Post Trowbridge – Surviving and Thriving in the New Normal

I must confess to being somewhat nervous writing this article. There is such (understandable) pain and fury surrounding the Trowbridge and subsequent Life Insurance Framework recommendations. Many of the comments I’m reading are emotional outbursts, rather than considered solutions to a massive and unpleasant challenge to the risk specialist practice.

I’ll pose a question that sets the framework for both this article and where I believe our energies should now be focussed: Assuming the Life Insurance Framework recommendations are accepted in their current form, what proactive action can advisers, whose business model relies on the current upfront remuneration arrangements, take?

There are enough very smart people – both advisers and those who support them – who, when collectively focussing their minds on this question, will provide a range of practical and relevant solutions. I’ll kick off this line of thought with a few suggestions of my own. My objective in this article is to motivate constructive thinking; not to provide a detailed DIY guide. You may (strongly) disagree with some of my suggestions. That’s okay. Every business is unique in some way and not every solution is appropriate or even acceptable.

I believe that there are three areas we need to focus on:

1. Reducing costs
2. Replacing revenue lost with alternate sources of fee income
3. A consumer education program

The priority is to protect your profitability; not your revenue or client numbers. Let me briefly expand on each.

Reducing costs

The place to start is by taking a look at your most recent income statement. What are the highest costs, other than your own drawings? They’ll typically include staff costs, office rental, dealer group licence fees, professional indemnity and other insurances, training, travel, and entertainment.

Here are some high level ideas to reduce costs:

Staff

Review your current work processes. Creating a more efficient business means there are less tasks for people to undertake. Can you remove steps, automate or outsource them? To what extent are you embracing work flow technology? Can you make more parts of your advice process self-service? Reducing your current staff complement (I know, this hurts and is the last thing you’d like to do) will have the biggest impact on your costs. Is there an opportunity to offer your people part time employment rather than full time? Have you investigated outsourcing various processes and activities?

A friend of mine uses the services of a Manilla-based PA. Her salary bill moved from sixty thousand dollars to sixteen and she’s very happy with the service she’s getting.

Office space

It’s very fashionable in the technology industry to work in hubs. Here, groups of like-minded people share office space. There’s a warm, collegial atmosphere and always an opportunity to share ideas or ask for support. Sharing offices not only cuts the rent but enables you to share support staff and other office overheads as well.

what may be costing you will be profitable to someone else

Training

Maintaining your CPD points and ensuring your skills remain current can be costly. I’m amazed at the amount of money advisers spend with a well-known online training provider. The content is usually disengaging and often not relevant. It’s time to put more pressure on your licensee and life offices to provide suitable, no-cost or low-cost alternatives. They can do this because they have the scale and in-house resources.

Obtaining new skills will provide cost-cutting opportunities. I used to pay someone to set and load my fortnightly newsletter. I invested some time learning how to do this on MailChimp and WordPress and voila, $300 saved each month.

Entertaining

Many big financial services companies have excellent facilities. There is no need for you to have client functions at expensive venues. NAB, for example, has the ‘NAB Village’ which is a quality environment for client events. Many dealer group boardrooms remain unused most of the time. Think about client breakfasts and evening events in these often smartly furnished venues.

Travel

Life insurance advice is a personable profession; perhaps too much so. Many advisers make multiple visits to clients. At a recent Riskinfo roundtable, one of the participants spoke about emailing an SoA to a distant client, together with a video that talked them through the document. She reported that the client was thoroughly impressed. This isn’t rocket science. If a wizened baby boomer like Don Trapnell can use his selfie stick to take me on a virtual tour of his office, then anyone prepared to spend thirty minutes with their kids or grandchildren can do the same.

The use of video for client base engagement is also underutilised. This can save you tremendous time and costs communicating with Segment B and C clients.

Segmenting clients

The last sentence in the previous paragraph leads to my next point. Many risk practices have a segment of loss-making clients. The renewal commission from this group is below your basic costs to service them. As the overhead structure of practices differ, what may be costing you will be profitable to someone else. Identify these clients and sell them on.

Dealer group fees

Many of the suggestions I’ve made above can be used by licensees to reduce their costs of doing business. Put pressure on them to do so. These fees are often a big line item in your P&L. It’s time for everyone in the value chain to start running lean. Advisers should not be the only ones doing all the hard work.

Let me stop my thoughts on cost reduction before I blow my word count! I’d like to cover a few ideas on revenue replacement and consumer education.

Protecting and increasing revenue

Robust advice offer

Many risk specialists hold the belief that clients will not pay fee for advice. And they are quite correct if the practice has no formal, compelling advice offering that reflects all the issues involved in the purchase of personal protection. The market for risk advice is uninformed and, in the main, looks at the purchase of insurance as a simple transaction. Hence the success of vendors selling cover via call centres and online. I won’t have to convince you of the permutations and complexities involved in even a simple need. As a profession we have failed to educate our market. As an individual practitioner, your advice offer can spell this out.

We cannot rely on Government to do the right thing and inform the electorate of the importance of personal insurance

New target markets

You may be currently serving the ‘mums and dads’ market. If your post-Trowbridge/LIF revenue doesn’t stack up, you could choose to move into a more lucrative niche. I appreciate that this may require some reskilling, but there are many willing to support you. It’s not just the family unit that is woefully underinsured in Australia. Business is, too.

Expand your service offering

Most risk specialists are just that – they purely focus on insurance. You may choose to expand your service offer to include superannuation advice and estate planning. Again, I appreciate that there is some training involved.

With your focus on risk you will most likely be working with wealth accumulators. By outsourcing the portfolio management piece of your advice you’ll discover that the remaining advice elements are reasonably easy to master.

Final word: consumer education

The key value proposition of today’s nanny state is ‘Don’t worry. We’ll look after you’. Many Australian consumers believe that between WorkCover, Medicare, government promises and other real or perceived safety nets, they’re okay. We cannot rely on Government to do the right thing and inform the electorate of the importance of personal insurance. So it’s up to us. It’s time we started to pressure the life offices to start getting real about the underinsurance problem. I promise you, when I lived in South Africa nobody went around uninsured. And it wasn’t just because SA is one of the most violent countries on earth. It was because the life offices’ ran the most unnerving and unsettling advertising campaigns. It’s time we knocked the ‘she’ll be right’ complacency out of society. We are doing people no favours by keeping them ignorant and having them remain oblivious to the devastating consequences that may stem from the risks they face.

Dani Peer guides and supports advice professionals to grow their practices. His approach rests on three growth drivers he has identified as being responsible for the success of some of Australia’s most prolific and profitable practices. You’ll find further details about his Growth Solutions here.

He is also the author of the book Powerful Words: The New Way to Sell Financial Advice. You can order a copy here.