just cloudy, it’s a full-on Force-10 gale.

  6. One thing I would say about the fees vs commissions debate is that I believe it’s time to review whether commissions are actually good for ADVISERS.

    Think of all the time you spend working on a case, the liability you take on with each piece of advice and the surprises that tend to pop up in underwriting (even after a forensic pre-assessment) – only to have the decision of whether you get paid depend on a third party’s willingness to accept the risk.

    Oh, and how much you get paid completely divorced from your own costs.

    For mine, I think the commission system takes advantage of advisers, exploiting their willingness to provide free labour in return for speculative income.

    In the new world – FASEA, lookbacks, clawbacks, 60% upfronts, ballooning compliance, the whole shemozzle – I think that’s got to stop. There’s so much more involved in risk advice now, beyond ‘simply’ getting a policy across the line now.

    So I’ve decided no more risk advice at a loss, or for free, so fee-only. I’d rather spend time wiht my family or read a book than go through an entire, costly, advice process only to find out an undisclosed medical condition killed the entire deal.

    Does that mean clients I’d have helped in the past for commission-only lose out? Yes, sadly it does. Does it mean I’m writing a lot less risk – oh, absolutely. But am I getting paid for my time, expertise and liability by the few people happy to engage me on those terms? You bet I am.

    It’s not our role to save the public from the terrible decisions of those in charge. Somehow we’ve had this myth foisted upon us – that it’s up to us alone to fix all these ills.

    It’s not. Our job is to provide great advice in a sustainable way to those clients that value our services, without putting ourselves or our families at risk of financial oblivion.

    And I don’t think that’s compatible with commissions anymore.

    • Totally understand what you are saying and once-upon-a-time when the industry worked,
      you would cop it on the chin and take the good with the bad…in-other-words…what
      you dropped at the swings you would pick up on the merry-go-round…now it doesn’t
      work and we find ourselves competing for new business with nil advice models…the
      client doesn’t care, they just want to know they are covered and what’s bad
      about nil advice…the client has no idea if they are covered or not but don’t
      know that they don’t know. Then they meet you and now you have to have a conversation about the time involved and position your fee and gain commitment upfront and they have no idea what you are going to do for them or what it’s going to cost (GREAT MODEL…NOT!!)…which doesn’t motivate them at all…

      All weare doing right now is treading water and hoping the batteries in the EPIRB don’t
      go flat.

    • Sounds very honourable for your family and yes our time is worth more but the fact remains people prepared to pay a fee are few and far between
      We compete daily with industry funds and their internal covers in Super ( good or bad) and to an extent each other ?? and people simply like the idea of having funds paid from an area that does not effect their own pocket directly ? Out of an area many will not see for decades! And retirement is a dim light way down the tunnel .
      I assume you must have a great trail commission as in my business I don’t get enough people through the door to pick and choose who I will and will not assist !
      Looking after a few small life policies at an initial lose will correct itself over the years with renewal commissions and to open the door to assisting in other areas
      Yes we deserve a fair “shake” when it comes to our monetary value but let’s not overdo it Some of us have too high an expectation of our true value and bite of our nose to spite our face ??
      Turn them away and they will simply go to the on line insurers for free or the Industry Funds will “gobble” them up

  7. To all Risk Advisers

    It’s pretty obvious to anyone with a brain that the life insurance industry is in a death spiral and is unlikely to change anytime soon.

    I suggest advisers either learn to live with the changes and adapt their businesses or seek a career move. Commenting on these FSC funded forums is just negative energy and a complete waste of all of our time.

    No one is listening and no one cares!! Advisers and clients are just collateral damage.

    Have a great weekend.

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