“You don’t drown by falling in the water; you drown by staying there.” — Edwin Louis Cole.
Whether right or wrong, it looks highly probable that the Life Insurance Framework will become law.
What does this mean for the commerciality of advisers in the area of risk advice?
The current Life Insurance Framework legislation is comprised of two main parts in regards to its financial outcomes for advisory businesses. Firstly, the amount of commission that can be paid from product providers is now reduced and secondly, the responsibility period for this commission has increased dramatically.
I see these proposed reforms impacting insurance advice businesses in two ways over the long term.
One: insurance advice will need to become predominantly, or at least in significant part, a fee-for-service offering. Advisers will need to be able to demonstrate their value and charge a direct fee to clients for their services.
The second major impact this will have on insurance advice is that it will see the end of the risk specialist. Advisory businesses will have to offer a more holistic service so as to be able to charge a sizeable enough fee to justify their expenses, which will include the regulatory requirements.
As I mentioned in a previous article for Risk Adviser, this will be a distinct advantage to larger advisory firms like banks and insurance companies. It is unclear how this makes consumers better off, as they now have to tackle the likes of CommInsure by themselves, but the ‘brains’ behind this show believe it will work.
As a licensee to smaller advice firms, we believe this market dynamic is a huge threat to our advisers. It is imperative that advisers have infrastructure that enables them to provide solutions and advice to their clients in a range of different areas. Obviously, smaller firms based around one or two people don’t necessarily have the scale or expertise to make this addition themselves, so the licensee plays an important role here.
The key question is, how can advisory businesses tap into a range of services for their clients in a compliant and commercially integrated way?
The answer revolves around advisers being the gatekeepers to clients, and presenting themselves not as specialists, but as generalists. I know this is not what you have heard over the last 10 years, but I firmly believe that for advisers to survive, they need to become the GPs of people’s financial lives. My motto has long been: ‘I don’t care why people walk through my door, I will look to facilitate the right solution for them, not just try and squeeze them into a brochure’. By the way, this is why the banking financial advice models have failed. After capturing the client you are then in a position to further grow the relationship by providing other services in a consistent and professional manner.
As an adviser, if you cannot access solutions to your clients’ tax, finance, insurance, investment, property advocacy and estate planning issues (just as a start), then you are treading water.
Having a speciality area of knowledge is a good thing. We promote our advisers’ strengths to others in our network, who can then utilise them for their clients in a controlled environment. In addition to your individual expertise as an adviser, you need to be able to facilitate the other needs of the client as they arise over the course of a long-term relationship.
Rob Coyte is the chief executive of Shartru Wealth
