The poor investor sentiment and cautious state of mind that has been created by the GFC have created a real business opportunity for financial advisers that focus on risk, it has been claimed.
Simon Harris, head of the Guardian Advice said more and more advisers are turning to insurance sales and distribution as a revenue stream for their business.
“I think when we go through things like the GFC and customers do get a bit shy of investing in the market – and a lot of revenue from the wealth practices is derived from investments – there’s this automatic migration to insurance,” he said. “We’ve still got huge underinsurance levels in Australia, so there are tremendous opportunities.”
Harris said that the fundamentals of financial planning suggest that wealth protection should be the basis of any good financial plan, and that market downturns usually encourage advisers to enter the space in more numbers.
“If we looked at our revenue last year, we’re almost up to 70% of it is insurance sales rather than wealth management.” Ninety-three per cent of advisers now provide risk advice.
Support for Harris’ observations comes from Investment Trends’ 2012 Planner Risk Report, which has claimed that risk advice is increasingly important to planners’ businesses – with more now advising on it than ever recorded in the eight years of the study’s history.
“The volatility in the markets is driving a greater proportion of clients’ investments to cash and cash products,” said Investment Trends senior analyst Recep Peker. “To ensure clients continue getting value from using an adviser, planners have continued to increase the role of insurance advice within their business.”
“This also diversifies revenue streams for planners’ businesses which is beneficial for both client and adviser.”
He added that Investment Trends have found that those planners who are reporting an increase in practice profitability derive a greater proportion of their revenue from risk commissions than those who said their practice profitability declined.
The study, which was based on a survey of 929 financial planners, found that:
93% of advisers now provide risk advice – up from 73% in 2005;
Advisers typically spend 20% of their client time discussing insurance needs – up from 17% last year; and
On average, risk advice accounts for a third of the revenue financial planners are currently generating.