Do Brokers Cost More?
It's a lazy assumption that when a "middleman" is getting a commission then the result will be a more expensive premium.
Monday, April 19th 2010, 5:12PM
by Russell Hutchinson
Fortunately for us, Consumer magazine recently did a piece of market research on this very subject which proved quite the reverse - although they didn't seem to notice when writing their commentary.
Referring to the table of premiums in the Consumer article you will find that three of the most expensive providers for $310,000 of life cover are companies that do not use brokers.
The cheapest offer - is available direct, or with a commission paid to a broker - and there is no difference in the price whichever approach you take.
Most of the companies that use financial advisers to distribute their products costs were in the middle of the pack.
So why do people insist that using a financial adviser must make purchasing cover more expensive?
Well, we've got to take some of the blame.
We're not very good at explaining that there are costs involved in selling life insurance whichever way you do it - and consumers don't think that some of those costs apply to them.
The ugly truth is that there is a lot of wasted effort in finding clients for life insurance. If you run a website offering online insurance you may have 95 lookers for every five clients that actually complete an application form and getting those 95 non-buyers to look at the site costs a mint of money.
If you are a broker your numbers are usually better, really good advisers may only fail to make a sale to one in three people that they meet, but there's usually a lot that will fall by the wayside before the meeting - that time is money as well.
That's all very well but the average consumer doesn't feel they should have to pay for the people that didn't buy.
Looked at another way, if you buy from a bank and the person behind the counter wears clothes as nice as a non-bank adviser, and lives in the same suburb, then the chances are they cost the bank about the same as a non-bank adviser does too.
We've got the same problem as a variety of other ‘ideas-based' professions: advertising and lawyers are two examples.
Take the man who went to an advertising agency once and said he was happy to pay a high fee for a really good idea - but he didn't want to pay for any of the ideas he didn't use... our challenge, especially under the new regulatory environment is to get on the front foot with the issue of how we get paid, disclose it and justify the value of the service provided.
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