What ‘free advice’ really costs

Five points for people with 30 seconds to spare

1. What you often want is the status quo. Everything on the table, understand what’s there, then decide in peace.
2. That’s exactly what you rarely get on its own. The status quo almost always comes with a proposal attached.
3. That’s not down to people being bad. It’s because nobody pays for the analysis. The only thing that gets paid is the signing.
4. Then there’s the clawback liability. The commission only really belongs to your adviser after five to nine years. That explains a good deal of their behaviour.
5. Three questions make the mechanics visible, in any first meeting, in two minutes.

The long version, for one or two cups of coffee.

You have a folder, or a drawer where a folder ought to be. Inside are contracts and piles of paper that you signed at some point but never filed away. Today, you feel as though you’ve lost track of them.

What you want is simple. Someone takes a look at your situation, tells you where you stand, and then you decide for yourself whether any action needs to be taken. No drama, no lectures. Just clarity.

And then you read ‘free introductory call’ and think, perfect, that’s it.

What you get is almost the right thing

In some situations, you even get your status quo. There are plenty of advisers who do their job properly. They actually look at your contracts, and in my experience, what they tell you is often enough correct.

But the status quo doesn’t come on its own. It comes with an addendum. And this addendum begins with ‘and then we should also’.

The conversation isn’t taking place because someone wants to talk to you about your folder. It’s taking place because something is supposed to come out of it in the end. That’s not an insinuation; it’s arithmetic.

You’ll recognise the same pattern later on in the service. The annual review you’d been looking forward to ends with a suggestion to increase your retirement provision by thirty euros. After that, you won’t hear a peep for another two years.

That is precisely where this sector’s poor reputation stems from. Not from bad people. From a model that leaves no other choice.

Why nobody pays for the analysis

Do the sums on what happens if you really just come to collect your status quo.

There is a first meeting. After that, someone has to collect your documents, and this always takes longer than expected because everything is rarely available all at once. The policies are then reviewed. With property insurance, it’s less about the premium and more about the terms and conditions. A liability insurance policy taken out today with the same insurer provides different cover to one taken out five years ago. With retirement provision, the key is to understand where your money is actually going and what options are actually available under the policy. In the case of occupational disability cover, it is checked whether the application you submitted at the time matched your health situation at that time. If something wasn’t disclosed properly there, it only becomes apparent when a claim is made, and by then it’s too late.

Then the whole thing is presented in a way that you can understand. Then it is explained to you. Then come your questions, and those will require another appointment.

For me, that amounts to between nine and fourteen hours, depending on the case. One to just under two working days, and by that point, nothing has been sold, nothing changed and nothing signed.

Under the traditional commission-based model, none of this is paid for. Not a single cent. Payment is made only if a policy is ultimately taken out.

That answers the question of why you so rarely get your status quo on its own. Not because nobody wants to provide it. Because nobody pays for it.

Why advisers behave the way they do

When a contract is concluded, the intermediary receives a commission. This money does not yet belong to them. It is subject to a clawback liability for five to nine years.

If you cancel the policy within the first year or put it on premium waiver, they must repay a large proportion of the sum. With a five-year liability period, this amounts to around eighty per cent after one year, around sixty per cent after two years, and so on, until the liability expires.

On top of that, there’s tax. The commission was taxed in the year it was paid out, so a significant portion of the gross amount has long since been deducted. Nevertheless, the repayment is calculated on the basis of the gross amount. In the worst-case scenario, they may end up repaying more than they ever actually received.

This has two implications that may affect you.

Firstly, it explains the attention at the start. If someone is conspicuously attentive in the early years and then stops, it is rarely a coincidence. During this period, the contract has to get out of the liability window. That does not mean that the care was dishonest. It means that there was a second reason for it, of which you were unaware.

Secondly, it explains the reaction to your cancellation. If you announce that you are going to shut down a contract and your adviser suddenly becomes very keen to find alternatives, this is often driven by more than just concern for you. It can also be a four-figure clawback landing on their account.

You’ll view the conversation differently if you know what forces are acting on the person you’re talking to.

The status quo test

Three questions. You can ask them in any first meeting, in a friendly way, without attacking. They take two minutes and tell you more than any brochure ever could.

1. What does it cost me if I don’t sign anything in the end?
2. Will I receive the results of the analysis in writing, and may I take them wherever I like?
3. How do you make a living if I don’t buy anything?

Question three is the lever. It is not rude; it is simply the only question that forces answers to the first two. Anyone who answers it calmly and specifically has a model that works without you signing anything. Anyone who evades it does not.

And then there’s a fourth question you ask yourself once you’re back outside. Have I understood where I stand, or have I understood what I should buy?

How I do it

I’ve broken it all down. For me, analysis, brokerage and ongoing service are three separate services, each with its own price, which you’ll know in advance.

That sounds unspectacular, yet it changes everything. Because the analysis is paid for, it is allowed to conclude that you don’t need anything. Because the service is paid for, I don’t have to sell you anything in order to be allowed to take care of you. And because you know in advance what everything costs, there’s nothing that comes to light two years down the line.

The scenario that, under the traditional model, would be economically unviable is, for me, the norm. You get clarity and take it home with you.

As for the costs in euros, I have worked these out elsewhere, in Commission vs. Fee. My focus here was on something else. Not what the model costs you, but what it withholds from you.

Because ‘free’ doesn’t mean nobody pays. It just means the bill is somewhere else.

In the second part, I’ll shift the perspective and look at what this model does to the adviser.

Do you want to know where you stand, without ending up with a proposal on the table? Then book a free introductory call. That’s exactly what it’s there for.

This series: Free advice

1. Part 1What ‘free advice’ really costsYou are reading
2. Part 2Why I don’t offer free advice