Life after LIF
As the Corporations Amendment (Life Insurance Remuneration Arrangements) Bill 2016 gets closer to being passed through the Senate, the advice market and life insurance industry need to prepare for the first phase of the LIF transition.
The life insurance changes, however, need to be considered in the wider context of the regulation applied to financial advice over recent years. As a package of reforms, FOFA with opt-in, fee disclosure statements and the best interest duty, life insurance reforms and professional standards reforms are an enormous public statement that financial advice has changed for the better. Parallel to these changes, technology is evolving at a faster and faster rate with the potential to be both friend and foe to financial advisers, as people change their buying and consumption patterns.
Successfully navigating change is never easy, but it is essential to maintaining relevance with those who matter to you or your business. We can think of this in terms of personal relationships with spouses, or even children, as they pass through teenage and young adult years. Staying relevant to them comes from continually evolving your relationship. The same is true between successful businesses and their clients – to stay relevant the business must continue to evolve to the changing preferences of the clients. Michael McQueen's book Winning the Battle for Relevance is a great starting point to consider this topic deeper.
There are a number of questions for advisers to consider as they prepare for the first transition phase of LIF – the move to a maximum commission payment of 88 per cent upfront and 22 per cent ongoing, and the commencement of the two-year retention framework. For risk specialist advisers that have not already moved their business model to hybrid commissions in recent years, this is a daunting task.
What do you do with each client that makes you relevant to them? How do you add value? How do you demonstrate that value to clients? Are you confident in the value you provide? Have you built an advice and business model that is focused on these things? How have you tested that your answers to these questions are the same answers that your clients would give?
Managing change is a process that takes planning and insight. The great news for advisers facing these changes is that many of your peers have made these changes already and the collegiate, sharing culture of AFA members means that those who have already taken this path to hybrid commissions, and often charge an initial advice fee as well, are willing to share their knowledge and experiences with those just setting out to change. There are some highly effective and experienced business and advice coaches in the market place as well to help you navigate the 'noise'.
Speaking of noise, there has been some nonsense claims of late seeking to blame claims outcomes from industry funds on life insurance commissions. None of us should be distracted by this noise – instead, stay focused on the noble cause that underpins advised life insurance, which is bringing financial dignity at a time of need.
I am confident that Australia's life insurance advisers have the talent and skills their clients value and will pay for. Russell Collins OAM, a life insurance doyen for more than 40 years, in a recording for the AFA Life Insurance Roadshow in August 2015, said the biggest obstacle to an adviser successfully charging a fee alongside a hybrid commission was the adviser's own mindset, not the client's.
It is time now to question thinking that is anchored to the past and plan for this change, to build a business proposition for your clients that is based on demonstrating the value you add as an expert and thus charging accordingly.
Advised life insurance has so many advantages over direct and group insurance – there is no comparison. Add to that the expertise of a good adviser and it is a compelling proposition – one that is worth paying for.
Brad Fox is the chief executive of the AFA.
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