Create a strategies based practice

To survive and prosper advisers in the post LIF world advisers have to increase the efficiency, scope and size of their practices. They must learn to do more quickly.

You have to create a strategies based practice.

This simple sentence is a gateway to a complex and difficult arena. Every practice is different and every client is different. The compliance burden on advisers is already heavy, but it’s going to get heavier. Advisers have to find ways to satisfy this heavy compliance burden and reconcile it with a the economic realities of running a practice, i.e. a business, with a dollar cost and an opportunity cost attached to every decision you make, including how much time is spent on each client and each SOA.

There are a number of ways to improve the efficiency of your practice. Most are not mutually exclusive and most solutions will combine several initiatives.

The key is evolving from a product orientated practice to a strategies based practice.

This is what ASIC wants you to do, and it’s what you need to do to adapt to the changing legislative environment. It includes accepting that commission income per policy has been reduced, and hence commission income per client has been reduced and finding ways to maintain or even increase your income (and of course decrease your costs).

More particularly, your options include the need to:

  1. increase the number of clients you service through
    1. more active marketing
    2. links to allied service providers such as mortgage brokers, accountants and solicitors
  2. reduce the time you spend with each client, which can be done by:
    1. delegating better
    2. outsourcing non-client interface work such as SOAs and applications
    3. shorter SOAs
  3. greater scaling of SOAs (i.e. narrower scope)
  4. managing your clients’ expectations down
  5. expanding the range of services you provide to each client including:
    1. non-insurance financial planning services
    2. estate planning services
    3. SMSF services
    4. mortgage broking services
    5. accounting and legal service

In most cases practices will select a combination of these options and other options that best suit their circumstances.

ASIC’s views on strategic life insurance advice

ASIC’s views on strategic life insurance advice are best explained by paragraphs 180 to 182 of Report 413: Review of retail life insurance advice. ASIC is making it very clear it expects risk advice to change from being product orientated to strategies orientated. It’s foolhardy to ignore such clear and obvious instructions from the life insurance advice regulator.

Paragraphs 180 to 182 read as follows:

Lack of strategic life insurance advice

180      It is the process of identification and prioritisation of needs and objectives that is the most important aspect of financial advice for consumers. It is a key reason why consumers look for financial advice.

181      A recurring theme in this surveillance was the failure of advisers to give strategic risk advice to their clients. Strategic life insurance advice includes advice on the type, level, structure and affordability of life insurance cover based on the client’s cash flow position and which prioritises their insurance needs. Strategic advice can be stand alone or, where appropriate, provide the framework for product advice.

182      For example, we found many files where the adviser failed to add any meaningful value to their clients by:

(a)  helping them set an appropriate sum insured, balancing the competing priorities of underinsurance versus affordability;  

(b)  testing the value of optional extras against the client’s ability to sustain the insurance over time by prioritising the essential and the non-essential; or

(c)  helping the client evaluate the merits of stepped versus level premiums relative to the amount of time the client may expect to hold insurance— for example, until debts are repaid, children are adults or the client transitions to retirement.

In the following pages we concentrate on ideas to help advisers move from a product orientated risk insurance practice to a strategies based risk insurance practice.

That is, we concentrate on ideas to help advisers do what ASIC says they should do. Happily, this is what Dover has always said advisers should do: create a great strategies based practice that prioritises client interests and always provides advice that is appropriate to the client and in the clients’ best interests.

It’s about the next thirty years, not the next thirty days.

The Dover Group