OPINION: Regulators need to shift focus

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Paul Levy, CFP for 37 years, says certified planners are being stifled by rules, while websites offer clients inappropriate life insurance cover, without regulation.

Most advisers have embraced the current environment under which we are forced to operate and we have adapted our business and our thinking to accommodate the regulations and most strive to run a fully compliant advisory business.

Imagine my disappointment when I recently learned through personal experience that a client can respond to an internet or television advert and purchase life insurance and personal risk protection products by simply supplying name, date of birth, occupation and smoking habits, followed by 15 minutes on the phone answering health questions.

Over recent years, the public has become cynical of financial advisers and reluctant to seek insurance advice from an adviser because they have adopted a negative viewpoint to advisers, resulting largely from fear of commissions, negative press, recent failures of investment products and highly publicised dealer groups (Storm), misperceptions out there that all advisers are bad and of course, the extremely heavy-handed way in which the regulators are shaping our industry.

As a result, many Australians carry no personal risk protection at all and many of those who do have cover, are inadequately covered and do not have proper estate planning in place.

I followed the process of applying for life insurance the other day using an internet based company and found, to my horror, that I could purchase $1m life insurance cover without any discussion or attention given to any of the following items:

  1. Full and complete fact find
  2. Needs analysis
  3. Discussion on who should own the policy
  4. Discussion on whether $1m of life cover was appropriate
  5. Children education needs
  6. Ongoing future income requirement for surviving spouse
  7. Final expenses like funeral and tax
  8. Whether or not I should also have income protection, trauma, TPD or business expense insurance
  9. Discussion on estate planning requirements and issues
  10. Should my new life cover be inside super or not
  11. Should I have stepped or level premium
  12. So I have a SMSF and should my SMSF have ownership of my policy
  13. Does my wife need any cover
  14. What are my debt levels
  15. What are my goals and objectives

The result of the above process is that the client ultimately receives an SOA that amounts to nothing more than an “execution only SOA” which states what they do know about the client (which is very little) and what they have not been told by the client (which is a huge amount of information requested and not given).

This means that the clients who purchase any product from these organisations are not getting any advice from a trained, educated and experienced adviser and the client is therefore exposed to being grossly, inadequately and /or underinsured resulting in thousands of Australians possibly not being intelligently insured. The premiums quoted for the cover is exactly the same as what the premiums would be if they sought advice from an adviser but they are not getting the benefit of advice.

When a life changing event occurs, like premature death or incapacitation resulting from illness or accident, and that client does not have the proper cover to provide the badly needed capital or income required to guarantee the continuity of the family and/or their business, who is going to be responsible?

Who will that client be able to point the finger of inappropriate advice to?

What recourse will that family have to being let down because the regulators have encouraged and allowed clients to purchase insurance in that fashion without the benefit of badly needed professional advice and guidance?

It seems to me that by allowing these sorts of businesses to operate as they currently do, clients are not receiving any advice at all and are running the very real risk that they will not have appropriate cover.

This means by definition that they will be inappropriately covered and this will result in financial devastation after a life-changing event strikes that family.

I am amazed that the regulators, who on the one hand; appear to be striving to protect clients by forcing honest hard working advisers to maintain their ongoing education, adapt their offices and business to satisfy a stringent and onerous compliance regime and be financially exposed to liability claims and complaints, while on the other hand; allow product sellers to supply products on a mass “execution only” basis without a care as to whether or not those clients are adequately covered or not.

It seems totally incongruent to me that clients could be allowed to get themselves into that position with no recourse whatsoever or responsibility taken by those institutions, who are apparently operating within the law, but in my opinion against the basic principle of what the laws purport to provide – namely, client protection.

Promoting to clients that they seek advice from an adviser will not work. We need to educate the regulators and put a stop to this practise.

To me, this situation seems to fly in the face of what the regulators have been attempting to achieve over the years.

It is unreasonable that I, and my colleagues, who have many years of experience, training and education, be treated in this fashion where we are forced to comply with a raft of compliance requirements in order to give good advice that others within our industry have no need to comply with at all.