Risk advisers must articulate the value of their advice as a separate entity from the value of insurance premiums in light of new commission structures under the new Life Insurance Framework (LIF), according to Elixir Consulting.
Founder, Sue Viskovic, told delegates at the 2017 Association of Financial Advisers (AFA) National Adviser Conference it was vital for advisers to articulate the value of their advice to clients because advisers sometimes took for granted the value of their own work.
“So the advisers do this really well: help their clients understand that even if they don’t get cover, the work that the adviser has done for them has been particularly important in actually helping them address the risks that their families face and if they don’t get the cover that they need, they have a contingency plan of some sort,” she said.
In terms of pricing models already implemented by many advisers who have considered the ramifications of LIF, they were charging a fee for the initial piece of advice when they on-boarded a new client, and they would then take a commission as a payment for implementation.
“And they’re communicating that [to the client] in a similar style,” Viskovic said.
“They then usually will take a commission for the ongoing services so that will cover the ongoing advice and review and in most cases their claims management process.”
Elixir Consulting conducted a survey of 320 advisers, out of which 310 provided risk advice of some nature, 269 were considered financial advisers who provided risk advice as part of their overall service, while there were only 14 risk specialists. Many advisers who provided risk advice as part of the overall package also provided standalone risk advice.
The survey, titled ‘Advice Pricing Models’, found 35.2 per cent of the advisers charged a fee of some description while 52.8 per cent took commission only and 12 per cent sometimes charged a fee.
Out of the 88 businesses that charged a fee of some description, 36 per cent said they charged an advice fee plus hybrid commission, while 23 per cent charged fees only, with commissions refunded or policies written with nil commission.
“So for those of you who are sitting here saying, ‘yeah but my clients won’t pay a fee for risk’, none of you are the first to do this. None of you are the early adopters that were the first few guys who started creating the movement,” Viskovic said.
Only two per cent of the advisers surveyed said they had seen a negative impact on their conversion rates of winning new clients since they commenced charging fees for risk advice.
“Take the time to really structure your thought process, structure your whole pricing model, and make sure that you get your mindset right,” Viskovic said.