Why am i writing this?
Well, i want to clarify the position of what has just happened, in my mind.
Putting pen to paper is always good for this.
What has happened?
During last week i was informed that Discovery would definitely be closing their code with the broker house that i operate through.
On Friday afternoon, i received/ was copied in on an email stating that no further time would be granted to the broker house to enable making a plan with existing clients (i.e. transferring them so that you can continue servicing them).
Yesterday (Monday) i am happily registered for the Vitality updates webinar.
Then later in the afternoon i received the following (see image below). This email is letting me know that the broker house no longer has a relationship with Discovery, since the 1st of March. (Half an hour after receiving this i receive and invitation from Discovery to attend the privacy webinar.)
The email is directed to me via my email for my personal policy.
My options (per email) are:
(a) to indicate that i will select my own advisor
(b) to indicate that Discovery can contact me with an advisor of theirs
Note the timeline AND note the fact that i have had a code with Discovery since 2004, when i joined one of their marketing franchises as a business consultant (for Discovery).
As the old Vitality Tool used to say: From “Zero to Hero“, except that this is the other way around, from “Hero to Zero” all in the space of a week or so.
Vitality would be proud! (sic)
The implications of all this are :
- Discovery holds 90% of my clients, and this effectively means that business is closed for them and myself in a very short space of time.
As they (Discovery) are already issuing emails to clients asking them to select another advisor.
- A second implication for me is the website that you are currently reading this on. It has a large proportion of posts and information on Discovery (all channels of Discovery). The site has a reasonable Alexa ranking (i have even been requested to market the CFP designation from the U.S. previously – declined as the South African CFP head had just been removed for fraud).
It does mean though that the articles will all have to be relooked at, as without a Discovery code i will no longer be accredited to provide advice on Discovery products.
Perhaps i was meant to do this quickly on Monday morning after the Vitality webinar? (o.k. i know i am being slightly sarcastic- indulge me).
I guess that i had better let clients know what is going on a.s.a.p. , considering that they would all have received emails yesterday indicating that the broker house has been removed from their Discovery portfolios (and obviously by implication me).
I wonder what happens to business that has yet to issue?
Or claims that are in process?
What has been happening in the Financial Services industry in the last 17 years?
As the financial services industry has become more regulated, the smaller financial planning practices have joined larger groups.
This is in an effort to accomodate legislation/ compliance requirements / economies of scale and so on.
The industry is composed of a small amount of boutique / specialist type practices; insurance company agents- directly employed by the insurance company; tied agents-who are allowed to advise on other products in a different field (e.g. wills) but tied to writing the company that they are “tied” with’s specific products only (e.g. may only sell one companies life products, or health or insurance) etc.
The remaining independant planners are shrinking all the time.
Planners are paid either via commission on the sale of a product, or they charge an advise fee, or a combination of both.
The “advice fee” planners are getting more numerous, but the bulk of planners operate on a commission only basis (with the broker house taking their cut for providing services).
Commission only is the legacy way of doing business, and life products are designed to be sold with a commission component generally (it has always been said that life insurance needs to be sold, it doesn’t just get bought- but that is another discussion).
It is also my view that the majority of the population, that are simply wanting to put some cover in place and not wanting complicated advice/ estate planning, are not used to paying a seperate fee for it. And probably will not be prepared to pay an advice fee, not if they can phone up a direct insurer or agent and get cover online or for free.
(You are welcome to disagree– fee planners. Comments are open).
Replacing of business
The industry is a difficult one for a planner to enter into. The lure of commission does lead some advisors to replace business.
The industry has become extremely complicated (Discovery products the most so). This means that a true intensive replacement comparison is a very difficult thing to do. Waiting periods; integrators; funding patterns; benefits tapering and not tapering; benefits that cover different illnesses in varying degrees; benefits converting to other benefits at certain ages… and on and on.
(As an aside: i remember going to an FSB meeting/ presentation at Old Mutual a couple of years back – probably more than a couple. An irate broker was trying to get the FSB spokesperson to understand the complexities of doing a true replacement comparison and how doing so completely, was actuallly impossible (very analytical broker). She replied to him that if he couldn’t do a replacement comparison he must be stupid. And i remember thinking that she has no clue and her remark was actually pointed the other way round (well, that’s what i thought at the time – full disclosure).
Inevitably there will continue to be replacements in the industry. (and actually no life company can point fingers as they have all actually promoted/ subconsciously acknowledged this at different times).
If you are paying commission and a planner is providing advice, but cannot advise on that specific product (no accreditation/ no contract with the clients current policy provider), he/she will have to do something to get paid and feed his family (and hopefully also himself). And this situation will get worse as independant advisors (with many contracts) are depleted in the industry.
There is also a lot of push back from companies that do not want to issue contracts (or provide proper policy information) to planners that purely want the contract as a “maintenance/ servicing” type contract.
I.e. their clients want one point of service and want to be able to have the business with the broker so he can see and attend to all their information.
I realise that new business is growth, however, so is maintenance and servicing of existing business. Lower lapse ratios enable higher profits.
Life companies know this only too well, which is why there is such a high focus on these lapse ratios.
In fact, the company in question is showing dynamic nature on insurance business by allowing a 3 month period before lapse. This same type of dynamism can be expressed across all lines. It just requires the motivation.
Where does this leave us?
- This business is built on relationships- treat the planner at broker level better. Take them into account.
- Devise something other than pure commission to pay for business. It takes a long time for someone to be trained in the new products (at planner expense in/and time)- so consider other methods of payment. What about a discussion with the FSCA for a capitation type agreement? To get rid of replacements and keep servicing going.
- Financial planners need to organise and probably unionise– this type of injustice (practice closed in a short space of time)happens far too often in the industry. No matter how it is justified, the end result is the same to the planner. i detest unnecessary regulation, but there needs to be more protection for the intermediary.
As a final aside. Remember that when you send my clients an email to replace me- yet complain about replacements- you are in essence doing the same thing that you are legislating against.
DISCLAIMER: This is my personal opinion. It is intended as a viewpoint from an advisor. It is intended to promote thought and discussion.
This is not intended in any manner to be an attack against Discovery. In fact, this situation would hold true against any insurance company.
There may have been discussions at broker house level, to which i have not been privy, which could possibly change my perception in the matter.
Final DISCLAIMER: all the above being said. I still believe in the Discovery products, primarily because they have always tried to stay true to their Core Purpose.
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