The Vanishing Insurance Agent?

Know any life and personal insurance agents?

My first training workshop was full of them.

That was November 1989 at Greenmount Resort, Coolangatta.

My “Agent as a Business Person” workshop aimed to assist attendees with the opportunities created by the Hawke government’s tax deduction (up to $3,000 annually) to encourage contributions to Australia’s newly mandated compulsory superannuation system.

Today, however, there are far fewer life and personal insurance agents.

Where have they gone?

There is still demand and opportunities for their advice services.

It is not as if their products suffered the same fate as Kodak’s usurped by technology.

Different Times?

Times are obviously different today.

Thirty years ago revenues were weighted towards up-front payments rather than today’s ongoing payments making growth in new clients crucial for an adviser’s growth.

Margins were fatter, encouraging fewer specialists and more suppliers. Compliance, disclosure and transparency were less scripted and built for the delivery of client services rather than today’s ever-shifting regulatory frameworks.

Back then, client retention was about reducing the reasons for clients to leave rather than today’s continually delivering reasons for clients to stay.

Casual retrospection can easily draw sneers and conclusions that the old days were full of ‘sales-driven’ cultures with clients being the fodder for overpowering product distribution machinery.

I believe the shallow dismissal of any worthwhile insights from these times can miss some clues for the industry’s future.

There were success factors back then, that are equally important today to understand why clients pay their advisers. Most of the participants in my 1989 workshop owed their success, not due to their sales charisma or scare tactics using heartfelt stories of the tragically under-insured.

Of course, today’s clients have more options and are more educated about financial services compared to thirty years ago. But as Daniel Kahneman continues to remind us in yet another great book, being better educated, better informed, better ‘protected’ with more regulatory hurdles, doesn’t eliminate the noise or bias affecting the purchasing judgements.

…most of my 1989 attendees were not selling insurance products, they were selling their role as their client’s financial gatekeepers

Though much has changed in thirty years of purchasing financial services, most of my 1989 attendees were not selling insurance products, they were selling their role as their client’s financial gatekeepers – assuming a broader role than their list of products might suggest.

And the majority of their clients valued it.

If they were so successful selling their role as financial gatekeepers, why is the financial advice profession derided and not earning a more respected position in the nation’s financial psyche thirty years later?

A baby was thrown out with the bath water.

Business Models

When I was presenting that workshop in Coolangatta, Apple was a product company.

Despite a tough decade in the 1990s, Apple re-invented, moving away from dependency on products (computers, iPods, and phones) to become an essential gatekeeper in the lives of many. For music, entertainment, news, communication, purchases, and software apps, Apple is many people’s first choice of gatekeeper. Their products, though good, simply became a means to access the shopping, entertainment, social media, and entertainment services we value.

So? What’s the connection with Apple – the world’s most successful company today – and to advisers both today and thirty years ago?

Many of the clients that bought from the participants in that 1989 workshop were not buying or valuing the products they were purchasing as much as the role the advisers were providing.

Despite the decades of headlines highlighting many stories about the financial crooks, the industry’s systemic structural flaws and the latest government promises of reform, back then as today, the majority of advisers set out to provide a role of trusted gatekeeper based upon an understanding of the broadest best interests of their clients and delivering services and products that aimed to serve these interests.

Unfortunately, the majority of advisers do not have a business model that aligns the value from this proposition with the pricing of this proposition.

The value of advice is determined by what is progress and of value for each client. It is not the neat sum of technical or product parts of the proposition…

The value of advice is determined by what is progress and of value for each client. It is not the neat sum of technical or product parts of the proposition.

The business model of most of those 1989 advisers was delivering value performing a gatekeeper role.

But that model had a serious flaw.

How those advisers were remunerated was not aligned on value but product distribution.

The askew still exists today.

Just recently the head of Australia’s largest advisory group (sorry, paywall link) predicted future prosperity and growth in advice thanks to simply jumping onto the coat-tails of a growing superannuation base from $3.4t to an estimated $9t over the next twenty years. Like many industry leaders before him, Renato Mota adds to the confusion surrounding the fundamental differences between the advice business model of product distribution and the advice business models of gatekeeping.

While reforms by the Australian Law Reform Commission to review Corporations Act Section 7 is an initiative that needs as much support as possible to help better legislate the business models of advice and product, this project is as big, difficult and political as Sydney’s second airport. Projects this size don’t just need significant infrastructure, time and money, but different paradigms as to how future advice needs will develop.

Who Is Next?

Considering the thinning of the ranks of personal and life insurance experts, who is the next gatekeeper at risk?

Tax agents? Superannuation experts? Investment advisers? Mortgage brokers? Estate planning experts? Accountants? Stock-brokers?

Without the over-arching business model supporting the financial advice gatekeeper – similar to medicine’s general practitioner – where remuneration is linked to value received rather than product provided, the future respect, reputation and prosperity of financial advice might resemble more of the last thirty years than its true potential.

This will not be serving or delivering Australians the value they deserve in their financial lives.

What do you reckon?

Back to Adviser Focus Main Page…