Afraid of LIF? You don’t need to be
Our industry is not one to shy away from stoushes. But the war that has been waged over the Life Insurance Framework (LIF) reforms has certainly been a fierce one.
It all came to a head at the AFA conference in Canberra during an extraordinary general meeting brought about by members who felt more strongly about the coming reduction in upfront commissions than some others.
Despite other topics being raised in this revolt, it is undeniable that the impending changes are responsible for a large proportion of this discontent.
From a parliamentary perspective, it’s all go. Minister of Revenue and Financial Services Kelly O’Dwyer said the government is “proceeding with pace” and at the time of writing has introduced the LIF bill into parliament.
While many advisers might not like it, for all intents and purposes this thing is happening.
In my conversations with some of my fellow advisers at the AFA Conference, it seems there is still a degree of fear about the changes. After all, many businesses, especially new ones, often rely heavily on upfront commissions.
But to my colleagues, I have one message – don’t be afraid of the change.
Earlier this year, I made the decision to bring in a no commission fixed fee structure for insurance advice. I thought to myself, “Every other aspect of my business was fixed fee, so why not make the change for my risk proposition”.
And I can tell you, the change feels pretty good. I like the way it forces my clients to see value in what I’m doing when I get their cover in place.
In the long term, it’s also better for your business and importantly, the client.
First, you don’t have the clawback concerns and you don’t have to worry about losing money when people don’t get their cover. You do your best to get people cover, but you can’t control people’s health situations. We have all had cases where all the work has been done and the client doesn’t get the cover with the result being you don’t get paid for your efforts and the business makes a loss on the client.
For consumers, there are also some long-term savings.
I’ve got a case study I use when discussing the difference of not taking commissions over time. It shows the monetary value at the 10-year mark and the 20-year mark.
Pretty compelling figures. Whatever cover amount clients will save at least 25 per cent or conversely if their policy was written with full commission they would be paying 33 per cent more than with no commission. The 35-year-old male in my case study with $1 million life/TPD, $200,0000 trauma and $7,041 per month income protection (30-day wait and to 65 benefit period) will save $10,622 in the first 10 years on stepped and $14,386 on level. When you push things out to 20 years, the savings are $45,641 on stepped and $38,668 on level.
This adds up to being able to commit more money to other client objectives like paying off their home loan, contributing to super or even more travel.
If you’re ready to move with the times, here are some of my top tips for providing the best fee-based risk advice for your clients:
Give clients the option
One of the most satisfying parts of moving to a no commission structure is bringing more transparency to charging. When I began changing my business, I started with offering clients the option of commissions or no commission.
You are still able to prepare everything as if you would be doing fee for service, but you are not giving up the option of taking a commission if the client has low cash flow or simply can’t stomach the exchange of a higher short-term cost for better financial outcome over time.
Look at the long-term
For me, the value of the client is the long-term relationship. At the moment, I keep the cost of my insurance-only advice at a level that many advisers would find unacceptable – $2,200 (including implementation). Once I’ve covered the cost to serve it’s not a huge profit, but my business is all about the long-term and building value over time. My focus is on all clients I deal with being ongoing clients.
Another good tip is to break up how you charge for different services, for example advice and implementation. These are two different costs and you may want to communicate this to the clients if you are charging a higher fee for a more onerous implementation, for example. It will allow you to adapt to higher workload that arises with certain medical histories.
Tweak your process
My processes did not change much after changing the way I charge for risk advice. But the biggest thing was probably in the way I communicated with my clients about my service proposition.
To help with this, I created a marketing one-pager which articulates the difference in insurance premiums over time. Once you show clients the longer term dollar savings mentioned above, they can really see how the savings can contribute to their longer term wealth.
Hire the right staff
As you build your business, it’s important to hire staff who are aligned with your way of doing business. I don’t like my revenue being linked to a product and I want to hire staff who feel the same way.
Using a recruiter can ensure your staff have broad insurance advice training. We ensure that the staff we offer to advisers have understanding of the breadth of features and benefits available through insurance products. We’ll also teach them how to use stepped and level premiums in different combinations, as well as the issues of group cover in order to prepare them to take as much off an advisers plate as possible.
For many consumers, their only experience of insurance has been someone getting paid commission as a result of someone selling it to them. But the tide is turning and for advisers these changes allow us to demonstrate the value in the process that we go through.
I have really enjoyed changing my business as it has given me a chance to better articulate my service proposition, get on with providing advice without the distraction of commissions and deliver better value to my clients.
Adrian Patty is the principal adviser for AP Financial Solutions as well as the director of Spark Professional
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