The disciplines of financial planning and risk advice should be separated, as no one person can excel at both, according to Synchron Director, Don Trapnell.
“I know outstanding financial planners who give very good risk advice and I know exceptional risk advisers who give very good financial planning advice,” he says. “But they are either a financial planner who gives very good risk advice, or a risk adviser who gives very good financial planning advice. I have yet to meet a truly holistic financial adviser.”
The methodology and skill set of a financial planner, Mr Trapnell says, is totally different to that of a risk adviser and the financial services industry should therefore not talk about the two professions in the same breath. “If you are giving financial planning advice, you are talking facts and figures – how to take a client’s wealth from where it is today and project it forward. That’s an analytical conversation. If you are giving risk advice, you are talking about protecting a client’s current and future lifestyle and that of their family. That is an emotional conversation.”
In reality, Mr Trapnell says there is no logical reason to buy life insurance. “Clients pay premiums for something they will, by definition, never personally enjoy. While purists might say they enjoy peace of mind, that’s an emotion.”
Mr Trapnell argues that a life insurance policy has more in common with household and car insurance policies than with a transition to retirement program and an income protection policy has more in common with a personal accident and illness policy than it does with an investment portfolio. “For some reason, risk products continue to be linked together as financial planning products rather than insurance products. I do genuinely believe there is a strong case for separating the two.”
The solution, according to Mr Trapnell, is for licensees to hold a specialist Australian Financial Services Licence (AFSL) to deal in investment or financial planning advice and/or also hold a life insurance broker licence. “One licensee could hold both licences and their authorised representatives could be authorised in both areas, or they could be authorised to provide either risk or investment advice. I really don’t believe they should be bundled together, the way they are at the moment.”
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