This article is mainly written for the existing life insurance agents who have outgrown the agency environment; those who are considering a career in life insurance and financial planning; and life insurance purchasing public who want to know the changes happening in the industry that will benefit them.
This is the 4th of the series of articles written mainly for agents who realise the limitation of agency contract and are consciously exploring to upgrade to the independent financial advisory (IFA) platform.
However, the IFA platform is not for everyone.
A financial adviser (FA) rep is expected to do things differently compared with what an agent is normally trained to do.
1. Paradigm shift
Agents who intend to embark on their financial advisory career would need to adjust their thinking and attitude.
The mentality of pushing for insurance products or selling newly-launched funds need to be discarded. Also, the attitude of selling only products that pay higher commissions must be discarded as well.
The misuse of the phrase ‘financial planning’ must also be stopped. I recently received a call from an agency manager who told me that he and his consultants were doing ‘total financial planning’.
After answering some of my fact-finding questions, he then disclosed that he was only holding a unit trust agency contract with a unit trust management company (UTMC) and an agency contract with a life insurance company.
Section 59 of the Capital Markets and Services Act 2007 (1) clearly states that, “No person shall act as a representative in respect of any regulated activity (financial planning) or hold himself out as doing so unless he is the holder of a Capital Markets Services Representative’s Licence for that regulated activity or is a registered person with respect to that regulated activity.
“A person who contravenes subsection (1) commits an offence and shall, on conviction, be liable to a fine not exceeding five million ringgit or to imprisonment for a term not exceeding five years or to both.”
The paradigm shift from an agent to financial advisory rep requires one to change the way they think even before meeting any potential clients.
From an IFA perspective, the main task when meeting a client is to fact-find their concerns with regards to his or her financial and estate planning details before talking to the client about possible products.
If they are concerned about providing for their dependents, then we should explore with them how a will and insurance trust can help address their concerns and achieve objectives.
If a client is more worried about how to accumulate a sufficient sum for his/her child’s education fund or retirement, then we should discuss with him how his investment programme can address his needs.
If he/she is worried about how much is enough if he dies prematurely, then we should conduct a systematic financial need analysis to ensure how he/she can be adequately covered.
Only after his/her concerns identified and addressed, then we move on to the types of products that can fit his or her needs.
There are many types of life insurance policies sold by various insurance companies.
On one end, we have a policy that is of high coverage with the lowest premium.
On the other end of the spectrum, there is a policy that provides low coverage with high premium, mainly to those with high saving elements.
The right choice of products depend on how the products can address the client’s problem and concerns in the most efficient and cost-effective manner.
2. Handling multiple product providers
As an IFA company, we have the advantage of accessing various unit trust and life insurance products from different companies.
This ensures a financial advisor rep having a free hand in sourcing for the most appropriate product from the IFA platform for the clients without being biased towards any company in particular.
Agents that are tied to one insurance company can only introduce products available from his or her principal, even though the agent might want to practise need-based selling approach.
Some insurance companies only offer a narrow range of products due to their company’s resource limitations and regulatory restrictions.
On the IFA platform, we have the additional advantage of comparing premium rates of different insurance companies for same type of product, and our clients can choose which insurance companies to take their insurance protection, based on client preference.
As FA rep, we can be more objective in recommending products from insurers who have better product features, lower pricing and better service support.
There is another very important point to note for agents who are exploring the IFA career.
Even when we are registered as FA rep of various life insurance companies, we are not obliged to recommend its products and not subjected to fulfilling their sales quota, if we find that its products are overpriced, of low quality or if their support service is not up to par.
FA reps have the freedom to exercise their objectivity for the optimum benefits of the clients.
3. Knowledge base
In contrast to more product-based practice in agency environment; and also having to worry about fulfilling the imposed sales quota, the FA reps embark on practices which are more knowledge-based.
FA reps are trained on estate planning, for example, to diagnose and solve problems that arise when a main breadwinner or business owner ‘kicks the bucket.’
We help clients to plan for any eventuality, when the executor of the estate has to deal with unpaid hospital and probate bills; outstanding personal guarantees and business liabilities; as well as providing legal structures that can hold the deceased’s cash, insurance proceeds as well his properties to shield it from estate creditors’ claims and efficient distribution to his dependents.
On the IFA platform, we also expose our planners to various techniques that can help clients optimise their investment risks.
They are trained on regular investment methods that can provide consistent returns.
