CHRISISM #38 - Risk Adviser v Investment Adviser
04 April 2017
Unlike a lot of views I have read recently, I believe the opportunity for a specialist risk adviser (especially a younger one) has never been better than it is right now and will continue to be moving forward.
As qualification and education requirements ramp up for financial advisers day by day, I believe it will become harder and harder for a financial adviser to sit in front of an educated client and claim to be an expert in all areas of financial advice (never mind finding the time to do all the training required in all those areas as well as actually see clients!).
Yet as clients become more time poor, they are looking more and more for the one stop shop where they can have all of their financial needs met under the one roof at the same time as taking comfort in the fact that, whatever their particular financial need may be at any one time, they know they are sitting in front of a specialist in that area. Because investment advice will always be perceived as “sexier” than insurance advice, I believe this presents a huge opportunity for quality advisers in the risk advice space as holistic financial planning practices will be crying out for specialists in this area.
So why should a young adviser be looking to specialise in personal protection? Let’s first of all take a look at the revenue opportunity for a specialist risk adviser; with all the ‘doom and gloom’ rhetoric over the last couple of years with the reduction in up front commissions spelling the apparent impending demise of risk advisers, you would have thought it was the last avenue to pursue, but I beg to differ.
Let’s look at the profile of an average personal protection client:-
Age 35, Income $95,000 (per package), Annual Premium $3,800, Annual Premium as a percentage of income secured 4%
Let’s also assume we are looking at initial commission of 60% and ongoing commission of 20%
Let’s assume that the adviser is doing only one personal protection package per week (approx. 15 man hours).
This level of activity would result in $114,000 in initial commission in year one (assuming 2 weeks holiday) and ongoing commission of $38,000 per annum cumulative, which would therefore mean that, after 5 years there would be an income stream of $190,000 coming in just as a result of having happy clients keeping their policies in force, and this would be $380,000 after 10 years.
Here’s a couple of other thoughts for you:-
In order to generate $2,280 revenue as an investment adviser, typically what size investment portfolio would you need to be managing? Around $250,000+?
Question 1) Within striking distance of your work locality, how many potential clients are there with more than $250,000 to invest compared to the number of potential clients who need an average personal protection package – of which are there more?
Question 2) Within striking distance of your work locality, how many financial advisers are there competing for the $250,000+ investment portfolio compared to the number of financial advisers there are competing for the average personal protection package – of which are there more?
I rest my case.
If you want to fine tune your client engagement skills in the risk advice space, then come along to my Risk Workshop in your capital city in July. You will receive details of this from my website soon.