{"id":134,"date":"2014-08-15T06:02:00","date_gmt":"2014-08-14T20:02:00","guid":{"rendered":"http:\/\/magazine.riskinfo.com.au\/16\/?p=134"},"modified":"2014-08-18T10:55:43","modified_gmt":"2014-08-18T00:55:43","slug":"2014-mdrt-international-adviser-round-table","status":"publish","type":"post","link":"http:\/\/magazine.riskinfo.com.au\/16\/2014-mdrt-international-adviser-round-table\/","title":{"rendered":"2014 MDRT International Adviser Round Table"},"content":{"rendered":"<div class=\"fw roundTable\">\n<h3>A group of Australian advisers joined their peers from the United States, Canada and the United Kingdom to share their thoughts about some of the key issues impacting their businesses and their industry. The setting was the 2014 MDRT Annual Meeting, held in Toronto in June.<\/h3>\n<\/div>\n<p>Our expert panel considered issues including: the extent to which clients and consumers understand life insurance; what can be done to improve the often misunderstood concept of insurance; new approaches to addressing the underinsurance dilemma; whether risk-focused advisers could ever operate a successful fee-based advice practice; and other issues relevant to the future of life insurance advice in Australia and around the world\u2026<\/p>\n<div class=\"twocol-one\">\n<img loading=\"lazy\" decoding=\"async\" class=\"alignnone\" src=\"https:\/\/dl.dropboxusercontent.com\/u\/2128152\/riskinfo\/eMag\/16\/images\/img-rountable-group.jpg\" alt=\"\" width=\"800\" height=\"536\" \/><br \/>\n<\/div>\n<div class=\"twocol-one last\">\n<p>The panel (L to R):<\/p>\n<ul>\n<li>Peter Pearson (Canadian adviser)<\/li>\n<li>Michelle Hoskin \u2013 <a href=\"http:\/\/www.standardsinternational.co.uk\/\" target=\"_blank\">Standards International<\/a> (United Kingdom best practice industry consultant)<\/li>\n<li>Ashley Pattinson (Australian adviser)<\/li>\n<li>Susan Paterson \u2013 Adviser and MDRT Australian Chair<\/li>\n<li>Kristine Brooks \u2013 Zurich Financial Services Australia &#8211; Sponsor\/supporter and institutional contributor to discussion<\/li>\n<li>Jenny Brown (Australian adviser)<\/li>\n<li>Brian Ashe (former MDRT President and United States adviser) &#8211; inset<\/li>\n<\/ul>\n<\/div><div class=\"clear\"><\/div><br \/>\n<div class=\"woo-sc-hr\"><\/div><\/p>\n<h2>\u2018Mis-insurance\u2019<\/h2>\n<p>Our panel kicked off by comparing notes about whether they believe their clients and consumers have an appropriate understanding of life insurance \u2013 what it is and what it means\u2026<\/p>\n<p>Canadian adviser, Peter Pearson, suggested consumers who already have life insurance generally have little more than a basic knowledge. \u201cThey might know they have some cover: \u2018Yes, I have some insurance through work,\u2019 and they think that is usually sufficient. But after they have gone through the advice process with us \u2013 fact finding and discovery \u2013 they almost always appreciate they have inadequate cover for their needs,\u201d said Peter.<\/p>\n<div class=\"fw ad\"><!-- Error, Ad is not available at this time due to schedule\/geolocation restrictions! --><\/div>\n<p>\u201cEven though Canada is one of the most insured countries in the world, there is only a very general understanding about life insurance \u2013 by those who have it, and those who don\u2019t &#8211; without a specific appreciation of what it is and what it does. Doctors may know a bit about disability insurance but few other occupations or consumers do,\u201d he said.<\/p>\n<p>Australian adviser and 2013 AFA Adviser of the Year, Jenny Brown, said her clients have a general idea about life insurance \u201c\u2026 and we constantly remind them what cover they\u2019ve got and why they\u2019ve got it. But when new clients visit, they realise how little cover they have.\u201d Jenny told her peers it was very rare to have an initial meeting with a client who already has appropriate insurance cover in place. \u201cMost don\u2019t, even though many of them believe they do,\u201d she said. \u201cThey just don\u2019t think about the ramifications of how events can affect them.<\/p>\n<p>\u201cWe try to educate our clients through articles and newsletters and a series of educational videos. And it\u2019s also important that we continually educate the wider market &#8211; not just our clients, but everybody. The more we can educate, hopefully the more we can increase the general level of insurance across the community.\u201d<\/p>\n<p>Incoming MDRT Australian Chair and Queensland-based adviser, Susan Paterson, emphasised that the review letters her practice sends to existing clients highlight not just the life insurance products their clients have, but the ones they don\u2019t. \u201cWe\u2019ll try to get on the phone to our clients at review time as well, and one of the conversations I will have is \u2018Ok, you\u2019ve got life and trauma insurance, but you don\u2019t have total and permanent disability insurance. As your adviser we need to understand why you don\u2019t have this cover. So you must have thought about this \u2013 what was your thinking, so that I\u2019m on the same page as you.\u2019 It\u2019s difficult for the client to then provide an explanation as to why there is this gap in their cover.<\/p>\n<blockquote><p>the language we use as advisers is so heavily tainted by our compliance regimes<\/p><\/blockquote>\n<p><img loading=\"lazy\" decoding=\"async\" src=\"https:\/\/dl.dropboxusercontent.com\/u\/2128152\/riskinfo\/eMag\/16\/images\/img-rountable-1.jpg\" width=\"250\" height=\"250\" class=\"alignleft\" \/>\u201cBut I agree very much that there is this sense that consumers in general think they have enough insurance because they say they have cover via their super fund at work and believe they don\u2019t need anything further,\u201d said Paterson.<\/p>\n<p>NSW corporate superannuation specialist adviser, Ashley Pattinson, agrees with the sentiment that un-advised policy holders generally believe they already have enough life insurance: \u201cDo people understand what life insurance they\u2019ve got? In my experience the answer is typically \u2018no\u2019, especially for that cover provided through a superannuation plan. There have been a lot of conversations in the media about default levels of insurance, but the problem is that most default levels are inadequate for most people and there is also an attitude that, \u2018I have insurance in my super, so I can now tick that box\u2019; people think that they are appropriately covered when they are not,\u201d said Pattinson.<\/p>\n<h2>Compliance and mis-insurance<\/h2>\n<p>\u201cBut what are they really covered for?\u201d continued Pattinson. \u201cI think part of the issue for us is that the language we use as advisers is so heavily tainted by our compliance regimes to the point that we forget to talk about what it is that the insurances will actually do. So, it\u2019s important to talk about what it does, not what its name is. As advisers, we\u2019ve been so side-tracked with making sure that what we do and write is compliant that we\u2019ve forgotten how to talk to people about what it is that we actually deliver.\u201d<\/p>\n<p>To illustrate his point, Pattinson outlined the difficulty associated with providing an initial \u2018high-level\u2019 solution for the client: \u201cYou can\u2019t just have a preliminary conversation with somebody and sketch out a strategy. To get to that point you first have to issue a 30 or 40-page Statement of Advice (SoA) and say, &#8216;This is what we talked about and this is what it\u2019s going to cost&#8217;. We can\u2019t get to the point of saying \u2018this is how much it\u2019s going to cost\u2019 without having to make a product recommendation. And that\u2019s just ludicrous. I can\u2019t think of another industry where you have to go all the way down the decision-making process as if you had actually purchased the item before you can find out how much it\u2019s going to cost you. Why is it that we do that? Can\u2019t we just say to our clients that if you think this is a good idea, I can do some rough numbers and give you an indication of what it will cost? I\u2019m not going to give you a product recommendation at this point in time. We\u2019re going to set the scope of what it\u2019s going to cost and how we can structure it and then we can sit down together and work out how we\u2019re going to proceed. And at that point in time, once we have agreed, I can then select which products will be most appropriate.\u201d<\/p>\n<p>The panel agreed it is often difficult \u2013 too difficult \u2013 to deliver simple advice because of the nature of compliance and regulation.<\/p>\n<div class=\"fw ad\"><!-- Error, Ad is not available at this time due to schedule\/geolocation restrictions! --><\/div>\n<p>Jenny Brown: \u201cI think the conversation needs to start around, \u2018This is a ballpark figure and this is what you can get for it.\u2019 And once you receive an indication from the client that you\u2019re working within the right parameters, if you can just do that, then we can get into more detailed analysis and budgeting and we can go to the next level. At the moment compliance and regulations prevent us from doing that.\u201d<\/p>\n<p>Reinforcing the point further, Pattinson added: \u201cTo get a price at the moment, you have to select a product. And the moment you select a product to get the price, you\u2019ve made a recommendation &#8211; and you can\u2019t make a recommendation unless you\u2019ve done an SoA!\u201d<\/p>\n<p>Providing evidence that this type of frustration with compliance is not isolated to Australian conditions, UK best practice consultant, Michelle Hoskin, told the panel of her recent experience in completing her own family\u2019s life insurance plan. \u201cI asked the adviser to treat me just like a normal client so I could have that experience. The whole life insurance, critical illness, disability issue was quite confusing. We had tables and documents and it got to the point where I said: \u2018Just tell me which product I need.\u2019 It was confusing and all I ended up with was a spreadsheet with different premiums, terms and options on it.<\/p>\n<p>\u201cBut, the adviser was very good at helping us articulate why we wanted insurance. He didn\u2019t focus on how much we wanted to pay. He did ask what we could afford, but that was a very small portion of the conversation. So, in terms of confidence in my adviser, when he came back with his recommendations we were quite comfortable.<\/p>\n<p>\u201cEven though I work in the financial services industry, as a recipient of that process it was confusing. But on the other side of that, my adviser really made me think about why it was important and talked very little about how it would happen or what it would look like when we got it. He was really good about helping us appreciate why we needed the insurance.\u201d<\/p>\n<p>Peter Pearson told the panel that Canadian regulations require no such advice compliance when purchasing life insurance. In terms of being able to provide a \u2018rough sketch\u2019 of a client scenario, Pearson said: \u201cYou can do it with a yellow pad and \u2018the gift of the gab\u2019 or you can do a full-blown needs analysis.\u201d He added that the only Canadian province which requires a formal plan to be presented to the client for life insurance is Quebec.<\/p>\n<p>But Pearson added that Canada is looking at compliance models now operating in Australia and the UK. \u201cI don\u2019t think there\u2019s anything wrong with what they\u2019re doing \u2013 it\u2019s all in the hope that they\u2019re going to make the consumer aware of what\u2019s going on. It\u2019s all about the regulators wanting the client to know what they\u2019re paying for.\u201d<\/p>\n<blockquote><p>until we can reach a point where people genuinely understand what insurance they have, and why they have it, then we will always continue to have misinsurance<\/p><\/blockquote>\n<p>Zurich Financial Services Australia\u2019s Kristine Brooks shared with the panel that their comments about clients not understanding insurance, and the challenges associated with delivering advice, validated her company\u2019s concerns and was one of the reasons why Zurich had undertaken a recent consumer research project focusing on general perceptions and understanding of life cover and other types of insurance.<\/p>\n<p>\u201cWe surveyed Australian consumers initially about their insurance literacy and we also found that, even with the people that had engaged with life insurance, they didn\u2019t really understand what they were covered for,&#8221; she said. &#8220;We labelled this phenomenon \u2018mis-insurance\u2019, which we believe is as problematic as the more widely discussed underinsurance issue. And until we can reach a point where people genuinely understand what insurance they have, and why they have it, then we will always continue to have mis-insurance.\u201d<\/p>\n<p>Kristine added, \u201cIt\u2019s really concerning that even for the people that do have insurance, they have generally not gone through a needs analysis to determine whether they have the right insurance.<\/p>\n<p>\u201cThe most alarming statistic from our research was that 5% of the people we surveyed believed they were covered for optical and dental expenses in their super fund! People don\u2019t seem to distinguish between health insurance and life and income protection insurance.<\/p>\n<p>\u201cMy overarching comment would be that we already know about the level of underinsurance, but then the people that have taken that step of taking out cover don\u2019t understand what they\u2019ve got and the industry has quite a significant task ahead of it to rectify that.\u201d<\/p>\n<p>Ashley Pattinson agreed: \u201cI tend to see a lot of \u2018entitlement\u2019 attitude when I talk to super fund members, along the lines that they expect someone else is taking care of their insurance needs. A typical consumer attitude says \u2018the Government will look after me\u2019, or \u2018my employer will give me sick pay\u2019, or \u2018someone else will take care of me even though I should take care of myself\u2019.\u201d<\/p>\n<p>Brooks concurred, suggesting typical consumer attitudes picked up from the Zurich survey included similar approaches, such as: \u2018The fact that I have insurance in my super fund means my employer must know what I need. So, surely I\u2019m ok&#8217;.&#8221;<\/p>\n<p>\u201cAnd maybe that\u2019s the positioning we have around superannuation in Australia,\u201d continued Brooks, \u201c\u2026 that it\u2019s there to look after me in retirement, so maybe people don\u2019t take the personal ownership of what their insurance needs really are.\u201d<\/p>\n<p>Susan Paterson suggests the industry needs to work on the \u2018communication piece\u2019. \u201cOne of the letters for my client from their insurer, that I also received, was too confusing. Even I didn\u2019t understand what they were saying because it was so poorly-worded. How is a client going to understand what you\u2019re saying about their insurance? So, to a point, the issue is one of communication.\u201d<\/p>\n<div class=\"fw ad\"><!-- Error, Ad is not available at this time due to schedule\/geolocation restrictions! --><\/div>\n<p>Former MDRT President and US adviser, Brian Ashe, told the panel that in the United States, which is considered to be a very mature market place, 40% of adults in the country have zero life insurance and the ownership of life insurance is at a 50-year low. \u201cAnd that is within an environment that has seen a significant reduction in premiums, and where wages have increased,\u201d he added.<\/p>\n<p>\u201cThe industry sells seven million less policies per year than it did 15 \u2013 20 years ago. So we have been asking \u2018What is the disconnect here?\u2019 I think a lot of it has to do with consumer education (or an implied lack of it). If you ask people in the US about what they think about buying life insurance, the research shows they generally overestimate the cost of insurance by around 300%. So obviously the message is not getting through that life insurance is a very affordable product.\u201d<\/p>\n<p><img loading=\"lazy\" decoding=\"async\" src=\"https:\/\/dl.dropboxusercontent.com\/u\/2128152\/riskinfo\/eMag\/16\/images\/img-rountable-2.jpg\" width=\"250\" height=\"250\" class=\"alignright\" \/>Ashe told the panel he is also witnessing more of a \u2018sea change\u2019 in the perception of need \u2013 because people have to buy into the need before they buy the product. \u201cIt\u2019s my belief that we concentrate too much on probabilities as opposed to the consequences.\u201d Ashe invoked the confronting analogy from the Academy Award-winning film \u2018The Deer Hunter\u2019 to drive home his point: \u201cIn The Deer Hunter, Christopher Walken\u2019s character is playing Russian Roulette &#8211; putting a six shooter to his head. I asked an audience at an event where I was speaking recently, what were the chances of his character putting a bullet through his head? One in six, yes. He has an 83% chance of being successful and only a 17% chance of failure. If we look at investments or retirement, I\u2019d take that bet because 83% of the time I\u2019m going to be right.<\/p>\n<p>\u201cThe consumer is thinking in probabilities as opposed to consequences,\u201d said Ashe. \u201cWould you pull the trigger? Most people wouldn\u2019t, because the consequences are catastrophic. But when it comes to their planning, they don\u2019t think of catastrophic consequences; they\u2019re going on the percentages. We can\u2019t extrapolate down to any one individual what those probabilities are. So, to me, if there was a paradigm shift in talking about the consequences versus the probabilities of something happening, people might pay a little more attention.\u201d<\/p>\n<p>Hoskin agreed: \u201cAnd maybe that\u2019s why my own life insurance adviser was so successful with me \u2013 because he really didn\u2019t talk about probabilities at all. It was more about what you want and why.\u201d<\/p>\n<p>Susan Paterson recalled the death of Steve Irwin: \u201cAll of a sudden people wanted to get life insurance.\u201d<\/p>\n<p>Ashe: \u201cYes \u2013 that\u2019s because they saw first-hand the consequences.\u201d<\/p>\n<p>The panel agreed that Brian\u2019s point about consumers focusing on the probabilities rather than the consequences was an issue common to the global insurance sector. Further reinforcing this point, both Michelle and Susan cited their own parents\u2019 approach as examples of Brian\u2019s point about most people just looking at the probabilities as opposed to the consequences.<\/p>\n<blockquote><p>maybe people don\u2019t take the personal ownership of what their insurance needs really are<\/p><\/blockquote>\n<p>Brian continued, \u201cYou could also consider \u2018Chance\u2019 versus \u2018Choice\u2019,&#8221; pointing out that people like to be in control of their lives. &#8220;If I do something that gives me choice, I\u2019m in control. But if it\u2019s left to chance, and it\u2019s perceived as being chance, then I think that maybe people would be a little more sanguine about their approach to life insurance.\u201d<\/p>\n<h2>Insurance education<\/h2>\n<p>The panel\u2019s discussion about consumer attitudes towards life insurance flowed into the issue of consumer education.<\/p>\n<p>Kristine: \u201cIn Australia I don\u2019t think we\u2019re great at educating the public about the benefits of \u2018claim\u2019. You just don\u2019t hear enough in the media about the positive impact that claims make in peoples\u2019 lives.<\/p>\n<p>\u201cAs an insurance company employee, I hear amazing stories about the impact that claim benefits make, at the worst possible time in people\u2019s lives. If you only hear one of those stories it would be enough to change your perception of insurance.\u201d<\/p>\n<p>The reason that the life insurance message is not resonating with the American public today, as much as it did in the past, according to Ashe, is partly because of a lack of education. \u201cIn the US in 1994, a group called the Life and Health Insurance Foundation for Education \u2013 \u2018LIFE\u2019, was formed. Because there had been some company failures and interests rates came down and products weren\u2019t performing as well as they had, the industry was getting a \u2018black eye\u2019, so we wanted to turn it around. LIFE was formed because there was no organisation that existed that said good things about the products, the companies, the advisers and why you should be considering buying life insurance.\u201d<\/p>\n<p>Ashe emphasised the importance of consumer education and constant delivery of the message, citing the marketing efforts of Coca Cola: \u201cCoca Cola is probably the best-selling brand in the world, but do they ever stop advertising? They keep on reinforcing the message. As an industry, I don\u2019t think we reinforce the message. The companies may count on the advisers to do it but the advisers need the material and there has to be some \u2018overlay\u2019 for reaching the larger mass audience, at least to prepare the way \u2013 to \u2018soften the beaches\u2019 \u2013 for the type of messages that we would like to deliver. And that overlay has been largely absent, not only in the United States but probably across the world.\u201d<\/p>\n<p>Brian believes it is the industry\u2019s responsibility to send this overlay message, not governments&#8217;, even though the industry helps governments by reducing consumers\u2019 need for government assistance.<\/p>\n<p>\u201cIn this country we have lots of insurance companies who are very competitive and it is difficult to find common ground: &#8216;Why should I do something for the industry when it will help my competitors?\u2019 But the message of the LIFE Foundation is that a rising tide lifts all boats, which creates a much better atmosphere for the sale of life insurance products.\u201d<\/p>\n<p>The panel agreed that if the industry educates, including telling its claims stories, then it\u2019s effectively helping to make sales via the back end of the conversation. Kristine: \u201cI can tell you that what I have to offer is really good, but if someone else tells you I\u2019m really good, then that will resonate more with the target of the message.\u201d<\/p>\n<div class=\"fw ad\"><!-- Error, Ad is not available at this time due to schedule\/geolocation restrictions! --><\/div>\n<p>Ashe also outlined two different campaigns undertaken by LIFE: Real Life Stories, which shows the benefits of what happens with insurance claims and how this made a difference, and Life Lessons, designed for young people who experience difficulties because their parents do not have insurance. \u201cSo, Real Life Stories shows what planning did to help solve problems and Life Lessons shows the problems young people had when there was nothing in place.\u201d<\/p>\n<h2>Underinsurance<\/h2>\n<p>The panel agreed there is a global underinsurance dilemma and also agreed the long-term solution lies in education.<\/p>\n<p>But Michelle added: \u201cIt\u2019s education, but it\u2019s also a cultural issue. We live in a world of instant gratification \u2013 a disposable world now, where everything is tangible and we\u2019re becoming quite materialistic. We could educate until the cows come home, but the way that society is becoming more \u2018hard-wired\u2019 is that we want stuff that we can touch and feel and play with. And we want it now.\u201d She said consumers will be saying to themselves, \u2018I\u2019m never going to benefit from my life insurance\u2026\u2019<\/p>\n<p>Ashley: \u201cWhen you start talking about education there\u2019s a danger that you start talking about product names and meanings \u2013 that is, what does the term \u2018total and permanent disablement mean? It\u2019s not the name of the product that needs to be \u2018educated\u2019. It\u2019s the outcome we\u2019re looking for \u2013 what\u2019s the outcome if you have the cover? I couldn\u2019t agree more that awareness and education is paramount.\u201d<\/p>\n<p>Within the US, Brian said the LIFE Foundation (now known as <a href=\"http:\/\/www.lifehappens.org\/\" target=\"_blank\">Life Happens<\/a>) has nominated September every year as \u2018Life Insurance Awareness Month\u2019. \u201cWe now have about 125 companies and associations who join in support of that, who have been able to secure endorsements through the Governors of about 50 states, talking about the importance of the product. This has evolved over 20 years and it\u2019s an opportunity for the industry to come together. They can do some personal branding of the material but you need that type of an effort.\u201d<\/p>\n<p>Because of the digital nature of the mass campaigns during Life Insurance Awareness Month, Brian told the panel the campaign has been able to deliver measurable success, including reports from some large insurance firms that they experienced 20% &#8211; 30% spikes in the purchase of insurance. \u201cSo it\u2019s an indication that when people concentrate on it \u2013 when they get the message out, when they encourage their people to work with the message \u2013 it is deliverable and it does generate results.\u201d<\/p>\n<h2>Will payment of life insurance commissions be banned one day?<\/h2>\n<p>With the reinforcement of feedback given by her peers at a recent MDRT event, Susan said no adviser appears ever to have had a client question commissions. In fact, Susan told the panel that clients in all countries have an expectation that commission is built into the life insurance advice solution. \u201cAs long as the client understands how the payment is formed, how it arrives, no-one has had any issues.<\/p>\n<blockquote><p>The consumer is thinking in probabilities as opposed to consequences<\/p><\/blockquote>\n<p>\u201cSo if the notion of banning all life insurance commissions does get pushed, it will be a political agenda, and not come from consumers,\u201d she said.<\/p>\n<p>Jenny Brown told the panel she has spoken to lots of advisers who have tried charging fees for life insurance advice without success. \u201cThose that have worked through it have said it just doesn\u2019t work\u2026 because you can\u2019t charge appropriately for your time. Clients won\u2019t pay it. If I actually charged my clients what it costs to put a life insurance policy on the books I don\u2019t believe they would pay it and they have told me they wouldn\u2019t.<\/p>\n<p>\u201cIf someone comes through and they\u2019re a \u2018cleanskin\u2019 and they get accepted and put on the books in two days, that\u2019s great \u2013 we\u2019ve made money. But what about all the cases where it has taken weeks? And what happens if, ultimately, the client\u2019s application is declined? How do I turn around to you as a client and say, &#8216;Ok, we\u2019ve done all this work, we\u2019ve actually got ten thousand dollars-worth of fees on the books and you\u2019re not covered. Are you going to pay me?&#8217;<\/p>\n<p>\u201cSo the clean skin going through quickly (and those are very rare) will compensate for the other times \u2013 the time it takes for other clients &#8211; and it\u2019s just a fact of life. I don\u2019t believe it will change and I agree the only way it\u2019s going to turn around is because it will be legislated, not because consumers are pushing it.\u201d<\/p>\n<p>Michelle: \u201cIf you\u2019re an advice firm that only provides insurance advice, then commissions is the only way. But when the insurance process is packaged with other financial planning advice, such as cash flow modelling, wills, trusts etc, I don\u2019t think clients have a problem paying the fees for the value of advice. But for life insurance totally on its own \u2013 you can buy it from a supermarket.\u201d<\/p>\n<p>Jenny: \u201cWe\u2019re a full service advice practice and it still doesn\u2019t work. Speaking with a Queensland adviser who trialled it as part of an accounting practice, she said charging fees for life insurance advice doesn\u2019t work, because the cost to service is too high. Even when it\u2019s packaged in with other advice, it still doesn\u2019t work.\u201d<\/p>\n<p>Susan agreed with her colleagues about cleanskin cases subsiding the more difficult underwriting cases: \u201cIt\u2019s almost a \u2018socialist\u2019 approach, where commissions received for the less difficult insurance applications subsidise the costs associated with the more difficult cases. If we change that then the underinsurance issue would be even worse.\u201d<\/p>\n<p>Kristine noted that a good outcome of financial services reform in Australia, part of which has included the banning of investment and superannuation commissions, is that most advisers now know how much their services actually cost, where previously they did not know.<\/p>\n<p>Ashley told his peers it costs his firm $2,300 to produce a risk SoA: \u201c\u2026 and that\u2019s just for the delivery of the advice; not the implementation of the advice, which comes at an additional cost.\u201d<\/p>\n<div class=\"fw ad\"><!-- Error, Ad is not available at this time due to schedule\/geolocation restrictions! --><\/div>\n<p>Ashley added that, in a utopian environment where the consumer understood the value of advice and the need for appropriate insurance cover, then paying a fee for life insurance advice could be palatable to people. \u201cBut in the current environment, where regulatory over-reach has pushed up the cost to deliver advice, even if the client thought it was appropriate to pay for advice, the cost of us delivering that advice is beyond what most consumers are prepared to pay.\u201d<\/p>\n<p>Brian commented that, from the regulator\u2019s perspective, fees are perceived as \u2018pristine\u2019 and commissions are not. \u201cBut the reality is that no-one has ever been able to legislate morality,\u201d he said, pointing out that one of the largest financial crimes in US history, that of Bernie Madoff, was entirely based around fees rather than commissions.<\/p>\n<p>Ashe said people like choice: \u201cSo why not have two systems that people can compare \u2013 you can pay a fee or you can pay by commission.\u201d<\/p>\n<h2>Reducing\/Standardising life insurance commissions<\/h2>\n<p>In response to the notion that perhaps commissions should be standardised in order to remove conflict of interest, Jenny said she believes the level of upfront commissions in Australia is too high, and if the entire industry moved to either a hybrid or level commission system it would be a lot more palatable to the regulator.<\/p>\n<p>The panel agreed that, for the whole industry to move on commissions, it would need cooperation between all the companies. They agreed it would be easier for mature businesses if the level of upfront commissions was reduced, but for new advisers it would be very difficult. Peter Pearson suggested there may need to be a policy of bridging finance implemented to assist the newer practices until they had built their portfolio of clients.<\/p>\n<p>Pearson added that only one insurance company in Canada offers the equivalent of level commissions. \u201cThat is the company I work with, and have done so for over 20 years. So I have never received \u2018heaped\u2019 commissions from day one. It certainly pays dividends now,\u201d said Pearson, referring to the level of his businesses\u2019 annual recurring commission revenue.<\/p>\n<p>Peter continued that most Canadian brokers probably would not be keen to sell hybrid or level commissions unless they had some bridging support or volume bonus structure. \u201cBut that is then something that can lead to conflict of interest,\u201d he warned. However, Pearson also emphasised that Canadian studies have established there is no relationship between advice delivered and commission received. That is, adviser remuneration by commission does not, according to the Canadian research, generate any actual conflict of interest.<\/p>\n<blockquote><p>a rising tide lifts all boats<\/p><\/blockquote>\n<p>Peter and Brian agreed that on the topic of politicians and\/or regulators considering the future banning of life insurance commissions \u201c&#8230; it\u2019s almost like there\u2019s a witch hunt, where there\u2019s no witch.\u201d<\/p>\n<p>On charging fees for life insurance, Brian also observed: \u201cIf it was only fees, what is the natural tendency in business? Reduce the fee. Then there\u2019s a race to the bottom. And then the adviser can\u2019t be appropriately compensated; the client is now receiving no service, the organisation is getting no income and things begin to crumble.\u201d<\/p>\n<p>Kristine offered a different perspective on this topic: &#8220;We don\u2019t need to educate the consumer about our fees and how we are paid &#8211; we need to educate the regulator!\u201d<\/p>\n<p>Kristine related a recent tip from Australia\u2019s Assistant Treasurer, Senator Mathias Cormann, when he said, \u201cYou need to stop articulating the benefit you will receive as the adviser [how I\u2019m going to get paid] and you need to begin articulating the benefit you will receive as the consumer.\u201d The example used by the Senator was the benefit to the consumer in paying commissions is that it makes life insurance advice accessible to those who couldn\u2019t afford an out of pocket advice fee.<\/p>\n<p>\u201cOur own research shows that if we were to go to a mandatory fee-based model many consumers would not be able to afford life insurance advice and would abandon the market all together,\u201d said Brooks.<\/p>\n<p>Michelle told the group that regulation in the UK has converted sales people into business owners. Those advisers that are struggling the most, according to Michelle, are addressing their businesses as a lifestyle business rather than as a commercial business. \u201cSo those that are addressing the world as a business have no problem in charging their clients fees for insurance, even when they don\u2019t have to,\u201d she said.<\/p>\n<p>Hoskin also stressed that, because of the way UK advisers are now describing their fees, clients are developing a greater appreciation of the value advisers deliver, and the importance of that advice. She said clients also see the advice proposition more clearly as a commercial transaction between the business and the consumer. \u201cSo it\u2019s being approached differently and the delivery of the fee conversation is half the battle,\u201d she concluded.<\/p>\n<h2>Where to from here?<\/h2>\n<p>In bringing together the threads from a wide-ranging set of conversations between a diverse, international group of advisers and industry experts, there were several key messages:<\/p>\n<ol>\n<li>Consumers have a very low understanding, or misunderstanding, of the nature of life insurance, whether or not they have cover, and mostly fail to appreciate its value<\/li>\n<li>Advisers and consumers should have the opportunity to determine the nature of the adviser\u2019s remuneration for the life insurance advice they deliver<\/li>\n<li>In a real world, it is virtually impossible for risk-focused advisers to charge a fee for their advice and remain in business<\/li>\n<li>Mass consumer education will remain a vital and critical component in the quest to address what is a global underinsurance issue<\/li>\n<li>The solution to underinsurance and mis-insurance rests in the hands of the life insurance industry; not with governments<\/li>\n<\/ol>\n<script type=\"text\/javascript\">if (typeof(addthis_share) == \"undefined\"){ addthis_share = {\"passthrough\":{\"twitter\":{\"via\":\"riskinfonews\"}}};}\n\nvar addthis_config = {\"data_track_clickback\":false,\"data_track_addressbar\":true,\"data_track_textcopy\":true,\"ui_atversion\":\"300\"};\nvar addthis_product = 'wpp-3.5.9';\n<\/script><script type=\"text\/javascript\" src=\"\/\/s7.addthis.com\/js\/300\/addthis_widget.js#pubid=ra-53a3668b19172d69\"><\/script>","protected":false},"excerpt":{"rendered":"<p>Advisers from Australia, the US, Canada and the UK gathered at the MDRT Annual Meeting to share their thoughts about the key issues impacting their businesses and their industry\u2026<\/p>\n","protected":false},"author":1,"featured_media":211,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[9],"tags":[],"class_list":["post-134","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-feature"],"_links":{"self":[{"href":"http:\/\/magazine.riskinfo.com.au\/16\/wp-json\/wp\/v2\/posts\/134","targetHints":{"allow":["GET"]}}],"collection":[{"href":"http:\/\/magazine.riskinfo.com.au\/16\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/magazine.riskinfo.com.au\/16\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/magazine.riskinfo.com.au\/16\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"http:\/\/magazine.riskinfo.com.au\/16\/wp-json\/wp\/v2\/comments?post=134"}],"version-history":[{"count":0,"href":"http:\/\/magazine.riskinfo.com.au\/16\/wp-json\/wp\/v2\/posts\/134\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"http:\/\/magazine.riskinfo.com.au\/16\/wp-json\/wp\/v2\/media\/211"}],"wp:attachment":[{"href":"http:\/\/magazine.riskinfo.com.au\/16\/wp-json\/wp\/v2\/media?parent=134"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/magazine.riskinfo.com.au\/16\/wp-json\/wp\/v2\/categories?post=134"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/magazine.riskinfo.com.au\/16\/wp-json\/wp\/v2\/tags?post=134"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}