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Risk advice is profitable, but only for specialists

While risk advice is largely considered to be unprofitable throughout the advice profession, a specialist in this area has argued that this is true only for those who aren’t consistently active in the space.

Acknowledging the widespread views on risk advice, financial adviser and director of Skye Wealth, Phil Thompson, argued that while holistic or generalist advisers are highly likely to struggle to provide risk advice, specialist advisers should not suffer the same issue.

“I understand it seems to be unprofitable, but I think it’s a great part of the industry that more advisers should consider specialising in. I think if you dabble in it, you shouldn’t be doing it at all. You should refer out to a specialist,” Thompson told ifa.

“If you specialise in it, it’s not unprofitable.”

He explained that one of the primary challenges for generalist advisers, when they do engage in risk advice, is navigating the complexities of the system without the benefit of experience that specialist advisers have.

“The reason why it’s unpopular and seems to be unprofitable is because, if you’re not doing it all the time, when you see a medical disclosure, we see and we know pretty well that it’s going to be an exclusion, so we’ll tell our clients on fund that it’s going to be an exclusion,” Thompson said.

“We don’t let the insurance company make the assessment, put the exclusion on, and then come back to the client, and that’s where most advisers kind of get frustrated with insurance. It’s harder than it’s ever been.

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“But in our business, because that’s all we do, we can identify, ‘Hey, this is what needs to improve. We need to tell the clients upfront what the likely terms are before they go ahead with an application.’ So, all of those things, we can be very quick and make these improvements and adjustments, because we’re doing 100 applications a month.”

In addition to this, because Skye Wealth only provides risk advice, Thompson said they are able to “hyper focus” on ensuring their processes, and the business as a whole, are as efficient as possible.

“When it’s insurance, we know our clients start the same and they end in the same place, assuming they go ahead with it all. So, the company that we work with, from an insurance point of view, makes very little impact on our process. The sum insured makes almost no impact on our process,” he said.

He further explained that because his business specialises in younger clients, the average age of which is around 34, and the large majority of the advice profession prioritises pre-retirees and retirees, his business is well placed to service the relatively underserved client pool.

“We’ve been very fortunate that, as a lot of advisers are leaving that space, there’s a lot of clients who need insurance advice,” Thompson said.

The future of Skye

According to Skye’s 2023–24 financial year results, the business completed just shy of $3 million in total new business premiums, helped 765 new clients get risk insurance, and saw more than $1.4 million in total claims lump-sum benefits, with a policy lapse rate of around 2 per cent.

Showing his confidence in both his business and the risk industry, Thompson explained that he is currently working towards the ambitious goal of being the top licensee for new premiums written in Australia for FY26–27, exceeding $10 million in new business premiums, serving a projected total of 3,500 to 4,000 clients.

In order to achieve this, Thompson is now looking to expand his team considerably, with plans to bring on 10 new advisers or associates and 20 new support staff over the next 12 months.

While he recognised that comprehensive financial advice can be seen as a “luxury item” because of the cost, Thompson suggested that while insurance and risk advice still come with their costs, it is crucial for protecting the financial future of everyday Australians.

“Insurance is something we all need. It’s super important to reduce the risk of any downside impact on our wealth goals. So, everyone needs it. Everyone needs to make that purchasing decision and make it a really thoughtful purchasing decision, because it can be really important when you need it,” he said.

“That’s really what we serve, and it does mean that our business has to be a volume business. If we brought on 10 clients a year, we’re going broke very quickly.

“So, it does mean we need to attract a large amount of clients into our business, and we are just hyper focused on building out our processes and making sure that every process is really efficient and effective and helps our clients get insured in a reasonable time frame.”