Top of the Table and Million Dollar Round Table insurance advisors are not general practitioners, and specialists don’t necessarily know more about the industry than others — they are simply more focused and professional. That’s according to Empire Financial Group’s Peter Wouters, who spoke earlier this week at the IFB Spring Summit in Toronto.

During the popular continuing education session, Wouters, Empire’s director of tax and estate planning, said advisors should work on creating “bullet proof contracts” as they move towards a more professional practice.

Professionalism, expertise and service are all increasingly tied up in “the price war crossfire,” he added, amidst an environment of increasing regulation and compliance requirements.

“Shopping the market, who’s really demanding this?” Wouters said, pointing out that people generally don’t look for the very cheapest suit, house, car or computer and usually equate costs with the quality of the product. “But in the financial services industry there’s this notion that cheapest is best. It goes against everything,” he says. “There’s more to this than just the lowest prices.”

To counter this, Wouters suggests advisors fess up and admit they only represent two or three good companies, since the reality is no one can properly represent 25 different companies and effectively know all their policies, procedures and products.

As for “bullet proofing,” that simply means creating contracts that are “straightforward, easy to understand, easy to explain and the clients control their money,” he explained.

Particularly with cash value policies, permanent policies, surrender charges, loans and the limited access associated with some contracts, he says not being able to access policy assets is usually the biggest source of consternation for clients after the policy has been sold.

These conditions though also provide an opportunity to move into the role of professional, trusted advisor to the client.

Opportunities to provide advice include:

  • Explaining early withdrawal fees
  • Recommending that clients borrow rather than withdraw from their universal life policies to avoid reducing exemption room
  • Educating clients about the difference between a policy’s value and accessible value
  • Recommending products with free, unlimited transfers between investment products since portfolios set up today won’t be appropriate down the road
  • Doing the work to crystallize a client’s adjusted cost base when the opportunity arises

These are all ways “To be seen as a trusts advisor rather than a policy peddler with illustrations.” To help reach this goal, Wouters recommends dealing with fewer variables — policies with no surrender charges or transfer charges, guaranteed expenses and costs, and unconditional, fully guaranteed bonuses. “When you forget to tell your client that the insurance is guaranteed (or that there are no fees or penalties), is that client going to sue you? Deal with simplicity,” he says.

Also, be careful about the words actually being used with clients — products are creditor protected, but not creditor proof, he point out. Exact numbers in illustrations are powerful but also incorrect virtually the day after they’re printed and expectations and assumptions change.

With so many moving targets — personal and business needs, life expectancies, rates of return, Wouters says “having to defend yourself is not a matter of if, it’s a matter of when. You might get to pick the place,” he says, but eventually all advisors will need to defend the work they do to the client, the client’s family or the client’s lawyer.

To compete, he says advisors should work to move away from the salesperson/prospect relationship to the professional/client relationship model. “Professionals gather the facts, ask probing questions and make a diagnosis. Prescription without diagnosis is malpractice,” he says. “Recommend actions and solutions and periodically review these to make sure they’re still appropriate.”

Filed by Kate McCaffery, Advisor.ca, kate.mccaffery@advisor.rogers.com

(06/01/06)