Risk Adviser Developing Fee Options

An experienced NZ adviser is developing options to incorporate an ongoing client advice fee element within his risk specialist business structure.

In seeking to future-proof the value of his advice offer, Auckland based adviser, Rick Willis, says the evolving nature of financial and risk insurance advice in New Zealand – and the new regulatory environment under which it now operates – is opening new possibilities for advice business models, including risk specialist and risk-focussed business propositions.

Willis, who acts as a senior adviser to a leading New Zealand advisory firm while continuing to advise his own client base, suggests an increasingly savvy consumer market may be open to an advice service in which risk commissions could be applied more flexibly and be complemented by an implementation fee and – in some cases – an ongoing advice review fee:

“We are professionals in our own right and should be viewed by the wider public the same as lawyers, accountants, doctors and even architects, all of whom charge fees for the education, expertise and advice they bring to the table,” said Willis.

While he appreciates this prospective option will not be favoured by many consumers, Willis maintains some Kiwis may prefer to consider a proposition in which the discounted risk insurance premiums delivered under a nil commission scenario, accompanied by an initial and ongoing advice fee could – over the longer-term – deliver meaningful cost savings for the client, compared with the existing upfront/ongoing commission model.

According to Willis, one of the benefits for both consumer and adviser under this model – which he again stresses may not be appropriate for many consumers and advice businesses – is the perceived and actual value associated with highly competitive premium rates over the long term, leading to more ‘sticky’ business for the advice practice and insurer, which in turn would deliver lower lapse rates. He told Riskinfo it could also be appropriate in circumstances where the risk adviser positions themselves to play a key role in co-ordinating the broader financial affairs of a client:

…a fee for service might well be more suitable

“By facilitating and leading a ‘family board’ of experts all contributing to a client’s financial well-being, a fee for service might well be more suitable,” he said.

Naturally, one of the downsides to this different way of structuring a risk advice proposition relates to consumer cashflow in paying the advice implementation fee. However, Willis maintains this option may be preferred by some clients and argues the fact of the option existing in the first place offers greater flexibility for the client, depending on their preferences.

Willis continues to support the present upfront/ongoing commission scenario, which he says has served the industry well, and is not broken. Projecting into the future, however, he told Riskinfo he can see the potential for further regulatory reform on the horizon and is seeking to ‘future-proof’ his business against the possibility of tightening commission caps and clawback rules – as has been the case in Australia in recent years:

“It would be a tragedy for New Zealanders if the access to professional risk advice and flight away from the profession occurred here as it has in Australia due to regulatory impost,” he said, continuing: “Upfront and trail commissions both support the ability to provide initial advice but more critically support the commercial infrastructure to provide ongoing client care and support, which is never more needed than at the time of a claim event.”

…there are different ways to build a fee element into a risk advice business model

Willis also maintains there are different ways to build a fee element into a risk advice business model, such as a hybrid structure that may consist of zero upfront commission while maintaining ongoing renewal commissions, as he continues to refine his proposition with a view to its implementation over time.