The current model of life insurance advice is unsustainable, though fee-for-service is not the solution, says the head of financial services consulting firm Elixir Consulting.
In her submission to the Life Insurance and Advice Working Group, Sue Viskovic – a former financial planner and a qualified CFP – addresses the challenge of adequately pricing risk advice.
Noting the need for a new approach, she believes neither fee-for-service nor commission-based alternatives are entirely appropriate. Viskovic highlights two challenges for commission-based risk advisers:
– how to account for those insurance clients who don’t progress to an in-force policy
– How to manage claims for clients.
She believes fee-based risk advice is a deterrent for many consumers, suggesting a combination of an initial fee combined with either hybrid or level commissions.
Model of average risk advice costs
Noting much of the debate about fee-for-service versus commission-based life insurance centres on the cost to the adviser, Viskovic provides a table summarising a common scenario of the risk advice process.
The model indicates a business will likely need to recover at least $3,430. This assumes the practice has access to a paraplanner and administrative support staff, with average charge-out rates of $299 for advisers, $171 for paraplannners and $105 for support staff. These figures are estimates from an Elixir study of adviser pricing models.
A moving case study
Viscovic outlines an emotional personal case study to demonstrate the importance of life insurance and appropriate, affordable advice.
“I am currently helping a good friend who has been diagnosed with Stage 4 Melanoma. She has young children the same age as two of mine (9 and 6), and she will be lucky to see next Christmas.”
Her submission highlights not only the difficulties faced by underinsurance, but also “the varied and confusing rules about access and claims”.
“Anne (not her real name) is a perfect example of the general public – she wasn’t motivated to consider her options properly,” Viskovic says.
Her submission also references “the rise of direct insurers [which] will hopefully raise people’s awareness of the need for insurance.” However, she also alludes to the potential they have to “[damage] the general perception of insurance, as more and more people find they are not in fact covered adequately.”
Short timeframe a constraint
Viskovic’s submission is one of the few to cross the desk of Professional Planner, with the John Trowbridge-led review choosing to maintain the confidentiality of submissions. The call for submissions opened in mid-December and closed at the end of January, leaving respondents with only a small window of opportunity after the release of the working group’s interim report on December 17.
Viskovic alludes to this, saying, “I do not feel I have sufficient time to adequately consider the initial suggestions in the Interim Report, so this submission is purely focused on raising awareness of the challenges when pricing risk advice.”