Adviser remuneration has hogged the limelight of late and rightfully so.
Not only is the favoured-by-many upfront commission apparently on its last legs, but the very existence of commission as a form of adviser remuneration is under continued threat; “continued” because the threat started some years back with commission:
• On investment products — gone;
• On employer-sponsored group products — gone;
• On referrals from chartered accountants — gone;
• On industry fund and direct insurance risk products — never arrived; and now
• Fallout from the Trowbridge Report.
It is not the intent of this article to consider, let alone debate, the merit of commission or the viability of its most likely replacement, fees.
It is the intent, however, to consider, but not debate, a prerequisite to the accepting or charging of any form of remunerative reward:
• The existence of value-add;
• An adviser understanding of the value-add and an ability to espouse it; and
• An appreciation of the value-add by the client.
The crucial question is, however, what is the adviser value-add?
At a high level, some may feel it is “service” giving rise to the phrase “fee for service”, but if service is defined as “the action of helping or doing work for someone”, this does not seem a sufficiently accurate or compelling description.
Perhaps, it is more the case that the adviser value-add is “advice” i.e. “guidance or recommendations offered with regard to prudent action”.
It is contended that the difference between the two, i.e. that which transforms a service into advice, is the overlay of adviser intellect and commitment, with the overlay coming from both the adviser and others within their business.
With that as the starting point, what are some, but certainly not all, examples of adviser advice warranting a reward?
Availability advice
The fact find process highlights that all clients are different and possessing of unique circumstances, needs and goals.
So surely it is illogical to assume that appropriate advice can always be achieved by simply accessing generally available products that appear on a particular licensee’s approved product list.
Where, for example, can the most appropriate policies and options be sourced for so-called niche markets:
• Older clients, i.e. over age 55;
• Clients working in home duties; or
• Clients in casual or part-time work?
And what about:
• Clients in occupations for which insurance is not easily available;
• Income protection for high net-worth clients; and
• Clients with unique health issues?
The skill of availability advice is:
• Identifying when a client’s uniqueness places them in a niche market, outside the scope of generally available products;
• Further identifying and recommending products that are suited to the particular niche; and
• Being able to reassure the client that the recommended product has arisen out of a thorough market review.
Cover advice
The lure of technology-driven commoditisation has led to the development of a myriad of risk insurance benefit calculators which encourage intending insureds to simply access an online form to instantly identify how much cover is needed.
Unfortunately, an action such as this fails to appreciate that the uniqueness of client needs goes well beyond the availability of products and while for some their needs may fit into a formula, for others this is not the case.
There is no substitute for a client/adviser interactive process.
At a high level, some may feel it is “service” giving rise to the phrase “fee for service”, but if service is defined as “the action of helping or doing work for someone”, this does not seem a sufficiently accurate or compelling description.
The skill of cover advice is:
• Ensuring the veracity of a benefit formula prior to its use;
• Identifying for which clients a formula solution is appropriate; and
• Undertaking a non or amended formula analysis for the remainder.
Decision advice
The decision document, that is, the statement of advice, is oft maligned:
• It is too long;
• It is incomprehensible; and
• It is not user-friendly… and so on.
Yet, its importance cannot be denied; how else can an adviser document information such as:
• Why a particular policy and benefit are appropriate;
• What is and is not covered in the recommended policy;
• What are the potential issues of retaining or replacing existing cover;
• What are the personal and business areas of risk exposure;
• What policy structures and ownership are appropriate and why; and
• What are the various tax implications associated with the recommendation.
The skill of decision advice is:
• Appreciating the purpose and importance of the decision document;
• Overcoming its limitations by creating a documented environment in which a client can make an informed decision; and
• Guiding the client through their decision and enabling them to be confident about it.
Confirmation advice
The risks associated with it are well known but arguably we are all guilty of doing it; ticking boxes or signing statements to confirm that we have read and understood a declaration or the responsibility terms and conditions when in fact we have not.
The confirmation advice four-step is not a dance move, it is a significant component of the adviser value-add:
• Step 1 is for the adviser to identify the various statements the client may need to sign during the initial advice, underwriting and claims process;
• Step 2 is for the adviser to be aware of the terms of the authorities, confirmations and commitments contained in those statements;
• Step 3 is for the adviser to explain those terms that are material to the client in a clear, concise and consistent manner; and
• Step 4 is for the adviser to provide the client with assistance and advice if concern is expressed about what they are being asked to sign.
Policy advice
Policy advice falls into two areas.
First, there is the policy wording about which the complaint is too often “the big print giveth and the small print taketh away”.
While the popular view may be that all policies and the way in which they are interpreted, are the same, this is not the case.
Unquestionably there are subtle and not so subtle, material differences between the policy terms and conditions of insurers but even more confusing to the uninitiated, there are identical clauses in policies of different insurers that are interpreted in a different way.
And dare it be suggested, situations can also be found where the interpretation differs between individuals working for the same insurer!
The skill of policy advice in respect of policy wording is:
• Being aware of the existence of material differences in policy wording and policy interpretation;
• Being able to assess if a difference is material to a particular client; and if in doubt; and
• Having access to expertise, knowing when to use it and using it.
The second area of policy advice is in regards to an insurer’s internal protocols which can be legally or procedurally driven. Matters such as:
• When does the duty of disclosure end and cover under the policy start;
• What is the insurer’s lapsing and reinstatement protocols;
• What legal precedents initially exist or subsequently come into existence that might influence the practical application of policy wording; and
• What rights does the client possess, for example, in regards to access to information held, and explanations for decisions made, by the insurer.
The risks associated with it are well known but arguably we are all guilty of doing it; ticking boxes or signing statements to confirm that we have read and understood a declaration or the responsibility terms and conditions when in fact we have not.
The skill of policy advice in respect of policy protocols is:
• Being aware of the protocols, general to the industry and specific to an insurer;
• Staying up to date or having access to resources that are up to date with changes in protocols and legal precedent; and
• Checking the position before committing, to ensure risk to the client is mitigated.
Cost advice
Cost advice must also be split, in this case between initial and ongoing.
Initial cost advice occurs as part of the application process whereby the application form is used to:
“Collect client information relevant to the insurer’s assessment decision in such a way as to obtain optimal premium rates and acceptance terms.”
Sourcing all relevant data for a client with serious or multiple health issues, who is working in an hazardous occupation or following hazardous pursuits rarely happens by chance — this is known in the trade as field underwriting.
The skill of initial cost advice is:
• Identifying what information is relevant;
• Presenting relevant information in a succinct and compelling way;
• Knowing to which person and which insurer to present the information; and
• Negotiating the right outcome without compromising the current or future client.
Field underwriting; however, is ongoing and an adviser keeping abreast of changes in a client’s circumstances, improvements or otherwise, is a crucial aspect of cost control.
Adviser feedback would indicate that the major cause of policy lapsing is not the need for cover disappearing but the premium being seen as too expensive.
When the client is at their most vulnerable they will, without question, need and appreciate professional, impartially-biased and informed advice.
A client, left to their own devices might be tempted to insure on a stepped premium basis in order to take advantage of the low upfront load only to find later that premium rates are escalating well beyond their expectation and ability to pay.
Another client might be sufficiently wise to implement level premium cover but not appreciate there is an automatic conversion to stepped at a future date. Without warning, premiums could unexpectedly increase many fold.
More subtle, but no less important, is the ability to discern both the quantum of a premium rate and its sustainability. An appreciation and analysis of the factors driving premium rates will better protect the client from rate rises unrelated to age increases.
Thus the skill of ongoing cost advice is:
• Being alert to potential price pressure on the client and identifying the cause;
• Further identifying ways to control price without compromising and, if possible, by enhancing cover; and
• Implementing changes in a timely manner and on a fully informed basis.
Lifestyle advice
Protection of both the client’s current and future lifestyle will benefit from sage advice.
In regards to current lifestyle, clients not only have unique needs when insurance protection is put in place; their needs continue and change through their life:
• The client grows older;
• Their family and work situation change;
• Their income and wealth grow; and
• Their leisure activities develop.
The skill of current lifestyle advice is:
• Being alert to lifestyle changes that may render previous advice redundant;
• Informing clients such that they too are alert to the factors leading to the need for an immediate advice review; and
• Undertaking regular and timely reviews to ensure that any material changes otherwise overlooked are taken into account.
Lifestyle protection must also consider the future by way of retirement and superannuation needs.
While it may be appropriate to place insurance within a superannuation environment, immediately after this occurs another need will arise; the need again for a frequent and regular review.
The client may well suffer selective amnesia if they approach retirement only to discover their superannuation savings have been materially eroded by risk premium deductions.
The skill of future lifestyle advice is:
• Ensuring there is a mutual client/adviser commitment to regular reviews;
• Being vigilant to any threat to the client’s retirement plans; and
• Re-arranging insurances in a timely manner to reduce or remove the threat.
Claims advice
Often overlooked but a no less important aspect of the application completion process is:
“To gather client information in such a way as to mitigate the chance of problems at the time of a claim.”
When the client is at their most vulnerable they will, without question, need and appreciate professional, impartially-biased and informed advice.
Is a claim payable? If not, why not? How much is payable? What are the likely claims requirements?
The skill of claims advice includes:
• Undertaking an initial claim fact-find and subsequently implementing a planned approach to the claim;
• Ensuring the client is aware of their “claims duty of disclosure” and the consequences of breaching it;
• Ensuring all insurer requirements are reasonable and informing the client of the reason;
• Arranging timely collection and despatch of requirements;
• Acting as a conduit of communication between the client and the insurer; and
• Being a calming influence if issues or delays arise.
Dispute advice
Disputes are better avoided than engaged in.
For the adviser, this means choosing the right insurer at the time of application and keeping an eye on proceedings during the day-to-day administration of the policy and/or claim.
Notwithstanding best intentions, issues do still arise.
While it may be appropriate to place insurance within a superannuation environment, immediately after this occurs another need will arise; the need again for a frequent and regular review.
The dispute resolution process is mandated in its character but while the process may be, the manifestation of the process can be vastly different between insurers.
The skill of dispute advice is:
• Ensuring the dispute process is open and respectful of all parties;
• Ensuring the client is not prejudiced by the insurer’s natural advantage of knowledge, time and financial resource;
• Using research, enquiry, experience and leverage to better even up the client/insurer position; and again
• Negotiating the right outcome without compromising the current or future client.
Integration advice
Quite simply, the skill of integration advice is achieving an optimal outcome for each component and the overall holistic financial plan.
Summary
The focus of this article was earlier identified as considering the link between value and reward in regards to financial advice, specifically:
• To consider the adviser value-add services;
• To assist in an understanding of the value of these services and how to espouse it; such that
• The value is appreciated by the client.
It was conceded that the list that followed i.e. that above, would represent some but certainly not all of the adviser value-add services; which would imply the complete list is compelling indeed.
The final piece to the puzzle is for the adviser to consider the most appropriate way to seek reward for the provision of their advice.
The likely contenders appear to come down to commission and fees which makes for an interesting sequel.
Col Fullagar is the principal at Integrity Resolutions Pty. Ltd.
