Risk advisers have every reason to plan

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Business planning consultancy Brisbane

Call Gary direct on 0408 756 531

In my last blog post I talked about the true value of risk insurance and the client-focused risk adviser.  However, this praise does not take away from the fact that the risk insurance advice business currently works on a slightly flawed business model.

The flaw is that the commission system has the potential to provide the adviser with a good income even if they don’t provide a good service.   As I have said previously, being paid by the product provider attaches the adviser to the product and a ‘client register’ but does not necessarily attach the adviser to the client over the long term. 

This creates cross subsidies among clients.  This means while all products pay the same, the adviser receives different levels of income depending on factors such as age and health risk.  Consequently, not all clients receive equal service from their adviser.

Healthy young people with low sums insured don’t produce much ongoing commission income and it would be difficult for an adviser to provide service if the same amount was received as a fee. 

It is the older unhealthy smokers with high sums insured that subsidise the service provided to the rest of the client portfolio.

The flip side of this is that the healthy young clients are the long term clients and the future of the advisory business.  The older unhealthy clients are currently profitable but are not long term prospects.

For this reason, every risk adviser and risk advisory business would benefit from some professional advice at my business planning consultancy in Brisbane. 

However, the cross subsidy issue is not the only reason to plan.  Business planning addresses a wide range of other issues as well. 

These include:

  • Building a business as opposed to building a ‘client register’
  • Distinguishing yourself from the legion of ‘look-alikes’ in the market place
  • Presenting yourself as others see you, not as you see yourself
  • Targeting particular groups of customers with specialist services
  • Developing hybrid (fee + commission) based packages
  • Devising and implementing long term client retention strategies
  • Building a valuable rollover or retirement asset for the future

For some advisers with large amorphous client bases, this may necessitate re-focusing and decreasing the client base over time rather than growing it.

#1 Business planning consultancy in Brisbane

Financial services advice you can trust !

Call Gary direct on 0408 756 531 or email gary@garyweigh.com

The true value of the specialist risk adviser

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For business planning Australia call Gary direct on 0408 756 531

Under the FoFA proposals to ban conflicted remuneration (i.e. product commissions) the specialist risk insurance adviser is looking as though it might emerge unscathed.

While financial planners appear to be headed for an ever deepening mire of ‘nanny-state’ paperwork, added to which will be the administrative task of generating and mailing invoices and / or opt-in renewal notices, it appears as if risk advisers might be left to get on with the job of advising.

With no requirement for holistic plans, doorstop sized SoAs, invoicing and debtors systems, it appears as if the solo risk adviser might continue to operate as they always have.

Yes it is true that the risk insurance commission system doesn’t always reflect the true value of risk advice over time but it does help ensure that at least the client focused adviser will there for the client in the event of a claim.  The proposed opt-in provisions are unlikely to achieve that.

On the plus side, it will certainly be a big help to solo risk advisers to have the life companies and licensees continue to shoulder some of the administrative burden by of commission remuneration.

On the minus side, the commission system has the potential to provide the adviser with a good income regardless of whether they provide a good service or not.   Being paid by the product provider attaches the adviser to the product but does not necessarily attach the adviser to the client over the long term.

Without risk advisers, Australians would be further underinsured and that increased financial burden will eventually transfer to the government welfare system.

The majority of Australians already dismiss the concept of risk insurance as a waste of premiums because they wrongly believe that “it won’t happen to me”.  It is only the life company claims people, medicos and risk advisers who know the reality and see the end result of human fragility.

It is not until you have delivered a cheque to a family torn by tragedy, and seen the expression of relief and gratitude, that you can ever understand the true value of risk insurance and the true value of the client-focused risk adviser.

#1 business planning in Australia

Financial services advice you can trust!

Call Gary direct on0408 756 531 or email gary@garyweigh.com

The future of commissions on risk insurance in super

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Your trusted business consultancy Australia

Hoorah!!  A moment of lucidity prevails.  The Assistant Treasurer and Minister for Financial Services and Superannuation, Bill Shorten has indicated that the Government may reconsider its original FoFA proposal to ban commissions on life insurance sold within superannuation.  This ban was originally due to come into force on 1 July 2013.

Shorten says he has been “listening very carefully, and while this is not a definitive statement finally, I am a little more persuaded of the case around risk insurance and the commission where there’s a bit of work actually gone into delivering a product to an individual”.

“I do not see the case for commission on insurance through default or group policies, but I’ve certainly been open and listening carefully to the propositions put around individually-advised risk products in super,” Shorten says.

Risk insurance has always required a lot of explaining in the right context as well as some persuasive argument on the part of an adviser.  These are not products that sell themselves or disappear off the shelves in a buying frenzy.  This is evidenced by the fact that the majority of the Australian population has no personal insurance and those who do are significantly underinsured.

Clients fall over themselves to sign up to wealth building products but it’s a different story when it comes to wealth protection.  Expect to hear the “she’ll be right mate” as a first response to a proposal for wealth protection in the form of risk insurance.  The average Aussie doesn’t hesitate to insure the beloved car but considers life insurance to be a waste of premiums.

This attitude prevails regardless of the form of remuneration.  Everyone dreams of building wealth but no one wants to consider their own premature mortality or morbidity.  The population is generally resistant to the concept of risk insurance.

Those who do sign up for life insurance in super often choose commissions to avoid writing a cheque.  It is not an issue of commission vs. fees.  It is the very practical matter of cash flow.

Clients would rather use money that they can’t touch for years than use their already stretched household budget.  To have commissions paid out of their super fund is one way to gain early access to their superannuation to pay a bill.  It is merely a bonus that there is a tax advantage as well.

If clients are forced to pay fees for their insurance, they are more likely to refuse or reduce an adviser’s risk insurance recommendation simply on the basis of affordability.  That is, no money available after the rising costs of the mortgage, home insurance, food, petrol, electricity, water and a plethora of other living expenses.

Furthermore, it is unlikely that clients will pay ongoing fees all the way through to claim time.  But if the adviser is not paid, he or she is unlikely to be there to help.  Whilst it can be argued that the commission remuneration model doesn’t reflect the true value of advice, it does ensure that the servicing adviser is there when needed at claim time.  The importance of this cannot be underestimated.  Only those who have suffered the tragedy of a death in the family or a life threatening health event can understand the immense value of a helpful and empathetic adviser.

#1 Business consultancy in Australia

Business planning programs from $385 / month

Call Gary direct on 0408 756 531 or email gary@garyweigh.com

FoFA – the bottom line for commission-based financial planners

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Gary Weigh Managing Director

Business consultancy Australia

If you are a financial planner wondering what all the fuss is about with a change from commissions to fees, here’s what it will mean for you.

At present, you are receiving commission income from super and non-super investments that you wrote some time in the past.  Yes you do pride yourself on reviewing clients and providing a service, but will clients continue to buy it at your new fee-based price?

If you have been in the industry for some time you will have accumulated a lot of clients.  Some you already give a lot of service to and others you give little of no service.  To many, you are only there if they need you.

Under the FoFA proposals, from 1 July 2012 it has been indicated that you will retain your book of commission based business, but you will not be able to add to your commission income, except if you write risk insurance.  Therefore over time, your commission-based book of business form investments and super will gradually diminish. 

That will occur for many reasons – people die, divorce, retire or they may change their servicing adviser to someone who provides better fee-based value for money.  One way or another there will be some attrition.

Meanwhile you will build your post 1 July 2012 income base from client fees.  All products recommended to new clients and new products recommended to existing clients will be subject to the new remuneration rules.  That means you will either invoice a fee directly to the client or ask the client to authorise a deduction from their investment / super fund. 

The former will require and invoicing and debtors system.  The latter will invoke the opt-in provisions where the client must actively renew your deduction authorisation every two years and must receive a disclosure notice from you every other year.

Welcome to the world of administration and financial management!  As if you don’t have enough compliance and paperwork!

But there is more!!  If you have a lot of clients, you are unlikely to have sufficient hours in a day to provide a fee-based level of service to them all at a price that would match your current level of commission income.  Many clients simply will not pay what they are paying now.

On the one hand, you could provide a very low level of service at a low price to all of your clients or, on the other hand, you could provide a lot of service to your very best clients and do something else with the rest. 

So this brings you back to the core issues that strike at the very heart of your business.  They are, developing your new service package, costing it and pricing it appropriately.  And it may be more than one service package.

Commissions to fees will be no simple changeover.  That is why you need to stop and do some real business planning, sooner rather than later!!    

Your trusted financial services business consultancy  Australia 

Call Gary direct on 0408 756 531 or email gary@garyweigh.com

Scaled advice opportunities

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Business consultancy Australia

Are you an adviser facing the Future of Financial Advice with uncertainty? 

Call Gary direct on 0408 756 531 for trusted advice.

Scaled advice means providing piece-by-piece simple advice rather than a complete financial plan.  It is advice about one area of a client’s needs, such as insurance, or about a limited range of issues. This contrasts to so-called “holistic advice” which is the traditional advice model offered by many financial advisers.

The Government’s move towards scaled advice will open up the financial advice market beyond financial planners to e.g. superannuation trustees and accountants.  It is still a matter of consultation how far superannuation trustee advice will be permitted to go.

The Government indicates that it will amend the existing ‘reasonable basis for advice’ obligation in the Corporations Act to make it clear that this obligation is commensurate and scalable to the client’s needs when providing advice.

This change heralds some new opportunities for financial planners.  A few of these include:

  • The opportunity to present a fixed fee menu of simple services
  • The chance to specialise in particular areas
  • The opportunity for regular client contact
  • The chance to network around a client’s family doing ‘simple’ or ‘specialist’ tasks
  • The opportunity to focus on targeted clients with the ‘particular need’

Whilst the concept of limited advice is not new, the fact that the Government is codifying scaleable advice indicates the market need for more easily accessible and advice that addresses specic needs and is easier to understand. 

The challenge for advisers will be to set out the blueprint for the future and to manage the change from the current mode of operation.  It will involve some astute business planning; in particular, an overhaul of the product offering, and pricing the new services appropriately.

Your trusted financial services business consultancy  in Australia

Call Gary direct on 0408 756 531 or email gary@garyweigh.com

Charging for financial advice after 1 July 2012

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Are you an adviser facing the Future of Financial Advice with uncertainty? 

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Be smart! Get coached!

The FOFA remuneration reforms are designed to separate advice fees from product fees.  Financial planning clients will pay product providers for their products and will pay advisers for advice.  The controversial ‘conflicted remuneration’ (i.e. of upfront & trailing commissions) that has existed between product provider and adviser is to be eliminated.  The client, not the product provider, will be in the driver’s seat when it comes to remunerating advisers.

So in the absence of upfront and trailing commissions on investments and superannuation products from 1 July 2012 (and ‘insurance in super’ commissions from 1 July 2013), what will be the available pricing and payment options for advisers?

There will be no shortage of options but many advisers are going to have to adjust to a new system of remuneration.  Although the changes are likely to be prospective, many advisers currently reliant on commissions will have to re-think their value proposition.  Let’s look at the options:

Pricing options

  • Hourly rate
  • Flat fee per service provided
  • Fixed annual fee (a retainer)
  • Performance or outcome based fees
  • Ongoing advice fees – (a) fixed or (b) asset based on un-geared investments only (renewable by ‘client opt-in’ every 2 years)

Payment Options

  • ‘Once only’ paid up front or when work is complete
  • Regular invoice (e.g. monthly or quarterly)
  • Paid through adviser payment plan (e.g. Ezi Debit)
  • Deducted from the client’s investment funds at the direction of the client

Payment Types

  • Cash
  • Cheque
  • Direct credit to adviser bank account
  • Direct debit (e.g. Ezi Debit)
  • Pay Pal

Where a ‘licensee / authorised representative’ relationship exists, the licensee is the responsible entity and must be paid.  Some payments will come from product providers in the form of client- authorised deductions, but a significant portion will come from clients directly in the form of fees.  It is likely that all fees remittances will be paid or deposited directly in favour of the licensee (i.e. to their bank account or payment plan), who will in turn pay each adviser.

Your trusted financial services business consultancy Australia.

Call Gary direct on 0408 756 531 or email gary@garyweigh.com

Build a financial services business worth paying for!

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Business coaching Brisbane 

Call Gary direct on 0408 756 531 for trusted advice.

My business coaching Brisbane practice is already one of the fastest growing businesses in Australia.   That is because many financial planners and financial service providers are having a good hard look at their businesses in the near future.  Here’s why!

Most financial planners offer a combination of the following financial products:

  • Superannuation
  • Managed funds
  • Shares & other securities
  • Risk insurance (income protection, life, trauma, disability)

To date, many financial planners are not paid by the client.  Instead they have been paid by the providers of financial products.  That is about to change!

From 1 July 2012, financial planners will be paid by the client.   If they are to be paid by the financial product providers, it will be only for a year maximum, not forever.

Being paid by the client instead of a product provider is not merely a change to charging fees.  It is a fundamental change in the way an adviser conducts his or her business.  For many, there will have to be a service worth paying for.

The first decision a financial planner has to make is which business he or she is in, and who is the client.  For many, providing advice is going to be difficult because their knowledge has been skewed towards justifying and selling products.

Making money out of advice is a whole new ball game and it won’t be easy for a lot of long standing advisers.  It will also be difficult for newcomers because it takes a long time to gain the level of knowledge required to be a quality adviser.

Looking for a trusted financial services business consultancy? 

Call Gary direct on 0408 756 531 or email gary@garyweigh.com

Business planning Australia – a challenge is looming for financial advisers!

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Business planning Australia 

Call Gary direct on 0408 756 531

A lot of self employed financial planners are going to have their world turned upside down next year when ongoing commissions will cease as a way of paying for financial advice.

Many financial advisers will have to change the way that they charge for their services.  But that is only the start of it.  The knock-on effects of this change are much more far reaching in terms of business survival.  In financial services business planning Australia will lead the way.

There are many advisers whose entire monthly income is made up of investment and insurance commissions relating to business written in the past.   They will be shaken up the most.  A lack of business planning and management skills will see a lot of advisers leave the industry.

Although it is irrelevant now, some clients love the commission based income system and others hate it.  The problem with this model of pricing financial advice is that it doesn’t relate to the present.  It relates to past business written.   

From the adviser’s point of view, that’s not such a bad thing because it is always a desirable business goal to establish recurring income streams.  In other words, it allows income earning while you sleep.

From the client’s point of view however, one of the disadvantages is that there is no incentive to provide service today.  The adviser only has to do enough so that the client doesn’t change his or her servicing adviser.  So in many cases, a minimum service is provided and the adviser gets paid, no matter what.

With the upcoming change, every adviser will have to provide maximum service (not minimum service) to compete.   It is often said that the price of financial advice will skyrocket as a result of this change, but I don’t think so.  It is more likely that competition will keep fees at a reasonable level.

The changes required to each and every financial adviser’s business will go much further than a mere switch to charging fees.   It will involve a complete restructure of their businesses.  To many, it will feel like starting all over again.

Those who commence business planning now will be well placed when the change comes into effect on 1 July 2012.

#1 Business planning Australia

Call on 0408 756 531 or email gary@garyweigh.com

Don’t let health misfortune wreck you financially!

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Business planning consultancy Brisbane

For quality protection solutions call Gary direct 0408 756 531

Welcome to our business planning consultancy brisbane!  You’re a business planning business owner!  You work very hard every day to build a better life for you and your family.  You want your kids to have the best possible start to their adult life.

But what if something happened to you? What if you were no longer around? What if you were still around, but could never work again?

What would happen to that better life you envisaged for your family?  Most small businesses are dependent on the health of the owner.

Insurance is the best way to protect against losing everything you’ve worked for. Life insurance, along with permanent disablement and critical illness insurance can help to ensure that your family is taken care of if you can’t take care of them yourself.

Include protection in your business planning.

Call my business planning consultancy in Brisbane on 0408 756 531 

or email now at gary@garyweigh.com

Gary

Business planning – Train your reps in business development!

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For quality business training call Gary direct 0408 756 531

Business development is a lot more than increasing your sales strike rate.  It is about helping your sales people and / or your self employed reps to build a long term business – theirs and yours!

Include it as part of your annual business planning!

If you can train your reps to look beyond the next sale, towards building a long term asset for themselves (and in turn for you) they will be on a winner and so will you!

Your licensees might be:

  • Financial planning authorised reps
  • Insurance authorised reps
  • Credit & lending authorised reps
  • Commission based real estate agents
  • New franchisees
  • Commission based product sellers.

Even if you have employed sales reps, it can only help your business growth to apply sensible business principles to their activities.

One way or another, business development training is a valuable long term investment in your own business.

Train your reps individually, in group sessions or at your next conference!

Call or email now! 0408 756 531 gary@garyweigh.com

Gary