{"id":52294,"date":"2020-10-01T15:16:35","date_gmt":"2020-10-01T05:16:35","guid":{"rendered":"https:\/\/riskinfo.com.au\/news\/?p=52294"},"modified":"2024-10-30T08:45:23","modified_gmt":"2024-10-29T22:45:23","slug":"reality-of-fees-for-risk-advice-challenged","status":"publish","type":"post","link":"https:\/\/riskinfo.com.au\/news\/2020\/10\/01\/reality-of-fees-for-risk-advice-challenged\/","title":{"rendered":"Reality of Fees for Risk Advice Challenged"},"content":{"rendered":"\n
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Victorian risk specialist adviser, Andrew Dwyer<\/strong>, challenges the premise that a risk advice business can successfully operate under a model which includes charging fees for life insurance advice\u2026<\/h3>\n<\/div>\n<\/div>\n

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Having been open to the prospect of charging fees for risk advice in tandem with risk commissions \u2013 and having invested serious time, resources and effort into attempting to implement this model, Dwyer remains unconvinced that this proposition is a realistic, viable business model.<\/p>\n

This conversation relates to risk specialist or risk-focussed advice businesses. It does not extend to business models where the adviser\u2019s offer includes a financial planning proposition in which the cost of delivering life insurance advice can be absorbed or subsidised within the broader service package.<\/p>\n

Dwyer was motivated to have his voice heard following the recent debate in Riskinfo sparked by our report on the release of the fifth edition of Elixir Consulting\u2019s Adviser Pricing Models Research Report series (see: Fees for Risk Advice an Emerging Reality<\/a>).<\/p>\n

Significant debate followed the publication of this story, while the outcome of a poll we conducted which sought the views of Riskinfo readers appears to support the conclusion that the majority of advisers agree with Dwyer (see: Most Advisers Reject Fees for Risk Advice<\/a>).<\/p>\n

This chart summarises the results of the poll:<\/p>\n

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In speaking with Riskinfo, Dwyer was at pains to point out that his efforts in exploring the possibility of fees for risk advice reflected a \u2018real-life\u2019 rather than a theoretical experience.<\/p>\n

He says that as an adviser whose passion is providing life insurance advice services, he has always been open to both sides of the ‘commissions versus fees’ debate and to trialing an advice proposition built around a combination of advice fees and commissions.<\/p>\n

Dwyer\u2019s blunt message, however, based on his own experience, is that this model does not work.<\/p>\n

While he had already been moving to a hybrid commission model prior to the implementation of the Life Insurance Framework reforms, Dwyer says he seriously explored the business proposition where fees for risk advice acted as a supplement to the 80\/20 hybrid commission model, followed subsequently by the 70\/20 and eventually 60\/20 mandates.<\/p>\n

In exploring this model, he included different fee options in his clients\u2019 Statements of Advice, which offered fees-only, a combination of fees and commission and commission-only options. In this trial phase, Dwyer says 100 percent of his clients and\/or prospective clients rejected any pricing option which included fees.<\/p>\n

He says the demographic range of his clients in this trial process extended from high-end \u2018full advice\u2019 clients who were also charged advice fees on superannuation and investment advice to \u2018mums and dads\u2019 clients whose annual life insurance premiums were $2k or less. He also noted that his under 35 YO clients overwhelmingly rejected any fee option, including the combined fees\/commission model.<\/p>\n

…the advent of the Covid-19 pandemic has seen this willingness from clients to pay even a small fee evaporate<\/p><\/blockquote>\n

In 2017 Dwyer says he began modifying his client conversations around fees and commissions to include smaller fee levels in the region of $200 – $300. While he says he was beginning to experience some engagement at that level, the advent of the Covid-19 pandemic has seen this willingness from clients to pay even a small fee evaporate.<\/p>\n

At present, Dwyer says his advice business only remains viable because of the smaller proportion of his client base who receive a more holistic, comprehensive advice service including super consolidation services, cashflow and pre-retirement advice.<\/p>\n

His point, though, is that he would prefer to focus almost entirely on life insurance advice because this is where his passion lies and this is the area where he believes he can make the biggest difference in the lives of his clients. He doesn\u2019t want to extend the scope of his advice proposition just to ensure his advice practice remains viable. But he believes he has no choice.<\/p>\n

Dwyer says he has left no stone unturned in his willingness to find a solution for his business which at least incorporates some form of fees for risk advice to accompany his commission income. This includes engaging business and financial coaches, seeking feedback from licensees and advice peers and subscribing to research and other publications which address this issue.<\/p>\n

…listen to your clients<\/p><\/blockquote>\n

\u201cIn the end, listen to your clients,\u201d says Dwyer, who have delivered him a resounding \u2018no\u2019 to any form of meaningful fees for his advice, whether stand-alone or in combination with commissions when appropriate.<\/p>\n

While he appreciates the argument from business coaches about how to enhance the value he delivers to his clients, \u201c\u2026if the clients don\u2019t see it, well, that\u2019s where it\u2019s at.\u201d<\/p>\n

Referring to other examples reported in industry media, including in Riskinfo, which have pointed to the successful implementation of a combined fees and commission model for a risk-focussed business proposition, Dwyer says \u201cNo-one can really show me the true, hard stats that say \u2018this is how you do it\u2019.\u201d<\/p>\n

He adds, \u201cIf they can do that, then I\u2019m still onboard and I\u2019m happy either way.\u201d<\/p>\n

Bombora Advice case study<\/strong><\/p>\n

Lending weight in support of Dwyer\u2019s position is Bombora CEO and Founder, Wayne Handley<\/strong>. Referencing another \u2018real life\u2019 case study, Handley highlighted Bombora\u2019s experience in dealing with one of Victoria\u2019s largest and most successful regional accounting firms. He told Riskinfo the firm had reached an impasse in their business in which their financial planners – following referral of the client to them by the accountant – had introduced fees for providing life insurance advice.<\/p>\n

Handley characterised this initiative as \u2018spectacularly unsuccessful\u2019 \u2013 an initiative which led to ever-increasing reluctance from the firm\u2019s accountants to refer their clients to the planners where the client was required to pay a fee for the ensuing life insurance advice.<\/p>\n

Bombora was called in by the firm to take over that portfolio for reviews, claims services and ongoing advice, the outcome of which Handley described as \u2018spectacularly successful\u2019. He says Bombora advisers provided advice to 50+ of the accounting firm\u2019s clients in the first six months of the arrangement, which experienced a three-point \u2018Win\/Win\/Win\u2019 outcome, namely:<\/p>\n

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  1. The client is now in a far better position because they\u2019ve been able to access life insurance advice<\/li>\n
  2. The accountants and financial planners have met their best interest obligations<\/li>\n
  3. The risk exposure to the financial planning part of the accounting business has been significantly mitigated<\/li>\n<\/ol>\n

    Handley reinforced the point that charging any form of fee for life insurance advice \u2013 in the cold hard light of day \u2013 does not work and will not support a viable advice business because, in reality, clients are rejecting the notion of paying fees for life insurance advice.<\/p>\n

    In affirming that Dwyer and Bombora were in the business of saving lives and saving livelihoods, Handley said their future rests in focussing on ways of engaging more consumers in life insurance discussions: \u201c\u2026not charging more, but seeing more people.\u201d<\/p>\n

    Handley continued, \u201cWe want more clients receiving more life insurance advice in Australia and we know the current [commission-based] model works.\u201d<\/p>\n

    Meanwhile, the agenda for Dwyer is to find the hard data \u2013 the \u2018proof\u2019 that demonstrates it really is possible to operate a successful risk-only advice business on a model that combines fees and commissions. His preference is to not deviate from the specialist model.<\/p>\n

    Handley\u2019s final message was also clear: \u201cIn the end, it\u2019s about client choice. And at the moment, our clients are choosing 100 percent – one way.\u201d<\/p>\n

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    \"\"<\/a>Andrew Dwyer is a Geelong-based financial adviser, specialising in risk advice.<\/p>\n

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    \"\"<\/a>Wayne Handley is Founder and CEO of risk specialist advice licensee, Bombora Advice. <\/em><\/p>\n

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    Back to Adviser Focus Main Page…\u00a0<\/a><\/p>\n\n","protected":false},"excerpt":{"rendered":"

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