According to Elixir Consulting managing director Sue Viskovic, research by her firm shows advisers who do not accept commissions on risk charge clients an average of $2,039.
“We know that is still probably on the low end,” she said.
“We’ve done a lot of work with advisers and analysed their businesses and analysed what it takes to get policies in place and we’re usually finding the minimum usually sits up closer to the $2,500 [mark].”
She suggested advisers charging below this minimum fee may be failing to make a profit.
“It’s either those advisers are particularly efficient or they haven’t undertaken the process and they don’t know that it costs a lot more than that,” she said.
“There are actually 22 per cent of participants who charged between $500 and $1,500 and in my professional experience, they are probably losing money on those clients.”
Nonetheless, Ms Viskovic suggested the proportion of advisers charging a fee for risk, rather than accepting commissions, was growing.
“Even if we’re talking about purely risk-only advice, there were 10 per cent of respondents that charged a fee only, and they either refunded or they write the policies with no commission,” she said.
“You might think 10 per cent is not a lot of people but that’s a really significant increase from previous years.”
Gerald, if you need to spend $5,000 of your time on doing an insurance review of an existing client, there is something seriously wrong. Can I suggest another career perhaps?
Efficiency is not one of your strong points.
Many highly qualified lawyers can run a court case for circa $5,000. And I might suggest that doing so is a little more challenging than pressing the refresh button on your risk-comparitor software to view some insurance comparisons for their insurance review.
Some FSPs think they have a god-given right to earn $500k plus. Sorry, but you don’t.
[quote name=”Gerald”]Who ever suggested that Life Risk writers are embracing fee for service?
‘Those that are, I hope they go broke soon’,
This is a bizzare comment! Especially when you back it up by stating that fee for service advisers should then charge multiples of $5k for ongoing service and claims? Are commission based advisers getting these levels of fees via commission, ‘no’. I agree that the entire insurance process takes many hours to undertake, to my way of thinking this makes a mockery of commission based revenue, there is no correlation between the hours of work you do and what you get paid, a $1,000 commission could cost you ten times that amount to service. I have no bias toward either remueneration structure, I do however find your comments to be leaning towards bagging fee based advisers when it is not them fuelling the debate! Bizzare.
If fee for service must be embraced, advisers should have to do nothing more than recommend the policies and $$ cover. Following this the life company handles all the rest. Before long the life companies will go broke when they realise how hard the other parts of the process are. Then they will re-introduce sales agents (like the 1980s) and the merry-go-round world of insurance distribution is complete.
I’m with you Gerald. This debate is more based on political correctness than clients needs and wants. We need to be able to tick the client box and the adviser box and if you can’t make it pay it won’t happen. The moral crusaders of the risk fee for service model appear perhaps to be cross subsidising the service…… perhaps.
Why are the real costs of insurance advice so high? Part of it is due to the inefficient new business systems and processes used by the insurers. Operationally, most of the life insurers are still stuck in the 1990s. Sure, there are other aspects such as excessive regulatory costs, but operational issues are within the insurers’ control yet they choose not to fix them.
This is a direct result of FOFA, David Murray and Peter Kell, OMG. In y experience the industry has not only taken away, VB, incentives and financial support, but its saying we should be paid only $150 an hour. Practices cant survive this way and if it continues it will destroy the industry, Commissions were worked out by actuaries and for the viability of the practice as well as the industry they support. This is about the big industry moving from the third party independents, to an in house distribution only, This will be the end of Insurance advice and will only increase underinsurance.
Who ever suggested that Life Risk writers are embracing fee for service?
Those that are, I hope they go broke soon, if they are charging fee for service it ought to be $5,000.00 p/a. Then a review fee of $5,000.00 p/a, then in the event of a claim $5,000.00,the last Claim I saw took 4 months and daily contact with the FSP and the Estate. The real cost of delivering Life Insurance through to claims, is well into the tens of thousands. This idea behind such high commissions was simple, The FSP did not want the adviser to go broke, Now all these educated derelict University qualified morons, can see the effects of FOFA and the playing with Commissions.
Let me tell you a good adviser spends many, hours putting a risk portfolio together, 3 hours research and KYC, then quotes, then an SOA, then an application, then underwriting, then completion, then each year when the clients get a renewal notice, then at time of claim,
Interesting conversation to have. Given the insurance levels in Aust. and overall apathy towards it – would you look to price correctly for profitability or would you price at an engaging level and focus on volume, conversion and/or profitability in other service offerings?
We keep daily time sheets which capture all client related time. From experience I can tell you that we rarely break even on insurance related work. Even on a commission based model for your average insurance policy the amount of time based work required is not often exceeded by the upfront commission. It will be interesting to see the latest round of recommendations unfold that are suggesting that upfronts cannot exceed ongoings, commission based planners will have significant pressure put on time cost and efficiencies, and fee for service planners will be hard pressed to compete with those making a loss on commission based models.