A man walks into a shoe shop and tells the sales assistant he wants to buy a pair of black brogues. The assistant says, “Before I sell them to you, I have to make sure that black brogues are fit for your purpose. What, exactly, do you want them for, and when and where are you planning on wearing them?”
The customer tells the assistant that he plans on wearing the brogues to the office. “To the office, you say,” says the assistant. “Very good – however, I need to do a full needs analysis via a fact find process, to discover what other activities you do, to see if in fact these brogues are going to fulfil all your footwear needs.”
After this process has been completed, the assistant recommends runners, hiking boots, boat shoes and sandals, as well as the brogues. All this, and the shopper hasn’t tried on a single pair of shoes.
Frustrated, the shopper leaves, goes to the next shoe shop, asks to buy a pair of black brogues and is sold, you guessed it, a pair of black brogues.
In a reasonable world, the first sales assistant would – rightly in my opinion – be pillorised for upselling. Yet, if a consumer walks into a life insurance adviser’s office with a very simple and specific request, the full needs analysis via a fact-find process is now considered to be not just the only way, but the only ethical way to provide advice in response to that request.
No matter how simple and straightforward a consumer’s life insurance request, no matter how much they themselves might rail against it, they must submit to this process. It’s the law – and frankly, it’s madness.
In my opinion, forcing people into a process that the government says they must endure, even when they haven’t asked for it and don’t want it, might also be the most unethical way to provide life insurance advice.
Ultimately, forcing people to go through this process also leads to consumers who are far more likely to say “no” to the life insurance on offer via an adviser. Some may then take their search online, where they may purchase life insurance that might or might not be appropriate and which might or might not pay out at claims time.
Many others will simply give up on trying to source life insurance altogether.
In a country as under-insured as we are, we need to empower consumers to say yes. We also need to empower advisers to say yes, so that they can give advice in response to a simple and specific client request, if that is all the client wants, without having to jump through hoops.
Given the current environment, how do we do that?
I believe the first step is to impose on life insurance advisers a fiduciary duty, (i.e. a duty to do no financial harm), and a duty to give appropriate advice, and remove their best interests duty obligations.
There is no doubt that the best interests duty was created with the noblest intentions, but the way I see it, it only impedes appropriate life insurance advice. The starting point for giving appropriate advice should be giving clients what they ask for and sometimes giving them only what they ask for is also the end point.
The reality is that most people who come in search of life insurance advice are intelligent adults who know what they want. Many, quite reasonably, become frustrated when forced into a long, tedious process that results in a weighty statement of advice (SOA) that they don’t want to read; so many recommendations that they feel like they are being upsold; and, in a no commission environment, having to pay their adviser for advice they didn’t ask for.
On that note, at the moment, there’s a huge disconnect between what most consumers are prepared to pay for advice, which is somewhere between $0-$500, and what advice costs to deliver, which can be in a simple case be between $2,500 and $3,500.
Obviously, remuneration of the adviser by results (commission) removes that gap. But in a non-commission environment this gap is too wide to close entirely. If we as an industry empower clients and advisers to say yes, it will narrow. Advisers won’t have to spend time conducting needless investigations, the SOA will become a simple, pertinent document that clients will actually read, and the client will only have to pay for the advice and the insurance cover they request.
In effect, it will become more affordable for the adviser to deliver advice that clients actually want and actually value.
Don Trapnell, director, Synchron
Better yet Don, you pull out a fact find, BID and SOA which has already been used numerous times before which leads to the recommendation of a pair of black brogues … change name, change date, done. I wonder if that’s what the regulator was intending??
Comically, the lunatics running the asylum have reduced the fee you can charge for advice all the while increasing the time and cost it takes to produce it … essentially pushing the planner to a cookie cutter approach just to keep their heads above water.
Well said Don.
Moving forward, only qualified Financial Advisers (who have passed the FARSE exam) should be allowed to provide General Advice.
That way, when a client walks who wants to buy ‘shoes’, the qualified Financial Adviser can ask them if they would like personal advice that is tailored to their circumstance (and will come at a fee – unless commission rates go back up to 110% upfront and 10% trail commission) or general advice where the qualified Financial Adviser can provide general education and information but the client decides the brand, colour and payment structure (life insurance company, inside or outside super and stepped or level premiums) and gives up the right to sue the shoe salesperson if they have made the wrong choice. But the trade-off is that the client gets the shoes straight away and does not have to pay for personal advice that entails a detailed needs analysis. For the adviser, if the client makes the adult decision to opt of general advice and not pay a fee for personal advice, the adviser is able to issue the cover immediately with no compliance burden.
Allowing only qualified Financial Advisers to provide general advice provides the safeguard so that if the client chooses high-heel shoes for hiking and the qualified Financial Adviser can clearly see that the client has made the wrong choice, the qualified Financial Adviser can warn the client that as a qualified Financial Adviser, he/she can see that the client is about to make an expensive/ painful mistake. Again, the client can make the adult decision to pay for advice or not.
To this end, the regime needs to change so that for a client to consider that they have received personal advice, they need to have paid a minimum of $1. If they have not paid at least $1, they cannot act on something they heard at a BBQ and then later go crying to AFCA.
Speaking of which, all AFCA complaints should only be able to be lodged with a refundable bond of $500 which can be waived because of financial hardship. If the complaint is found to be vexatious or frivolous, the complainant will lose the right to have their refundable bond returned to them.
As a Financial Adviser, a potential client is disadvantaged because if they meet with me, they cannot get general advice and by ‘a pair of black brouges’ if they know that’s what they want and it is indeed an appropriate option for them. As you have pointed out, this client has to pay a fee because LIF has made it unrealistic to provide personal advice at no additional cost.
Surely this is not in that member of the public’s best interest.
Finally, the government should set policy but leave price (commission levels) to market forces. If the issue is churning, the government can require that Financial Advisers ask their clients if they plan to hold their insurance cover for more than 15 years. If the answer is “Yes”, then the Financial Adviser needs to justify if they are still putting that client on stepped premiums (and indeed there might be circumstances in which that would be justified). AT THE SAME TIME, Life Insurance companies need to honour level premiums and not increase level premiums just because they cannot keep their costs under control.
Love your work!!
you forgot to recommend socks!
Oh dear! ASIC will litigate and our annual fees will go up again…just give them a pair of socks for free – it will be cheaper!
This would all be common sense. Yet the government dont think with common sense.
Agree but unfortunately the Politicians and the people who write these process requirements( Calling it ” Compliance”) are either sitting in the comfort of their parents couch or live in a bubble , far from reality or the truth
Nailed it Don! Love your work…
Don, I think you need to get into politics, I’d say you will make a fine finance minister then possibly prime minister. Your the only one who talks sense. By the way I think the process for comprehensive financial advise needs to be changed also as the process is too long and costly for consumers. The average financial process takes 15-20 hours initially and 10- 20 hours per year to provide ongoing service. The solution is simple, lets get rid of SOA’s and advice documentation – few clients read them anyway! I still think we should keep best interest though. Our email correspondence and files notes should leave a trail to justify our advice. This change shouldn’t affect our advice, it just shortens the process and reduces the cost of advice
Best Interest Duty, coupled with FASEA’s blurry, duplicitous Code of Ethics (Standard 2 in particular) are exactly what’s caused this process to be so complicated and unnecessary. I don’t know how you could support it.
Best Interest duty is whaty causes us to have to think of everything not just what the client has asked for.
Yeah, its also causing the heavily reduced remuneration process for US to be up around 15-20 hours when it used to be less than 10. Its also forcing us to treat ADULT clients like 5 year old children.
Not one thing wrong with Don’s comments here. As someone who’s invested 54 years in the industry and who’s advice over those decades has no doubt led to millions AND millions of dollars in claim payments, his thoughts on Best Interest Duty are also 100% correct…this ridiculous compliance over reach is treating both consumers and advisers like 5 year old children.
The industry regulators have a very clear abd destructive bias towards the minority of cases, instead of the greater good for the greater number of people.
My SOA’S used to be no more than 16 -18 pages (21 was a monster) but they’re now up between 38-48 pages. Just ridiculous!
22 extra pages of compliance butt covering….
Nothing but unnecesary, fictitious fluff. Stupid thing is the regulators say they want short, simple and easy to understand SOA’S in one breath but then totally contradict themselves in their next breath by forcing us to fill them with mountains of duplicitous, confusing scenario’s, tables, spreadsheets and projections. They have no comprehension of what clients are being put through with it all as a result of their inexperienced, naive interference.