A recent reading of David Greenslade's "Facing the New Reality Appendix 2" from his 'tough times toolkit' is a bit like a bedtime story - of the scary variety. It's designed to create a certain amount of discomfort for the good of advisers reading it - and I have written in much the same way, many times, so I understand that. He explains:
can certainly be challenged."
I shall take up that invitation, and I hope David accepts these notes as a constructive critique, as I think there is a lot of truth in the broad thrust of his argument. The part that raised eyebrows was the part about denial, here is a sample:
less now than what they were two years ago. They admit their revenue is down, but too few
are doing anything significant to revive it."
I do not have figures to hand for investment advisers, but working with a large number of life companies and personal risk advisers I can lay my hands on all sorts of data none of which appears to support the assertion that a majority of risk advisers are earning considerably less than what they were two years ago. Another quote:
business revenue has halved. A number of these advisers have seen their business drop to
0-10% EBIT, and they are certainly feeling the economic pinch. Many are now earning
significantly less than if they worked on wages in another industry."
We shall allow that in this statement the measurement given is 'many' which could simply mean a small minority, rather than the 'majority' described above.
What statistics exist?
The first I would refer to are the ISI statistics. As most of you are based in life companies you will know that the industry has been enjoying excellent growth recently, even in 2009. In fact there is something of a negative correlation between other sectors and personal risk insurance - with the best increase in growth in the last ten years being 2008 and 2009 so far. A summary of the statistics is available from the ISI website - take this quote from 27 May:
The details are confidential, but comments from insurers indicate that growth is broadly spread - i.e. that it is being enjoyed by many companies (I have seen evidence of this) and that it is being enjoyed across distribution channels - so we cannot assume that it is being collected only by a very few advisers.
Anecdotal evidence from dealer group heads - Darren Gannon, Jeff Page, and adviser association leaders - Alan Fleet, for the PAA, for example, also indicate good levels of business, and growth as the norm - not a halving of new business revenue.
The contrary case may be limited to certain sectors. Advisers writing life business solely off the back of home loan sales by mortgage brokers have certainly fallen. But these would not represent a majority, in fact they would represent a small minority.
Income statistics exist - the IFA, for example, does member surveys and has historical income information available. It would be able to give reasonable input into an inquiry into the effect on incomes of recent market problems - for both investment and risk advisers. Rather than lumping the two categories together, or even simply splitting them apart, they could look at the historical series and find income levels from the different activities that advisers enjoy. A review of their information may not yield very up to date evidence, but it would show that advisers involved in both investment and risks fields (which, they say, is most of them) probably have a much more robust continuing income stream, have enjoyed higher levels of risk new business, and have enjoyed higher commissions for that business over the last two years. All positive factors. For those that exclusively do risk business, they would generally have pushed incomes up, for those with lower levels of risk business they may have helped offset the suggested fall in other areas.
Finally we can refer to the Statistics department for average annual wage data - in 2008 it was an average of $18.75 for all occupation groups - likely to be far below the average for financial advisers of all types. Sure, for some groups it would be higher. But a comparison with 'wages' in agregate is unlikely to be helpful.
Some denial in such circumstances might merely be the majority of risk advisers glancing at their bank statements, provisional tax bills, and failing to identify with the suggested fall in income.
Having said that, justified complacence can swiftly become denial - and the thrust of David's recommendations holds good for risk advisers, indeed for people in all sorts of businesses: watch your real return, assess the risks and issues, get professional help and so on.
It's interesting because there is so much talk about high commissions and that they should/will drop or be cut. When working with advisers though these so called high commissions are just really a transfer of distribution costs to the advisers from the product providers.
I don't know too many small business models that work on a two year loan, which on average 10% will be clawed back, and then you take out all your marketing lead generation costs, then advice costs of only closing one in two recommendations, and then you have an 80% completeion ratio due to underwriting, (If your lucky).
Then your expected to run a client service model on between 5% - 10% of premium. And pay for up skilling/training/systems etc.
After all of those costs/time/effort how much are they really taking home?
They in fact are not taking home anymore money than they were two or three years ago even though their potenital gross revenues have gone up.
I would suggest the distribution model of indepedent advisers is efficent compared to product provider run distribution models of the past, but then I would say that wouldn't I...
Posted by: Bazza | June 24, 2009 at 09:51 AM