The life insurance advice industry is unnecessarily focused on the terminology of remuneration as either commission or fee-for-service, according to consultant and risk adviser Chris Unwin.
“The problem is in the adviser’s head. It doesn’t matter whether you call it a commission or a fee; the question is do you actually represent value to the client?
“And if you represent value, they don’t have a problem paying whatever it’s called. Because out there in the real world, they’re used to paying professionals for quality advice,” he says.
Unwin has worked as a risk adviser since the early 1980s, starting as a life insurance broker in the United Kingdom before relocating to Australia in 1989.
His role with an Australian financial services institution also took on the training of financial planners. This eventually became his area of focus and he established his own business providing adviser training and also servicing life insurance clients.
“It’s a classic example of the industry shooting itself in the foot with inappropriate use of terminology. Who on earth thought up the expression ‘renewal commission’?
“Of course it’s abhorrent that an adviser should be getting paid just because a client pays a premium. What has he done for it? They should always have been called ‘service commissions’ which at least puts the onus on the adviser [to provide] some type of service,” Unwin says.
Looking at the current debate around adviser remuneration, he believes that one area of concern that hasn’t yet been adequately addressed is the actual cost of providing insurance.
“Let’s say for argument’s sake that commissions were removed tomorrow. What should be the first thing that happens? That premiums are reduced by 20-30 per cent, because that’s what happens if I as an adviser choose not to take commission. So upfront, the client is 30 per cent better off.
“Then, if the adviser charges a fee equivalent to level commission or 30 per cent then basically the client is no worse off than they were before. All that is, is embracing a level commission and making sure that you are actually seen to be giving service to warrant the 30 per cent that you’re getting each year,” Unwin says.
It’s not about the product
He also believes the issue of life insurance products are given unnecessary weight within the debate. Unwin sees the ongoing search for the best product as fruitless, because the perfect product doesn’t exist.
“Don’t focus on the product, focus on the sums assured. This is where the whole best interest for the client is totally misunderstood by the risk adviser. It is the sums assured that will create the financial choices for the client – not the flag you fly over the product,” he says.
Unwin believes many of risk advisers see their role as researching as many life insurance products as possible in order to find the best for their client. However, he argues this isn’t their job.
“You could actually be a tied agent and still satisfy the best interest test. It’s got nothing to do with product, but everything to do with the quality of the advice,” he says.
Training is also lacking within the risk advice space, particularly the soft skills around relating to the client and providing service. “The licensees expect the life companies to provide this sort of training on the engagement side, and the life companies have actually said we’d rather do that internally…but they’re not very good at it.
“And I know they’re not, because I speak to the advisers, they’re the ones that lose out because the licensees are deflecting it to the life companies, and the life companies are saying ‘oh well we’ll do it in house,’” Unwin says.
He draws on his experience within the UK life insurance market in comparing the uptake of level premiums versus stepped premiums in Australia. He believes trauma cover in particular should be sold on a level premium, rather than a stepped premium, largely because stepped models favour the insurer over the client.
“I’m not in the business of lining the pockets of the insurance company, I’m here to service the interests of the client.”
According to Unwin, there are no stepped premiums on trauma cover in the UK. “And 25 per cent of the working population owns trauma cover there, instead of 2.5 per cent [in Australia]. Those who bought it in their 30s and 40s have still got it in their 50s and 60s. No one’s got it in their 50s and 60s here, it’s too expensive if they’re sold a stepped premium.”
“It’s almost inivitable that ultimately, it’ll come to fee for service here. But again, it’s only terminology. If you call something a fee or a commission, it’s a perception, and the perception…of commission is extremely negative, whereas the perception of a fee is not.”
