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Insurance SoA: The tip of the (adv)iceberg

Toward the end of last year, research emerged yet again confirming the advice industry's inability to truly connect and engage with Australian consumers.

For a long time the proportion of Australians engaging with advice has sat somewhere around 20% to 25%. Recently we spotted research (InvestmentTrends) that said the financial planning industry today has 25% fewer clients than it did a decade ago. That, and planners are reportedly losing more clients than they sign up each year.

That same research highlighted a significant gap between the cost of advice delivery and what potential consumers are prepared to pay for it.

And most recently, the latest Roy Morgan poll showed there's been no real improvement in consumer trust of advisers since 2009. Clearly we have some issues.

In summary:

,     consumers are under-advised and under-insured;

,     the industry seems to be in shrinkage mode;

,     there's a value gap; and,

,     we can't be trusted.

To paraphrase Basil Fawlty, other than that, we're ok.

More disclosure please....

ASIC's way of helping, if the recently released draft insurance SoA is anything to go by, is to continue to ratchet up disclosures. So much so, that in said document, disclosures appear within the first few pages - before any mention of the actual advice being given or its value to the prospective client. It seems the view is that if people first up understand price and adviser remuneration then all those other issues will go away. That approach hasn't worked so far, so it's hard to see how it might work this time around.

Don't get me wrong. Clear disclosure is a vital part of building trust in this industry. Arguably more so than any other industry or profession. And prospective advice clients have been conditioned to ask how their adviser will be paid.

It's upside down in our opinion.

It doesn't matter what the product or service. Consumers want to understand value first - how a product or service will meet their specific needs and wants. They'll make their own judgment on whether that value justifies the price asked.

This is so critically important when it comes to personal insurance. We can't dispute Australians are under-insured. The statistics say so time and again. And there's a case to be made that says in isolation, sometimes insurance looks expensive. But the ongoing financial security of one's family in the event of unforeseen circumstances? Priceless.

Unfortunately, the draft SoA as it stands encourages price discussion first, value discussion (if it ever happens) second. Which will do nothing to encourage uptake of appropriate insurance cover.

Of course, good advisers will deal with this.

They're the ones who won't physically use the SoA as a sales "tool" (which in our view it isn't), preferring a conversation with the client about the advice being given and why it's in his or her best interest. That done, price will be discussed and better outcomes achieved. We see it time and time again.

Where to next?

What happens next for the industry in our view depends on some quality conversations that involve all parties - all key industry participants, the regulator and consumers (not just consumer advocacy groups but real, honest to goodness consumers). In those conversations we need to be much clearer and more consistent in articulating the value of advice and what it is we actually do - our industry purpose if you like.

Just a few years ago, our own research of non-users of financial advice was eye-opening in that it clearly demonstrated consumers don't get us.

Feedback is a gift...

We need to listen to consumer feedback, adjusting our proposition and delivery methods accordingly. Bringing our mutual expectations closer together can only improve outcomes.

The regulator needs to listen to that feedback also. If ASIC spent lots of money on behavioural research that suggested the insurance SoA is on the mark, maybe a refund or at least a discount is in order?

It's simple. If we don't do something differently from the way we've been doing it for the last decade (and more) there's a real chance we'll just disappear into ourselves.

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