Consider fees as LIF will hit cashflow
Financial advisers relying on risk commissions only around life insurance advice will suffer five to seven years of decreased cashflows under the proposed Life Insurance Framework (LIF).
This downturn could be offset by changes to business efficiency, wider client bases or an expanded focus on other areas of financial advice or by adopting a mixed fee structure or fee only advice according to Elixir Consulting, managing director, Sue Viskovic.
Speaking at the Association of Financial Advisers (AFA) Roadshow in Sydney yesterday, Viskovic said Elixir had examined typical incomes for risk-based practices and found that LIF would impact cashflow for five to seven years.
"To offset this you could become more efficient, attract more clients or change market segment or even broaden the services on offer," Viskovic said stating that estate planning was a natural extension for most risk advisers.
"Many don't offer estate planning advice despite the fact that you have taken the client half way through that journey and dealt with issues of mortality and protection.
"How often as an adviser have you seen funds given to a client from a claim but then they were not distributed to their beneficiaries correctly because they did not have their will done?"
Viskovic said while many people were wary of commission based selling around life insurance, risk advisers should consider moving into a fee for service model as they were able to offer much more than just a product offering.
"If you are perceived as selling life insurance people will not be interested in paying a fee because they will see you as working for the life insurer," Viskovic said.
"However financial advisers do more. They look at the risks, how to deal with them, find the best provider and levels of cover and mix of insurance products to suit a client's needs."
Viskovic said this type of work and advice could be bundled and presented as a financial plan with a fee applied and any commissions that applied could be taken by the adviser as a success fee if and when policies were accepted and placed with an insurer.
AUTHOR
Jason Spits
Recommended for you
Policy and advocacy specialist Benjamin Marshan has left the Council of Australian Life Insurers after less than a year, having joined in March from the Financial Planning Association of Australia.
The declining volume of risk advisers meant KPMG has found a rising lapse rate for insurance policies arranged by independent financial advisers, particularly in the TPD and death cover space.
The Life Insurance Code of Practice has transferred from the Financial Services Council to the Council of Australian Life Insurers.
The firm has announced it will no longer be writing new life insurance policies in the retail advised and corporate group insurance channels, citing a declining market and risk adviser numbers.
