The Australian Securities and Investments Commission’s (ASIC) report into non-complying life insurance advice is not representative of the industry, says the head of the Association of Financial Advisers (AFA).
“I think it’s a stretch to say that it’s representative of all risk advice, but it is still disappointing to see failure rates at the level that were in the report,” says Brad Fox, chief executive officer of the AFA.
“I think what is very useful about the way ASIC gave us the report is that there are examples of what failed. But just as importantly, there are examples of what passed, and some gaps about best practice.
“If I take the upside of the report, which at first read isn’t what I was feeling…that there are some real learnings all advisers can take from this to provide good advice.
On the sampling, he says there could be “some question marks about how representative a sample it is…70-odd advisers is not enough to be representative”.
Upfront insurance commissions
“I think the levels of failure on upfront commissions…it says ‘we have to look at this’, but I don’t think…45 per cent of advice across all advisers using up-front commissions are supplying…non-compliant advice,” Fox says.
Speaking at the AFA National Conference in Cairns, Fox says he sees the role of the AFA as ensuring its members take their responsibilities to provide compliant life insurance advice very seriously.
“Too often we see broader problems being put at the feet of advisers, and there’s clearly…a need for advisers to face into this,” he says.
“There’s a bit to be answered for from the insurance product manufacturing side as well.”
The ASIC report focused on the incentives around, and the structure of, the competition to continually create the best product.
“I think the difficult overlay to bring into this, something we’ve brought to the life insurance advice working group…is the interplay between the adviser conduct,” Fox says.
“Where an adviser is switching a client between one policy and another and it’s clearly in the client’s best interests, there’s nothing wrong with that.
“But at the same time, that doesn’t help the sustainability debate about policies not staying in force long enough to suit the modeling for which they’ve been created.”
It is generally accepted that a life insurance policy generally needs to be in force for at least seven years before the insurance company surpasses the break-even point.
“We’ve got to play in two ways – one is an accountability role for all parts of the value chain.
“But we also have to play a leading role in the culture around advice. It is not good enough to give bad advice.”
Unknown origin of non-complying risk advisers
“At this stage we don’t know whether [the advisers or licensees] they’re our members or not our members.
“We have asked ASIC to consider how they might share that information in a way that can be a positive in how we get involved in helping drive the right sorts of change.
“We don’t want to put our heads in the sand about this. If there’s a problem, let’s get out there and fix it.
AFA wants an early warning
Fox suggests if ASIC does share the knowledge, it will do so publicly rather than first providing the information about any implicated AFA member to the association.
“If there’’s a problem, well we’ve got to deal with it too. And it would be better to be on the frontfoot and proactive than on the backfoot after it becomes publicly known. But we need to wait and see.
“The worst thing would be if we actually get told there’s a problem, but not where it is.
He says the AFA asked ASIC a range of questions around ‘can we identify particular cohorts of advisers where these problems are?’
“There doesn’t seem to be that degree of data available for us to be able to do that, which is a bit frustrating.
“Because it means that all the other advisers that are doing a great job are going to wear some of the burden of this.”
