Inappropriate insurance advice was one of the key issues that led to the cancellation of AAA Financial Intelligence’s AFSL earlier this year, the regulator has revealed.
Australian Securities and Investments Commission (ASIC) Deputy Chair, Peter Kell, said the regulator’s surveillance of AAA Financial Intelligence and AAA Shares (AAA) uncovered repeated failures with respect to risk advice. These, along with several other issues, led to the cancellation of AAA’s license in February 2013 (see: ASIC Calls AAA Compliance ‘Appalling’).
Speaking at the Association of Financial Advisers’ National Conference, Mr Kell shared some of the poor examples of risk advice it found during its AAA investigation, saying these issues were also occurring in varying degrees repeatedly and commonly across other licensees.
“We reviewed more than 100 files,” Mr Kell said of the AAA investigation. “Over 80% of those included risk insurance advice. Out of those files that included risk insurance advice, just over 80% of those contained inappropriate advice.”
According to Mr Kell, ASIC identified a number of issues in relation to the risk advice provided by AAA, including:
- Unnecessary replacement advice, where changes could have been made to meet the clients’ objectives within existing arrangements
- Very limited demonstration of how the policy met the clients’ objectives, without any proper consideration of their personal circumstances, their occupation, their health conditions and family history
- Extensive evidence of poor and inadequate fact finds, which could significantly impact the client in relation to underwriting and exclusions
- Failure to appropriately consider or recommend a sum insured that was correlated to a client’s objectives
In addition, Mr Kell said the regulator found that the affordability of the cover was often not adequately considered prior to a recommendation being made.
… what we found was inappropriate, conflicted advice that caused real, meaningful harm to the consumer
“We had high levels of cover recommended to clients with no dependents and no liabilities. And on the other hand we had multiple cases where a superannuation rollover was the vehicle to write otherwise, frankly, unaffordable risk cover,” he said.
“In summary, what we found was inappropriate, conflicted advice that caused real, meaningful harm to the consumer.”
Mr Kell said the issues identified in the AAA investigation, along with similar problems found within other licensees, had led the regulator to undertake a major risk advice surveillance operation (see: ASIC Commences Churn Inquiry).
Now, I’m not disputing that there was inappropriate advice – I have no idea if there was or not.
But this quote seems to suggest a different direction on affordability, a direction completely counter to what I’ve always been told:
“And on the other hand we had multiple cases where a superannuation rollover was the vehicle to write otherwise, frankly, unaffordable risk cover,” he said.
Since when are we supposed to consider affordability when determining a client’s needs?
Isn’t it our job to determine how much cover they need, and how much that would cost and let them make the decision on how much they want to spend?
Or have things changed now and it’s up to us to know what’s affordable for everybody? We’re now meant to compromise our advice to fit what ASIC believes is affordable?
What’s that noise? Oh, it’s the lawyers sharpening their knives.
How could you not consider affordability? What happens when insurance depletes any wealth they had accumulated for retirement? Go find another client?
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