What will clients pay for?

Following on from my last article in riskinfo, I promised to share some insights about the differences between a risk insurance value proposition that clients will pay for, and one that they will only allow you to provide if you get paid by commission.

the new Life Insurance Framework will mean that many advisers will need to determine a new way to get paid for delivering their advice

In that article I made the point that the changes coming in adviser remuneration need not mean Armageddon for insurance advisers. I shared some insights from our Adviser Pricing Models Research Report that there are advisers right now who charge fees in addition to receiving commission for their insurance advice and there are even those who provide stand-alone insurance advice and only receive a fee. Yes, they write the product on nil commission, even when they provide advice on insurance-only, i.e. not part of a broader financial plan.

I wrote that article (and this one) because I know that the new Life Insurance Framework will mean that many advisers will need to determine a new way to get paid for delivering their advice. Depending on the style of client and engagement process you use, the new hybrid commission structure, in addition to the three-year clawback provisions, may well mean that you will need to start charging a fee for your advice. For most, this will mean a proportionate fee that will subsidise the commissions you will also receive, and for others (likely only those who are already practised in charging fees) it may mean removing commissions altogether, charging a fee and accessing a discounted premium for their clients.

I have heard many advisers protest, saying that clients won’t pay a fee for insurance advice. You know what? They are probably right. If all you do is sell life insurance, the odds are that clients won’t pay you to do that. They’ll prefer that you receive commission from the insurance companies you represent (perception is a b*tch). HOWEVER, most great advisers I know – and I include risk specialists in that list…don’t just sell life insurance. They act as professional advisers who represent their clients, and assist them to find the right policies, with the right levels of cover, with the right insurance companies for their specific needs. If their clients ever need to claim, they act as their advocate and liaise with the insurers to secure a stress-free (or at least stress-minimised) claim on behalf of their clients.

I’ve heard on many occasions that insurance needs to be sold – it is not bought. I’ve heard that people don’t wake up one morning and think ‘I want to buy life insurance today.’ That too, is probably right, but I guarantee you that people DO lie awake at night thinking ‘what will happen to my kids if something happened to me?’, especially if they have someone in their close network who has suffered a catastrophe that has brought home the reality that they aren’t, after all, bulletproof, and that sometimes bad things do happen to good people.

before an adviser can confidently propose a fee to a client, they first must overcome their own objections

There is an art and a science to pricing insurance advice, just as there is to pricing any other intangible advice service. From our experience in assisting many advisers to price their broader financial advice (and insurance-only advice), we know that before an adviser can confidently propose a fee to a client, they first must overcome their own objections and be able to articulate a service that is worth paying for. Sometimes that means enhancing that service, while other times it means looking at the service through the eyes of someone who really benefits from it, and doesn’t have the depth of knowledge and experience that the adviser does.

It may seem like purely semantics, but there are nuances to a service that clients are prepared to pay for. It makes sense that you be paid in commission from the insurer if you sell life insurance, but providing ‘family protection advice’, or a ‘risk management strategy’, ‘crisis management plan’, ‘disaster recovery plan’, ‘what-if plan’, ’safety net plan’, etc., that will likely include insurance? That’s slightly different. Let’s reconsider this sort of professional service that clients will pay for…

• Many people don’t like taking the emotional journey of confronting their own mortality and imagining a world in which their children don’t get to grow up with them in their life. Left to their own devices, many couples would prefer to even start an argument over who does the dishes, or watch TV rather than have that conversation. A great adviser will support their clients through that emotional discussion, gently forcing them to confront their fears in a safe environment, and empowering them to quantify the risks and put a plan in place to manage them as best as possible.
• A great adviser will quantify the risks, and reveal the alternatives that clients have in different scenarios (either one dies, both die, either/or are incapacitated). If your proposition was to analyse the risks a family faces and put solutions in place to mitigate those risks in the best way possible, insurance becomes a tool in your kitbag. Your advice includes the alternatives the family has, even if they don’t get new insurance cover (most people nowadays will already have some level of cover, however insufficient that may be, and they may have some assets they can liquidate).
• Your knowledge and experience enables you to crunch the numbers for your clients, to determine not only the right levels of cover, but also the right types of cover, with the right features and benefits to suit their situation AND their budget.
• Rather than providing an SoA with your insurance recommendations in it, what if your advice was a crisis management plan that included insurance, as well as a document that a survivor could turn to if tragedy struck, that could save time and minimise the frustration of dealing with their loved ones’ affairs whilst grieving? That document will include your number to call so you can instigate your claims management service, but it might also include how to access all the documents they need, and how to manage the minutiae that keep a household running (from where the spare key is kept to the password for the electricity provider).

None of these things can be done by direct insurance, and they most certainly are not done when a client simply has default cover in their super fund. Great advisers teach their clients (and prospects) that there is no point in seeking the cheapest insurance policy without an adviser, as insurance gets really expensive if it doesn’t pay out at claim time.

These services alone are valuable, and when you add them to the traditional insurance service that you already articulate, that’s a powerful value proposition. By ‘traditional’, I mean the rest of the mechanics of getting cover in place – selecting the insurer, managing paperwork, negotiating with underwriters, etc. Clients will pay for this service if you can communicate it well, and develop a marketing strategy and engagement process to demonstrate what you really do.

You may also decide to expand your services to include estate planning advice, including completing wills, guardianship, powers of attorney, etc. You may also include other value-added services that your client demographic desires, such as cash flow and debt management and savings strategies. Regardless of whether you expand to these services or not, your advice process should most certainly include a pre-underwriting questionnaire very early on. This way, if you identify that the client is a high-risk insurance applicant, you can empower them to make an informed choice whether to proceed with the application process, knowing they may get declined or accepted with exclusions and/or loadings. If they do not obtain insurance, you can assist them to mitigate their risks in other ways. Now that’s a service worth paying for!

Sue Viskovic is the Managing Director of Elixir Consulting and co-author of the Adviser Pricing Model Research Report third edition. She shares the following insight to provide context for this article:

“I’ve spent roughly 13 years coaching advisers to improve the way they run their business, the last 8 in my own independent business, Elixir Consulting. I also run workshops and speaking engagements, but it is the one-to-one coaching where I get a front seat and intimate insight into the day-to-day running of advice businesses, as well as the insights shared between my team of coaches who do this with businesses around Australia. I have also been an adviser myself, albeit ten years ago, and I advised on insurance in addition to broader financial advice. I have personally assisted clients through claims, just as I have had the personal frustration of clients with young children and debts, who said all the right things about wanting to protect their families but just would not get around to completing underwriting and implementing their cover. I’ve also had the very recent experience of helping a friend who is terminal, to claim on her insufficient insurance policies. She never sought advice, and sadly her family will have a different future to the one they might have had if they’d sat down with a great adviser before she got sick last Christmas. I am a passionate advocate of quality advice, and I want to see more great advisers succeed at delivering high quality advice to more people. I would love to see the statistics soar – that is, the number of people who are adequately covered by insurance and are financially well-prepared to obtain the life they desire, or in the least, for their family to be supported if a tragedy prevents them from fulfilling those dreams.”

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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