An Australian adviser consultant says more risk advisers are incorporating a fee for service into their business model following regulatory change impacting risk commissions in Australia.
Sue Viskovic, Managing Director of Elixir Consulting says over the past few years, her team has seen more advisers shift their way of thinking and start charging fees for risk advice.
She explained these advisers view fee for service as a future-proofing strategy and a step further away from commission conflicts.
“The first movers were the ones who had been through the paradigm shift in their financial planning business and so the philosophies around charging explicit fees for their financial advice then started being applied across to their risk insurance advice,” she Viskovic.
She added advisers would tell her that they felt at odds with taking commission for risk advice while charging a fee for their planning services.
“Even though it was legal and it’s the way most people get paid for insurance advice, [these advisers] just felt philosophically uncomfortable with it so they determined ways that they could remove commissions.”
Viskovic explained removing commissions would result in the premium being reduced for the client for the life of the policy and the adviser would replace it with a fee for their service.
“The ones that have completely removed [commissions] from an ongoing perspective tend to be the businesses where they include insurance advice with a greater financial plan, so they’re providing advice on a client’s entire situation,” she noted.
“But we are seeing a large number of advisers that are subsidising their commissions, so they might charge an advice fee and then they receive the upfront commission almost like an implementation fee and the ongoing commission/trail pays for their ongoing support.
“We’ve even seen some that charge an advice fee, and give their clients the choice between fee for service or commission for the implementation and ongoing service – demonstrating the difference in premiums and allowing their client to choose.”
Elixir Consulting conduct pricing research every second year and Viskovic noted in 2017 they were seeing more advisers move to this remuneration structure, which she attributes largely to the decline of insurance commissions in Australia.
In contrast, New Zealand advisers look set to continue operating in a strong commission environment, given MBIE’s indications in its recent response to FSLAB submissions (see: Commissions to Stay…).
Viskovic noted that there are still some advisers that think their clients would never pay a fee for insurance; some even stating that they’d asked their clients if they’d pay a fee and their clients had refused.
She added: “And when I investigated further, it didn’t surprise me at all – I found that the language used by that adviser when they are positioning it to their client is very different to the language used by an adviser who is successfully charging a fee for their insurance advice. The key is to separate the value of the insurance policy itself from the value of the advice and service provided by the adviser.”
“The key is to separate the value of the insurance policy itself from the value of the advice and service provided by the adviser.”
These conversations led Viskovic to write the book Worth Paying For, as she had found many risk advisers of the opinion that charging fees would spell the end of their business.
Viskovic explained the book was not about replacing commissions but rather understanding the value of the services advisers provide and “…positioning them to your client in such a way that if you ever did need to replace commissions, you could,” and if the adviser felt it was necessary, to subsidise commissions with fees, which she said is the reality for most advisers in Australia now.
She continued, “…if you honestly don’t think clients would pay for your services, what you’re actually saying is that all you do is sell life insurance and if you’re still in that headspace, if that is honestly all that you do then maybe your proposition has got someway to go, regardless of how you get paid for it.”
She said her observation of great adviser businesses is that they address the risks facing their clients and put in place the appropriate mitigation strategy.
“If there are risks that they can have covered by insurance then they will create a plan and will assist with very valuable support in order to implement those policies,” she said.
“There is a big difference when I hear a pitch from someone who is a life insurance sales person versus someone who provides a very well articulated service to help people protect their families.”