{"id":60226,"date":"2022-03-31T09:45:30","date_gmt":"2022-03-30T22:45:30","guid":{"rendered":"https:\/\/riskinfo.com.au\/news\/?p=60226"},"modified":"2024-10-30T08:43:46","modified_gmt":"2024-10-29T22:43:46","slug":"the-vanishing-insurance-agent","status":"publish","type":"post","link":"https:\/\/riskinfo.com.au\/news\/2022\/03\/31\/the-vanishing-insurance-agent\/","title":{"rendered":"The Vanishing Insurance Agent?"},"content":{"rendered":"\n
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Certainty Advice Group MD, Jim Stackpool, reflects on how the financial advice sector has evolved over the last 30 years – providing a context within which the number of risk focussed advisers in the Australian market has significantly declined…<\/h3>\n<\/div>\n<\/div>\n

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Know any life and personal insurance agents?<\/p>\n

My first training workshop was full of them.<\/p>\n

That was November 1989 at Greenmount Resort, Coolangatta.<\/p>\n

My \u201cAgent as a Business Person\u201d workshop aimed to assist attendees with the opportunities created by the Hawke government\u2019s tax deduction (up to $3,000 annually) to encourage contributions to Australia\u2019s newly mandated compulsory superannuation system.<\/p>\n

Today, however, there are far fewer life and personal insurance agents.<\/p>\n

Where have they gone?<\/p>\n

There is still demand and opportunities for their advice services.<\/p>\n

It is not as if their products suffered the same fate as Kodak\u2019s usurped by technology.<\/p>\n

Different Times?<\/strong><\/p>\n

Times are obviously different today.<\/p>\n

Thirty years ago revenues were weighted towards up-front payments rather than today\u2019s ongoing payments making growth in new clients crucial for an adviser\u2019s growth.<\/p>\n

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\u2019s ever-shifting regulatory frameworks.<\/p>\n

Back then, client retention was about reducing the reasons for clients to leave rather than today\u2019s continually delivering reasons for clients to stay.<\/p>\n

Casual retrospection can easily draw sneers and conclusions that the old days were full of \u2018sales-driven\u2019 cultures with clients being the fodder for overpowering product distribution machinery.<\/p>\n

I believe the shallow dismissal of any worthwhile insights from these times can miss some clues for the industry\u2019s future.<\/p>\n

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.<\/p>\n

Of course, today\u2019s 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 \u2018protected\u2019 with more regulatory hurdles, doesn\u2019t eliminate the noise or bias affecting the purchasing judgements.<\/p>\n

…most of my 1989 attendees were not selling insurance products, they were selling their role as their client\u2019s financial gatekeepers<\/p><\/blockquote>\n

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\u2019s financial gatekeepers \u2013 assuming a broader role than their list of products might suggest.<\/p>\n

And the majority of their clients valued it.<\/p>\n

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\u2019s financial psyche thirty years later?<\/p>\n

A baby was thrown out with the bath water.<\/p>\n

Business Models<\/strong><\/p>\n

When I was presenting that workshop in Coolangatta, Apple was a product company.<\/p>\n

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\u2019s first choice of gatekeeper. Their products, though good, simply became a means to access the shopping, entertainment, social media, and entertainment services we value.<\/p>\n

So? What\u2019s the connection with Apple \u2013 the world\u2019s most successful company today \u2013 and to advisers both today and thirty years ago?<\/p>\n

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.<\/p>\n

Despite the decades of headlines highlighting many stories about the financial crooks, the industry\u2019s 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.<\/p>\n

Unfortunately, the majority of advisers do not have a business model that aligns the value from this proposition with the pricing of this proposition.<\/p>\n

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…<\/p><\/blockquote>\n

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.<\/p>\n

The business model of most of those 1989 advisers was delivering value performing a gatekeeper role.<\/p>\n

But that model had a serious flaw.<\/p>\n

How those advisers were remunerated was not aligned on value but product distribution.<\/p>\n

The askew still exists today.<\/p>\n

Just recently the head of Australia\u2019s 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.<\/p>\n

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\u2019s second airport. Projects this size don\u2019t just need significant infrastructure, time and money, but different paradigms as to how future advice needs will develop.<\/p>\n

Who Is Next?<\/strong><\/p>\n

Considering the thinning of the ranks of personal and life insurance experts, who is the next gatekeeper at risk?<\/p>\n

Tax agents? Superannuation experts? Investment advisers? Mortgage brokers? Estate planning experts? Accountants? Stock-brokers?<\/p>\n

Without the over-arching business model supporting the financial advice gatekeeper \u2013 similar to medicine\u2019s general practitioner \u2013 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.<\/p>\n

This will not be serving or delivering Australians the value they deserve in their financial lives.<\/p>\n

What do you reckon?<\/p>\n

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\"\"<\/a>Jim Stackpool is Founder and Managing Director,\u00a0Certainty Advice Group<\/a>. This article was originally released by Certainty Advice in early March 2022 and is re-published here, with our thanks to Jim and his team\u2026
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