The insurance advice industry has a unique opportunity to hold on to mature advisers who still want to learn and help clients, but must find creative ways to retain their knowledge and expertise.
Up to 30 per cent of risk-focused advisers are expected to sell their practice and retire in the next few years, driven by the convergence of four major factors:
- Demographic changes;
- Technology and digital disruption;
- Changes to adviser remuneration under the Life Insurance Framework; and
- Stricter education and training requirements.
Much of this isn’t new. It bears the hallmarks of 2004 when the introduction of new standards under the Financial Services Reform Act (FRSA) saw hundreds of older advisers exit the industry.
An entire generation of invaluable knowledge and experience was lost. As a result, the industry lost its emotional connection with many clients.
Moving into 2017 and looking to 2018 and beyond, it’s important that there isn’t a repeat of 2004.
While FSRA admittedly drove out many unqualified and poorly qualified agents, many competent, hardworking mature advisers were caught up in the confusion. There was little support for those who wanted to upskill and stick around but didn’t know how to adapt and manage the transition. Similarly, little was done to give retiring principals a proper send-off that recognised their contribution to the industry.
This generation of resilient pioneers who had built successful businesses and raised awareness of the value of insurance were cast aside and forgotten.
Their client books were gobbled up by the institutions, divvied up and sold.
But the insurance advice industry has an opportunity to get it right this time.
It has another chance to hold on to mature advisers who still want to learn and help clients. Licensees and professional bodies have a critical role to play in providing the education, training and support necessary to help advisers adapt their business models and meet their obligations.
For those in, or nearing, their 60s, who plan to retire soon, the industry must find creative ways to retain their knowledge and expertise.
That may include formal and informal mentoring programs that marry experienced advisers with newcomers.
The client relationship manager
Another practical solution could be for practices, licensees and product manufacturers to create new roles for senior advisers or former advisers with flexible working hours and conditions.
This newly-created position, let’s call it “relationship manager”, would allow advisers to ease into retirement while staying actively involved in the industry and continuing to give back.
A relationship manager’s client-facing responsibilities could include welcoming new and prospective clients, articulating a practice’s value proposition and connecting them to an adviser. Behind the scenes, they could focus on developing and managing referral relationships with centres of influence.
If the industry can successfully close the generation knowledge gap, the result will be a profession that’s not only more educated and technically proficient but also empathetic, passionate and brilliant at articulating the value of wealth protection.
It will retain the art of winning new clients and building personal relationships not only business relationships. (There’s still enormous room for improvement in this area.)
What about me?
Mature advisers approaching retirement must start formalising and implementing their succession plans, if they haven’t already. Being well-prepared will help them to attract the right buyer at the right price on their terms, which may include a transition period to ensure the smooth handover of clients and retention of key staff. This approach would also allow retiring principals to coach and mentor new staff.
Advisers who are focused on growth will soon see a strong supply of practices hit the market. There’ll be some good buys but there’ll be some minefields too, which is why it’s wise to seek independent advice or ask their licensee to help them identify quality practices, negotiate price and terms and potentially secure financing.
To extract the maximum value, it’s imperative that buyers and sellers find a strong cultural fit and work closely together to manage the transition.
Risk insurance practices continue to command around three times recurring revenue, compared to around 2.7-2.8 times for holistic advice practices.
Given premiums are commonly paid from superannuation, risk is extremely sticky and attractive.
Finally, new entrants to financial planning have a unique opportunity to build a compliant, sustainable and relevant fee-based business model on a solid regulatory foundation.
Under the proposed remuneration changes, which will effectively halve upfront commissions and subsequently practice revenue, it’s unlikely that new entrants will specialise in risk and wealth protection.
Instead they’ll need to provide advice on a broad range of matters including superannuation, investments and insurance, and non-traditional advice areas like cashflow management, retirement planning, estate planning and aged care.
This will allow them to build a diversified revenue stream that isn’t heavily dependent on upfront commissions.
While the introduction of LIF may see adviser numbers initially shrink, like in 2004, it won’t be long before they start to rise again. After a period of consolidation and adjustment, people will flow back into the industry. They’ll be drawn by the appeal of compulsory super, the enormous need and demand for professional advice, the chance to run their own business in a dynamic and interesting industry, and the opportunity to make a real difference in people’s lives.
The thing for advisers to remember in this disruptive season is that the businesses that emerged from the mid-00s in a strong position, were those that accepted change, maintained a positive dialogue and relationship with clients, continuously looked for opportunities to grow and grabbed them when they arose.
Christopher Blaxland-Walker is the general manager of distribution at ClearView. This is an excerpt from a recently released ClearView white paper, 'What's old is new again'.
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