Classify your clients
A simple approach is to classify your clients into one of two categories according to their expectations and their needs. These are:
- low service clients and
- high service clients.
Most of your clients are low service clients. Their insurance expectations and needs are simple and straightforward. Keep things simple and straightforward, and recognise that your client’s budget will not extend to the perfect text book sum insured and range of insurances. Life is not like that. Your client will face numerous competing claims on her budget and you have to reconcile your advice with her circumstances and in particular her ability and preparedness to pay.
High service clients are few and far between. Not many clients are prepared to pay high fees for high service. Yes, this may mean they are worse off. But it’s reality. As noted above, industry research shows that the commission model means more people are insured than is otherwise the case. In this sense commissions are more effective than fees in dealing with the underinsurance problem. High service clients tend to be high net worth clients, often professionals who work in advice based professions are more aware of the benefit of expert advice.
To be frank, it’s unrealistic to expect other clients to be prepared to pay significant amounts for risk advice. It rarely happens. It’s just outside the scope of your client’s understanding, experience, and expectations. So it’s a challenge, to say the least.
As an aside, I confess to amusement and bemusement at the consultants urging SOA fees of $5,000, $10,000 or even more “because you are worth it.” In thirty years in the game I have rarely seen this model work, and I am happy to dump it in the bin of nonsense I keep next to my desk. Everything these guys say and write tells me they have never had to deal with real client in a real business dealing with real issues. It just does not work the way they say it does. I hope you know what I mean.
The difficult issues connected charging for advice are discussed by Todd Kardash in an article published on 19 January 2016 in Professional Planner that you can read here: The advice conundrum: cheap yet unaffordable
This manual concentrates on the majority of your clients who will not be high net worth clients and who will not be easily inclined to pay large advice fees.