Category Archives: CONSULTTS

BAD FINANCIAL & INSURANCE ADVICE GIVEN TO CLIENTS BY 1 IN 3 ADVISORS IN THE INDUSTRY

More than one in three financial advisers have failed to comply with laws around giving clients appropriate life insurance advice, representing an “unacceptable level of failure”, a damning report by the corporate watchdog has found.

Around 37 per cent of financial planners failed to prioritise clients’ needs and give correct advice, according to the Australian Securities and Investments Commission, which reviewed more than 200 files from large and small advice companies.

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Around 37 per cent of financial advisers failed to prioritise clients needs and give correct advice, ASIC says. Photo: Jim Rice

“This is an unacceptable level of failure, and the life insurance industry is now on notice to lift standards and professionalism,” ASIC deputy chairman Peter Kell said. “Both insurers and advice firms need to work on delivering a consistently better service for consumers.”

The report found that planners who received expensive, upfront commissions were more likely to deviate from giving appropriate advice.

The survey, which was conducted between September 2013 and July, found 82 per cent of financial planners net their remuneration through upfront commissions, compared with just 0.7 per cent who receive salaries.

“The industry as a whole needs to consider how remuneration and compliance practices can better support good quality outcomes for consumers,” Mr Kell said.

The report comes amid some of the most difficult business conditions on record across Australia’s life insurance sector.

Lapse rates, or the number of people who quit or scale back their life protection cover, is skyrocketing as households tighten their budget belts. Companies such as AMP, TAL and the life arms of Australia’s big banks have posted high lapses in recent years.

Insurance claims are soaring as lawyers encourage their clients to table claims on their life and income protection policies.

Insurance companies’ investment income have also dropped amid lower returns. Adding to the conundrum are advisers who switch their clients from one insurer to another in a bid to pocket higher commissions.

Simon Swanson, chief executive of listed life insurer ClearView Wealth, said there was “more work to be done to ensure there are good processes around advice”.

“It’s not just an advice issue as well – it’s a dealer group or AFSL [Australian Financial Services Licence] issue. The dealer groups [umbrella groups for advisers] have to take more responsibility,” he said.

He also argued that the industry needed more time to sift through a raft of regulatory changes stemming from the Future of Financial Advice Reforms, including advisers’ best interest duties, to tackle the challenges buffeting the life advice sector.

ASIC said a recurring theme in its surveillance was “the failure of advisers to give strategic risk advice to their clients”.

“It is the process of identification and prioritisation of needs and objectives that is the most important aspect of financial advice for consumers. It is a key reason why consumers look for financial advice,” the report noted.

The watchdog is putting the pressure on insurers to review how they pay advisers to ensure customers’ interests are priorities, and develop products that improve the affordability of policies.

It is also placing the onus on advisers to review and amend their business models to comply with the provision of compliant life insurance advice.

Henry Sapiecha