Adviser interest this week was drawn to our latest poll, which raises the question of the merits – from a small business perspective – of the impact associated with a reduction in operating costs relative to an increase in business revenue…

A 20% increase in risk commission caps will mean more for my business than an equivalent reduction in the cost of providing my advice services.
  • Agree (66%)
  • Disagree (26%)
  • Not sure (9%)

The purpose of this poll is to address the question of whether reducing expenses has the same impact on an advice business as an equivalent increase in revenue.

For advice businesses – or, indeed, for any small business – it’s often acknowledged that ‘cash-flow is king.’ In other words, the life blood for any small business is cash flow – and while reducing the cost of providing a service technically has the same impact on bottom line profitability, small business owners would almost invariably opt for increased revenue over an equivalent reduction in costs.

This perspective represents the argument that increasing hybrid life insurance commission caps from 60% to (say) 80% would deliver a better outcome for most or possibly all advice practices, compared with a scenario under which the practice’s costs reduced by an equivalent amount.

reducing …red tape …may ease the commercial imperative advocated by many for an increase in hybrid commission caps

The reason for this conversation relates to industry conversations in the lead-up to the finalisation of the Quality of Advice Review recommendations, in which it appears there has evolved a school of thought that reducing the red tape around delivering advice – and therefore the cost – may ease the commercial imperative advocated by many for an increase in hybrid commission caps under the Life Insurance Framework reforms.

Where do you sit on this question? For some – probably many – advice practices ‘doing it tough’ at the moment, there is a critical need for both to occur, that is, to experience both a reduction in the cost of delivering advice and an increase in the maximum revenue they are allowed to earn.

If you’re working in a small business, as is the case for most financial advisers, does increasing revenue mean the same thing to you as reducing costs?

Tell us what you think and we’ll report back next week…

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3 COMMENTS

  1. Surely, reducing costs works for all and hopefully keeps expenses down ongoing. Increasing commissions would help those who write a lot of insurance new business on the current ‘upfront’ model. Would more write insurance if the comms were increased? Or are many advisers just ‘over it?’ I would think a lot of New Business would be required to make the impact needed, and many now are writing on a hybrid commission model due to the claw-backs and longer-term income. Either way, both would be better!

  2. In the current environment, each new client can create a substantial initial loss, so increasing the revenue by 20% would help.

    Reducing costs by 20% can be a great outcome, so long as the service and capability does not diminish.

    Amanda makes a valid point in that it has become so much more than a 20% variable.

    Advisers and Practice owners are exhausted by the constant threats and risks they have endured for over 10 years and are literally, “over it.”

    What we are aiming for next year, is to turn angst into excitement and a purpose that has been lost in recent years.

    What everyone wants is some certainty of tenure and something to aim for with out the negativity that for the most part was totally unwarranted.

    If the AFA, FPA or a blended association want to build Adviser loyalty, then they need to take on all comers who are out to denigrate Advisers with little to back up their assertions and this means ALL parties, including Government, Regulators, fringe dwellers like Choice who have a lot to say and not much credibility, plus vested interest groups who have caused so much of the debacle, knowing there was weak representation to attack them and their one sided views, that focused on their bottom lines at the expense of all others.

    • Jeremy, even though I’m out now I feel compelled to say thank you for all you continue to do for the industry through your work and advocacy. If there is any chance whatsoever of new entrants being ushered into the industry, being made successful and rebuilding adviser numbers then it is only people like you who are going to make it possible. Cheers and all the very best.

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