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Most experienced advisers have preferred solutions that they go to first. But the variety of preferred solutions from those very good advisers often concerns regulators and industry observers…and that’s usually because there is a process lacking for validating those preferences.
Everyday the situation arises where one adviser recommends Company A as a solution for clients, and another adviser trying to work with the same clients suggests that Company B is better. Both have their own preferred solutions. Both are potentially good solutions. But they are different…so how can that be?
This always creates confusion for clients of course, but when it comes to deciding between insurance companies or products in particular it becomes even more difficult. The language is more confusing for many consumers to begin with, and much of what an insurance policy promises is difficult for the un-trained to understand. Something that consumers would think is a simple point of commonality across all insurance policies, such as the definition of a heart attack, can vary significantly between competing policies.
Adding a serious layer of confusion and distrust on the part of consumers is the prevalence for advisers to have preferred product providers, whom they recommend the majority of the time.
Advisers recommending a particular product provider the majority of the time is not actually a bad thing, and it is frequently very logical that they do so. The overwhelming majority of personal insurance products work well at claim time regardless of who the insurer is, and therefore there is a strong argument that for many “simple” insurance needs it almost doesn’t matter who you choose. Moving beyond that though, advisers tend to work with similar types of clients or risk problems and they find products and providers that are a good fit for the type of business they do the majority of the time. It follows that the majority of the business the adviser does tends to go to the same product providers, as they are the best fit in the advisers professional opinion for the particular issues being addressed repeatedly by the advisers business. Afterall, if you’ve already done all the research and settled upon what is an optimal solution to a particular problem or situation wouldn’t it make sense to keep using that solution until there is a better one?
The problem with many advisers is they have not developed a process whereby they can explain logically why particular providers or products account for a significant proportion of the business they do, and that then gives rise to the suggestion that the adviser must be conflicted or persuaded by remuneration terms rather than working in the interests of clients.
Advisers who have a tendency to place high proportions of their business with just one or two key providers need a framework to validate their provider selection.
Bearing in mind that the adviser must stand by their professional recommendation, it makes sense that individual advisers will place different emphasis upon the relative importance of some elements (such as the use of independent research), and individual advisers will be influenced by their own perception of culture or values on the part of insurers, and their own experience in dealing with particular product providers over the years. Once again, there is nothing wrong with different advisers placing different weight upon different elements and coming to different professional judgements as to which company is most suitable for their clients – but they need to be able to validate how and why they have done so.
It can be done as simply as this:
In this example we have brainstormed all the the things that matter (to us!) in choosing a product provider, and then prioritised them.
Choosing the ten highest priorities (in this advisers opinion) then produced a simple list by which to score each product provider out of 10. For example, Supplier A might score an 8/10 on their policy definitions, and Supplier B and Supplier C might both score 9/10…each supplier is assessed in their own right, in each category, and suppliers may well be absolutely even in a number of areas.
It is a fairly straightforward matter to then add up the scores to provide an indicator of where each of them stand in relation to each other when all of the important elements have been considered.
A good process would involve regular review of the assessments and recalibration as product wordings, financial strength or any other indicators change across the supplier spectrum. Such a review might be done three times per year, or “as required” when something significant has occurred which has the potential to materially affect the relative strength of products or their providers.
The bottom line is that it can (and often does) make perfect sense for an adviser to place a high proportion of recommendations to clients with a relatively small number of product providers, but it also requires a professional adviser to have logic and reasoning that clearly highlights how and why it is customers interests for those providers to have been selected.
Related: Financial Advisors: Succeeding in a World Where Change Is Constant