Actions on three different statements of advice (SOA) related to insurance and superannuation have led to a relevant provider, anonymised as “Mr F”, being directed by the Financial Services and Credit Panel (FSCP) to receive specified supervision.
In the first SOA, the provider recommended the client make a voluntary contribution to their superannuation fund to obtain a personal tax deduction when the fund did not allow voluntary contributions.
In the second SOA, the provider failed to consider the available insurance options in the clients’ super funds and failed to address the conflict between their retirement goals and financial protection goals. They also underestimated the costs of the insurance in the SOA’s retirement projections by $74,479 for one client and $14,566 for the other client.
In spite of the advice not being in the clients’ best interests or appropriate, the insurance recommendation earned an upfront commission of $20,000 and an ongoing commission of $6,700.
Finally, in the third SOA, the relevant provider was working with a married couple with a very low combined income and failed to ascertain the details of one of the client’s superannuation funds and failed to consider the insurance options in both of their existing superannuation funds.
The relevant provider also failed to refer to the 50–75 per cent loading that would apply to the insurance recommendations for one of the clients in the SOA, and failed to address the effect this would have on their superannuation balance.
These actions meant the sitting panel found the relevant provider failed to comply with s921E(3) of the Corporations Act 2001 by failing to comply with the FASEA Code of Ethics, notably Standard 2 and the Value of Diligence.
As a result, the panel ordered that the relevant provider receive specified supervision from an independent compliance professional at their own cost and pre-vet the next 10 superannuation and next 10 insurance SOAs that they present to a retail client.
The relevant provider is then required to provide the independent compliance professional’s findings to the Australian Securities and Investments Commission.
Repeat fundamental errors. Should be removed from the profession.
Meanwhile ASIC back in their day were happy to hand out banning orders for spelling & punctuation mistakes. Or in some cases off the back of non-existent “complaints” where no complaints were registered, there was no documentation of the complaints, and the supposed complainants came out supporting the adviser saying they had no complaints to make.
Advisers don’t want to hear it – but this is an all too familiar thing I am afraid. As a former Advice Compliance Manager I have seen this sort of laziness and poor quality on well over 50% of files I have reviewed over the years. It’s good to see the FSCP is doing what it was designed to do.
you are correct – advisers do not want to hear it, as evidenced by the -thumbs down count on comments that apportion any blame to the adviser in this article
How many of these types of SOA’s will be the norm to flow from the new ‘qualified advisers’?
Which super fund did this call centre desk jockey belong to?
Well it’s better than being stripped from his business, publicly named & shamed and banned for 10 years which is what ASIC would have dealt him!
The adviser has not done their job to a competent standard here and clearly put interests of themselves above the client. Should be stripped
Anyone wonder why SOA’s are so large?
It’s reading this sort of stuff that must really concern Advisers about what is actually required to be compliant. There is no legislation that says you need to provide any form of projection as part of your advice, my licensee doesn’t ask us to include any projections in our SOA’s. They serve no purpose. I’m not saying this Adviser is not at fault but to be pulled up because his insurance cost projection, probably over a 30 year period, was not deemed accurate. If there was no projection he’d have nothing to worry about. Ridiculous.
Perhaps you should consider your compliance arrangements. You say … “There is no legislation that says you need to provide any form of projection as part of your advice”
s921E(3) Corps Act – A relevant provider must comply with the Code of Ethics.
Code of Ethics, standard 6 – You must take into account the broad effects arising from the client acting on your advice and consider the client’s broader, long-term interests and likely circumstances.
Do these projections incorporate the 50% plus anniversary increases that are now reasonably frequent? I’m all for providing projections but lets not pretend they have any chance of being realistic. I met with a client last week that in 1989 was told his AMP investment would be worth over $600k, the $56k he got was a slight disappointment.
So when an insurer raises the cost of “level” premiums 10 times over 30 years all advisers who failed to predict this should be punished?
What a silly thing to say.
I’m well aware of the legislation and the code of ethics. Nowhere does it say that to satisfy the requirement to take into account the broader effects arising from your advice that you must use a projection to do that.
If you clearly explain in simple terms in your SOA that any insurance premium coming from super will impact your final retirement balance, and that consideration should be given to making additional personal contributions to offset this impact, then you’ve met that requirement. If it’s a large premium then go a step further and compare the contributions going to the fund versus the premium coming out. Inform them that they may need to balance their need for insurance with the growth of their retirement savings.
Large licensees will have you believe that 80 page SOA’s with all manner of additional educational material, cashflow analysis, projections…..all the fluff that no one reads, are required, when they’re not. Get in with a small licensee that doesn’t have to cater to the lowest common denominator.
“If there was no projection he’d have nothing to worry about”. Basic error in your thinking there & probable breach of the code. Your advice is based on data available & reasonable assumptions at the time of preparation. As you mention, you cannot control insurance premium increases etc so what do you do at the next review if premiums have increased by more than expected? Update the forecast, review the benefits/disadvantages of retaining, consider alternatives & allow the client to make an informed decision. Basic stuff.
Helpful to be reminded about where advisers could come up short.