Busting the Risk Commission Myths

Six months ago very few financial or risk advisers had heard the name John Trowbridge. In fact, I believe that when the Life Insurance Advice Working Group (LIAWG) was seeking initial submissions from interested parties on the future of risk commissions, a bunch of people had to get on the phone and rally people to put forward a submission and get involved.

As I write, “The Trowbridge Report” has become part of the vernacular in financial services, given the dramatic changes proposed within it.

While we await the outcome of the ongoing review of insurance commissions, the only thing we know so far is that the current upfront commission model will no longer exist.

Listening to advisers in person and online, we’re hearing a lot of fear… In fact, it reminds me of the fears expressed by many financial advisers some seven years ago, when it was suggested that commissions on investment advice were to be abolished. And yet… many of those same advisers are now running healthy, profitable businesses with happy clients who are continuing to pay fees.

Maybe it’s too early for those in fear to be able to hear this without responding with anger or casting aspersions about my integrity, intelligence or motivation, but I’m going to take that risk and publish this article anyway. Why? Certainly not to beat a drum with an opinion about the validity of any one model over another, be it commission or otherwise. Rather, to help you see that there is light at the end of the tunnel. This is not Armageddon for risk advice businesses.

As an independent coaching organisation that specialises in financial and risk advice businesses, we know an awful lot about the process, the difficulties, the emotion and the ramifications of changing the pricing model of an advice business. So I thought I might share my knowledge – and dispel a few myths about removing the upfront commission model. I’ll bring you some thoughts and some facts from our work with hundreds of advice practices over eight years, and the over 800 pricing models we have examined during our pricing research over the same period.

You see, the services provided by advisers who specialise in the very intricate area of personal risk insurance are invaluable. What you do is incredibly important, and I would hate to see consumers miss out on gaining access to your expertise because you’re paralysed by fear and not yet able to see the long-term view. We’re beyond the point of arguing in favour of upfront commissions, so let’s be productive and take a positive focus on the many ways that you can continue to do what you do well. So, about those myths….

• “Clients won’t pay for insurance advice.”  Yes, they will. In our current Adviser Pricing Models Research Report (third edition), we found 28 advice businesses who charge fees and do not receive commissions for providing stand-alone insurance advice. That’s 28 out of 275 in the sample group – no doubt there are many more who did not participate in the research.
• “You can only charge fees for risk advice if you bundle it up with a full financial plan.” Wrong. Read that last bullet point again.
• “Only wealthy clients will pay fees for risk advice. Who will look after the mum-and-dad clients who can’t afford to pay a fee?” There is plenty of evidence this is a falsehood. Advisers who provide a service to middle-income earners refine their engagement process for both efficiency and client engagement, and they continue to build a profitable business by delivering a meaningful and valuable service to people who recognise that value and are prepared to pay for it.
• “Advisers will go out of business.” Yes, okay, I’ll concede this one. If they don’t evolve the way they deliver their proposition, it’s likely they’ll at least suffer damage to their EBIT, and may choose to shut their doors. I also know of a number of advisers who will choose to retire early, as they don’t have the energy to embrace more change at the end of their career.
• “No young advisers will enter the industry because they won’t be able to build a business.” The thing with younger advisers, who haven’t formed opinions on decades of experiencing the same business model, is that they are open to new ways of doing business. They’ll work out how to deliver a profitable service no matter what the new commission model looks like.
• “Why should we be asked to deliver advice under what it costs us?” No one is asking you to do that. No matter what the future commission model looks like, you are responsible for your own business – and you have the right to charge a fee in addition to, or instead of, receiving commission from the insurance provider.
• “This will only worsen the underinsurance problem in Australia.” I disagree. When a business takes control of how they charge their clients (making the choice of whether they include commissions in their remuneration model), they also review their whole business model, including their value proposition, client engagement process and marketing strategies. Many of the advisers who have removed commissions have no shortage of new clients seeking their advice – and they cross the spectrum of high to middle income earners.

I get it, really I do. Doing what I do for a living, I know first-hand that pricing risk advice is complex.

The advisers I know who already provide risk advice without commissions are happy

And yet I also know that it’s doable. I also know that when an adviser decides they will evolve their model, and keep delivering an outstanding and very powerful service to clients without relying on commissions, they end up with a business that is stronger, and less influenced by factors outside their control.

The advisers I know who already provide risk advice without commissions are happy. Their clients are happy. And guess what? Their lapse rates are lower because their clients absolutely get how important it is to stay protected.  And they keep their adviser on retainer so they can ensure their cover remains appropriate for their changing needs and so that they will have their adviser’s help at claim time.

To charge fees for what you do, you need to be confident in the structure you have built, and the only way to gain that confidence is have a robust process. Get a thorough handle on what it costs you to run your business and provide your services; before you do this you may need to re-engineer your engagement process so that you can more clearly demonstrate the value of what you do. You won’t be selling insurance – you will be selling your advice on how to protect your clients and their loved ones. A small nuance, but one with significant results. (I’ll expand on this in my next article.)

Pricing insurance advice is not easy. However challenging it is, you can develop a model that suits the clientele you work best with, that captures your claims process and the situations where clients don’t get covered. For every challenge there is a solution.

If you really honestly believe that there is no future in your business without commissions in insurance advice, go to a quiet room, take a deep breath and ask yourself: is this what it was like for the majority of the population in the middle ages who though that the earth was flat?

You can spend your time exploring conspiracy theories and the motivations behind the changes. Or you can accept the fact that the structure of insurance commissions is changing, and take positive steps to evolve your business and thrive. I hope you do the latter, as goodness knows we need you to keep doing what you do!

In Practice Management, Elixir Consulting shares strategies for building better advice businesses.

Sue Viskovic is the Managing Director and founder of Elixir Consulting, a specialist consulting and coaching firm that is dedicated to helping financial advisers and risk specialists to get their businesses performing better.

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