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Empowering consumers to say yes

The regulatory framework around risk advice makes it an impossible sell to consumers, highlighting the desperate need for regulatory change, writes Synchron’s Don Trapnell.

A man walks into a shoe shop and tells the sales assistant he wants to buy a pair of black brogues. The assistant says, “Before I sell them to you, I have to make sure that black brogues are fit for your purpose. What, exactly, do you want them for, and when and where are you planning on wearing them?”

The customer tells the assistant that he plans on wearing the brogues to the office. “To the office, you say,” says the assistant. “Very good – however, I need to do a full needs analysis via a fact find process, to discover what other activities you do, to see if in fact these brogues are going to fulfil all your footwear needs.”

After this process has been completed, the assistant recommends runners, hiking boots, boat shoes and sandals, as well as the brogues. All this, and the shopper hasn’t tried on a single pair of shoes.

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Frustrated, the shopper leaves, goes to the next shoe shop, asks to buy a pair of black brogues and is sold, you guessed it, a pair of black brogues.

In a reasonable world, the first sales assistant would – rightly in my opinion – be pillorised for upselling. Yet, if a consumer walks into a life insurance adviser’s office with a very simple and specific request, the full needs analysis via a fact-find process is now considered to be not just the only way, but the only ethical way to provide advice in response to that request.

No matter how simple and straightforward a consumer’s life insurance request, no matter how much they themselves might rail against it, they must submit to this process. It’s the law – and frankly, it’s madness.

In my opinion, forcing people into a process that the government says they must endure, even when they haven’t asked for it and don’t want it, might also be the most unethical way to provide life insurance advice.

Ultimately, forcing people to go through this process also leads to consumers who are far more likely to say “no” to the life insurance on offer via an adviser. Some may then take their search online, where they may purchase life insurance that might or might not be appropriate and which might or might not pay out at claims time.

Many others will simply give up on trying to source life insurance altogether.

In a country as under-insured as we are, we need to empower consumers to say yes. We also need to empower advisers to say yes, so that they can give advice in response to a simple and specific client request, if that is all the client wants, without having to jump through hoops.

Given the current environment, how do we do that?

I believe the first step is to impose on life insurance advisers a fiduciary duty, (i.e. a duty to do no financial harm), and a duty to give appropriate advice, and remove their best interests duty obligations.

There is no doubt that the best interests duty was created with the noblest intentions, but the way I see it, it only impedes appropriate life insurance advice. The starting point for giving appropriate advice should be giving clients what they ask for and sometimes giving them only what they ask for is also the end point.

The reality is that most people who come in search of life insurance advice are intelligent adults who know what they want. Many, quite reasonably, become frustrated when forced into a long, tedious process that results in a weighty statement of advice (SOA) that they don’t want to read; so many recommendations that they feel like they are being upsold; and, in a no commission environment, having to pay their adviser for advice they didn’t ask for.

On that note, at the moment, there’s a huge disconnect between what most consumers are prepared to pay for advice, which is somewhere between $0-$500, and what advice costs to deliver, which can be in a simple case be between $2,500 and $3,500.

Obviously, remuneration of the adviser by results (commission) removes that gap. But in a non-commission environment this gap is too wide to close entirely. If we as an industry empower clients and advisers to say yes, it will narrow. Advisers won’t have to spend time conducting needless investigations, the SOA will become a simple, pertinent document that clients will actually read, and the client will only have to pay for the advice and the insurance cover they request.

In effect, it will become more affordable for the adviser to deliver advice that clients actually want and actually value.

Don Trapnell, director, Synchron

Empowering consumers to say yes
Empowering consumers to say yes
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