Our case for the ongoing need for specialist risk advisers in today’s financial advice landscape…
In recent times there have been a number of media reports painting a bleak future for specialist risk advice practices – even going so far as to claim we are an “endangered species.”
Such claims come amid the large-scale exodus of financial advisers from the marketplace due to the increased cost of service and reduced margins created by today’s regulatory and compliance requirements.
Far from considering ourselves an “endangered species,” we believe that in such a marketplace the need for a specialist risk advice practice like AFRM has never been greater!
First – some background on the broader financial advice sector:
On 18 April 2022, The Australian Financial Review (AFR) reported that because of the increased cost of financial advice “more than 100,000 clients over the past year dropped out of their advice services, taking the total cohort of advised Australians to just 10.1 per cent of the adult population, down from 13.9 per cent in 2018.”
The report was based upon the findings of The Adviser Ratings 2022 Financial Advice Landscape Report which, it said, found that the median advice fees charged to financial advice clients increased from $3256 to $3529 a year, representing an 8 per cent spike, or 40 per cent over the three years to December 2021.
“The $273 annual price rise was attributed to increases in the cost of providing advice due to regulation and diminishing supply as another 4000 advisers, or 16 per cent of the workforce, left the industry last year,” the AFR report said.
“The decline in the number of advice clients comes despite steady demand for advice, with 29 per cent of Australians indicating they want financial advice, down slightly from 30 per cent last year but well above the 21 per cent recorded in 2019.”
“Instead of increasingly expensive professional advice, many consumers have turned to unregulated advice by following investing and finance influencers, or ‘finfluencers,’ on digital platforms such as TikTok, YouTube and Instagram.”
So, while we have financial advice becoming less affordable, we have an adviser exodus from the industry as well.
On 4 May, Adviser Ratings published an article headlined: Endangered Species: Can Risk Advisers Survive The New Landscape?
This story was again based upon the findings of the 2022 Australian Financial Advice Landscape Report which, it says, found that specialist risk advisers now make up less than a tenth of the total financial advice practice market.
“…there are now about 1,200 risk advisers operating across Australia, with more than a third of their workforce departing last year,” the article said.
“Given changes to revenue structures and increasing risk and complexity, it’s difficult to argue these mass exits were unforeseen. In 2019 and 2020, risk advisers were exiting at a rate 2.4 times that of ‘holistic’ advisers, and last year that climbed to 2.48 times.”
“As we’ve noted in the past, the Life Insurance Framework has been a key catalyst for adviser exits from this market, especially when combined with the other factors affecting advisers in general.”
“As the final deadline for passing the exam approaches (for those who have failed twice), we expect further departures from the risk space.”
Interestingly, this same report includes a statement that we believe validates the basis of our own argument for continued relevance and industry longevity.
It is this:
“…we are increasingly seeing non-risk advisers step away from that part of the business, largely due to complexity, cost and compliance.”
As figure 1 shows, more than 60 per cent of advisers do not advise on life or do so in an extremely limited capacity.
Since our founding in 1997, AFRM is and always has been a specialist risk advice practice.
We have developed our own bespoke client management platform that allows us to efficiently manage every aspect of our client and referral partner relationships.
We have in depth knowledge of life insurance products and perhaps unrivalled access at senior executive level of all the major insurers, simply due to the volume of business we write.
Risk advice is niche. It requires dedication and effort to continue to be up to date on every facet of this complex industry. Effective risk advice requires a consistent focus on the life insurance sector and the various products in the market.
For this reason, we do not believe generalist advisers can effectively “dabble” in risk advice on an occasional basis.
We often discuss internally how challenging it is to continue to be on top of all of the changes and product nuances in the life insurance market and how difficult it must be for those who do not devote 100 per cent of their time to it.
This is the basis of our value proposition to you, our referral partners, who entrust your clients to AFRM for risk advice - and also our highly effective claims management service. Having achieved about $240m in clients claims paid, the success of our insurance claims management service on behalf of our clients is beyond question.
So – yes – while many advisers are leaving the industry and many advisers are no longer providing risk advice because it is simply too complex, too time consuming and has little revenue earning potential for the work involved, AFRM continues to hold a strong and unique position in the market.
We have 25 years of experience focusing solely on risk advice. We have a team that has been working together in this business for a very large part of those years.
We have developed our own client management IT platform that allows us to efficiently manage every aspect of our client and referral partner relationships and still remain profitable.
In short, our business has robust a foundation and strong fundamentals. We are here to stay, and we are looking to grow our business through building more referral partner relationships.
So, by all means, if you know of any other businesses in your sphere of influence that could benefit from the services we provide, please do put them in touch.
Far from feeling “endangered,” we are hungry, and geared to grow. We share Jeremy Wright’s view recently reported in RiskInfo that the current market environment represents “a huge opportunity to build up this industry again.”
In our view, why would any general advice practice commit their valuable time to attempting to advise their clients on risk when they can refer them to a specialist like AFRM that does nothing but very thorough, cost-effective, risk advice all day, every day?
It is through you – our referral partners – that we see a strong future and seek our growth.
Sincerely,
Rob Vitnell
AFRM Managing Director.
Case Study:
“The speed in having the claim processed by AFRM has been a huge relief, given I had surgery one day after the initial consultation with the doctor.”
“Knowing that there was someone able manage and support the claim, given the bigger health concerns I was facing, was extremely reassuring.”
Thousands of Australians have been forced to re-examine their financial risk management plans and even pivot careers during the past two years because of the COVID-19 pandemic.
And many of those people have chosen to reduce or even cancel outright their life insurance covers as means of taking pressure off their family budgets during these challenging economic times.
At the same time, other people have taken the long view, examined their options and decided to keep their financial safety net in place to ensure financial security into the future.
One of the latter is Estate Agent, Michael Edwards, [actual client name used with Michael’s permission] who is thankful for that foresight now, having just had a serious melanoma surgically removed from his leg.
During the pandemic, Michael said he and his partner were in the same boat as many others and had considered reducing their cover.
“But having seen friends and family having to call on insurance in critical times, we knew the importance of maintaining it,” Michael said.
“Having seen the positive impact it can have when needed is what convinced us to keep our financial risk management plan in place.”
Michael counts himself fortunate because during a routine doctor’s visit in April 2022, a lesion on his thigh was diagnosed as melanoma and excised the very next day.
And in May, he had had follow up surgery under general anaesthetic to widen the margins around the excision, to scan and remove lymph node scans, to apply a keystone flap repair, and have a drain inserted.
Back in April, after the initial diagnosis Michael immediately contacted AFRM to let us know about it.
AFRM immediately set to work examining Michael’s Trauma with Total and Permanent Disability (TPD) Policy to determine if he had a valid claim.
This case also illustrates one of the key reasons AFRM recommends Trauma cover to our clients when it is appropriate to their individual circumstances. The benefit payment delivers flexibility to the claimant in terms of how the funds can be applied.
This is because Trauma cover pays you a lump sum in the event of suffering certain specified types of serious illness or injury that is listed in the Product Disclosure Statement (PDS).
It provides you with a pre-selected amount of money (your sum insured benefit) that you can use to pay out-of-pocket medical expenses, home and/or transport modifications, support your ongoing day-to-day financial needs and take care of your dependents as you recover.
Quantifying how much cover you need is dependent upon your preferences for funding the various potential financial commitments detailed above.
Importantly, Trauma insurance pays the benefit regardless of whether or not the trauma you suffer requires you to take time off work.
Our initial assessment of Michael’s case found there was certainly a valid claim. Michael’s policy PDS included an ‘Advancement benefit’ to be paid if the policyholder suffers “a specified medical event” – in this case, as defined by the policy, ‘Early-Stage Melanoma.’
The ‘Advancement benefit’ provided for a benefit of 25 per cent of the insured benefit up to a maximum of $100,000 for ‘Early-Stage Melanoma.’
AFRM immediately commenced the claim process, working with Michael, to submit all relevant medical documentation with the claim.
Within one month of Michael notifying AFRM of the potential claim, the insurer confirmed it had accepted the claim.
Michael was very appreciative of receiving the lump sum Advancement Benefit payment.
Needless to say, today, Michael is pleased with the financial peace of mind that came with the news of the claim outcome.
He was also thankful for having AFRM in his corner managing every aspect if the claim.
“The speed in having the claim processed by AFRM has been a huge relief, given I had surgery one day after the initial consultation with the doctor,” Michael said.
“Knowing that there was someone able manage and support the claim, given the bigger health concerns I was facing, was extremely reassuring.”
“I have had to take some time off work due to surgery. Knowing that there are funds to help cover the cost of the medical bills and my time away from work has been a huge relief, while I focus on my health, treatment and recovery.”