Earlier this month, former APRA member Mr Trowbridge said that the way advisers are remunerated has caused a structural problem within the life insurance industry.
Responding to this, Certainty Advice Group founder Jim Stackpool said Mr Trowbridge’s comments should be viewed as an opportunity for advisers to look at new ways of delivering advice.
“What’s different about financial services industries is the speed of converging changes caused by technology, regulatory reform and consumers demanding more value for money,” said Mr Stackpool.
“It’s the confidence and sense of security that great advisers have always provided their advice to clients. Shifting their remuneration models to better reflect the value they add is becoming more and more a necessity.”
Mr Trowbridge said at the FSC Life Insurance Conference in Sydney on 16 March that commissions have become the normal form of adviser remuneration.
He further added this creates a conflict of interest, especially where the initial commission on a new policy and replacement policy exists materially higher than renewal commission.
Principal of TWD Troy MacMillan said he feels for those advisers who still regard their business success as dependent upon commissions.
“Good advisers realise that their clients are not buying products but relationships with providers of products,” said Mr MacMillan.
“Many advisers still aren’t confident enough to uncouple their products and their pricing.”
Scott Girdlestone, director of wealth advisory for William Buck, said his firm has worked hard to remove any real or perceived conflicts regarding how we recommend and price our advice.
“Our clients not only accept it, we know they find our approach refreshing.”
Peter, have you ever compared direct policies like for like with retail adviser policies? The end result is people pay more(even after commissions) and receive inferior policies when they go direct.
If you think that direct insurance is an improvement over a policy from a risk adviser or financial planner because the customer can DIY and noone else got paid to provide assistance, I stand by my comments that this says more about your advice than anything else.
These policies are junk, and the only scenario they stack up is when the alternative is no cover of any description whatsoever.
I agree that the distribution model is becoming more and more ‘dated’, however providing personalised advice to someone cannot be done by a website. The fact that it seems you feel comparethemarket could just add a life insurance tab and the problems of middle Australia will disappear is a clear indication that it’s been a while since you saw any quality risk advice. That’s a real shame.
@ Sean. I’ll stand by my comments. Its not a matter of valuing advice at the lower end. Its about how can a client get what they want and need at a price that is more realistic.
Let’s look at all the tools that are available to advisers including insurance calculators and product selection tools. All I’m saying is that these tools are simple to use and can easily be used by clients. A meerkat could do it.
If as advisers we believe that a public interface for these tools is not already available we are being naive. As soon as one company releases the tool to the marketplace everyone else will have to follow. If a direct model captures simpler clients it’s a good thing because it makes people insurance owners and more likely to seek advice later as their circumstances change.
As I said in my first comments I’m not denigrating the value of advice and no one needs to get sensitive about my comments. I’m just saying that the world is changing and insurance advisers need to change so as not be shut out of a future market. The new consumer, the impact of social media and the massive improvement in self serve on-line tools has added an unstoppable change to how people buy insurance. We cannot hold onto the way things used to be done or hold onto the flawed concept that without an adviser talking directly to a client that there will be underinsurance. The “direct” model will most likely lead to improved insurance coverage. As advisers we are not being attacked as not being of value but more that our distribution model is dated.
Whilst I respect highly Jim’s advice approach in this case his opinions are conflicted just like every article or white paper response thus far.
If we were all serious about putting the consumer first then first and foremost open APLs would be a given. Then the next step would be wholesale rate options where the advisor can select the pricing method of which the client can then clearly see and choose there method of payment.
@ Paul – That already happens more or less but advisers do it manually. I know I do anyways.
The wholesale rate (savings from commission wound down to 0%) does however need to be standardised between insurers as it ranges from 22% – 30%.
A possible solution could be if all insurers offered naked pricing with all commissions removed at a wholesale rate to advisers. Each individual adviser can then choose their method of remuneration.
Option 1 may be to pass on the wholesale rate to the client, but charge the client an upfront fee.
Option 2 may be to add their fee to the annual premium (within maximum limits as per Trowbridge/ LIF) which in effect would be a commission-like payment. The difference is that THE FEE IS SET BY THE ADVISER, not the product provider, and it can be negotiated between the adviser and client. The level of this built in ongoing adviser annual fee is set at the commencement of the policy. The fee is disclosed annually as per FDS requirements.
Option 3 may be a combination of the above.
Adviser A may choose to add a 15% annual adviser fee to the wholesale rate, whilst adviser B may choose to add 20%. Adviser C may choose to add 0% but instead charge an upfront fee. The consumer wins through choice and pricing competition. Advisers win as they get to set their professional fee rather than a fixed commission rate being dictated by insurers.
Thoughts?
[quote name=”Peter S”]…
Insurance premiums are loaded to allow for payment of commission and that should really change for the best interest of clients. I’m not saying completely get rid of commissions but definitely reduce them markedly for both up-front and on-going.
Dylan is right that young families can’t or won’t pay fees. But if we are honest with ourselves this demographic and similar ones can be well serviced by self-serve tools. And that’s not a bad thing for advisers because we can concentrate on larger clients who will value the advice service. Even the claims period can be well handled remotely. Or a new sub market opens for advisers to offer the public a paid claims management.
The market where an adviser can and does really shine is high net worth and business markets both of which can afford to pay fees for good quality guidance and advice. [/quote]
The fact that you don’t believe your advice is worthwhile for lower income and regular income families says more about your advice than other financial advisers and risk advisers.
You are saying that higher net worth clients value advice more, but what you mean is that YOU value higher net worth clients more.
The idea that just because John and Jane don’t earn $250k+ p.a. they will be perfectly fine with direct insurance policies with a 50% success rate on claim payment has nothing to do with the clients, it’s just that you don’t agree with commissions and normal people can’t afford an adequate fee in place of commissions.
If you don’t want to provide service to everyday people that’s fine, just don’t kid yourself that normal people deserve less than your prized HNW clients.
Fee for service has been an option on insurance for years. If it generated a competitive advantage to business OR a benefit that clients cared about the market would move over time.
It’s not changing because client’s don’t care about commissions and it’s not economical for the adviser. The market knows best and until we’re seriously talking about reducing the compliance costs of issuing advice there is no point talking about reducing the payment.
As for comments of advisers focusing on the larger clients and leaving smaller mums and dads to automated solutions – I reject that as a reasonable outcome. Regular people deserve the benefits of personal financial advice and to be honest – the idea of charging a fee to someone who needs to claim makes my skin crawl. Who would issue an invoice to someone just diagnosed with cancer to help them fill out some forms.. If you think the industry is hated now just wait until the stories of vultures picking over payments of the sick to help them fill out a form..
The insurance sales industry escaped a lot, but not all, of the pressure and change that the advising industry went through. Its just the insurance sector’s time now.
Insurance premiums are loaded to allow for payment of commission and that should really change for the best interest of clients. I’m not saying completely get rid of commissions but definitely reduce them markedly for both up-front and on-going.
Dylan is right that young families can’t or won’t pay fees. But if we are honest with ourselves this demographic and similar ones can be well serviced by self-serve tools. And that’s not a bad thing for advisers because we can concentrate on larger clients who will value the advice service. Even the claims period can be well handled remotely. Or a new sub market opens for advisers to offer the public a paid claims management.
The market where an adviser can and does really shine is high net worth and business markets both of which can afford to pay fees for good quality guidance and advice.
In no way am I denigrating the value of an adviser. I’m just saying that the traditional market has changed with the improvement in net based tools, people’s uptake of using various on-line tools, increasing sophistication and education of the public. Almost no-one buys anything these days without doing their own peace of mind on-line research. We need to accept that the insurance world has, and continues to, change and we need to have a model that works going forward.
The new model that benefits both clients and advisers may be one where a practice offers both a “self-serve” no/low commisison offer supported by chargeable services e.g. claims management and a fee for service full advice offer. Whatever the right model is, it is not what we have been doing or are doing now.
Agree with comments below, commissions have their place as a viable payment structure. Unfortunately they are likely on the way out due to being demonised and used as a scapegoat for everything wrong with the industry.
Churning could be addressed through other compliance mechanisms not by trying to toggle the payment method. At the end of the day bad advisers will still be bad advisers with or without commissions.
This has however created a great opportunity for Robo-advice and DIY markets which are expanding to areas of advice beyond simple investments.
@ Dylan
I have been providing the option of fee for service insurance advice or no fee + commission.
Higher net worth clients are fairly happy in opting for the fee for service (due to premiums generally being higher and the fee being recuperated quickly).
Young families are not. They almost always choose the commission option as you have said. They have no issue with a commission being paid if the alternative is explained to them.
Growing young families that need cover simply wont and cannot afford to pay for initial flat fee advice for insurance only advice. It’s such a critical part of planning for life so I do not think the practical, reality has been thought out too well at all.
Better prepare yourselves for NIL commission down the track. Insurance still needs to be sold but i’m afraid the client will need to go direct to get it in place. There will be very little revenue reward for advisers unless it’s packaged into a broad advice offering.
PLEASE – ENOUGH OF THE POSITIONING AND MARKETING STATEMENTS FROM PEOPLE OFFERING “CHANGE SERVICES ” TO THE LIFE INSURANCE INDUSTRY
Mr Stackpool has a service which promotes advisers using fees, not commissions. HE has a conflict himself
None of this “debate ” acknowledges that Mum & Dads cannot, will not, pay fees for insurance-only advice. Which means all of Mr Stackpool’s adviser clients will be jammed to a very small fee-paying sector of the life risk business. Happy Birthday !!!