The disciplines of financial planning and risk advice should be separated and the financial services industry should stop talking about the two professions in the same breath, according to Don Trapnell.
Mr Trapnell, Director of largely risk-focused licensee Synchron, argued that the methodology and skill set of a financial planner is totally different to that of a risk specialist, and no one person can excel at both. At the heart of his case is the contention that financial planners have ‘analytical’ conversations with clients, about facts and figures, whereas risk advisers must connect with their clients emotionally.
“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,” Mr Trapnell said.
“I know outstanding financial planners who give very good risk advice and I know exceptional risk advisers who give very good financial planning advice. 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.”
He also asserted that life insurance policies have more in common with household and car insurance policies than with a transition to retirement program or 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.”
Mr Trapnell believes separate Australian Financial Services Licenses (AFSLs) should be issued for planning advice and risk advice.
“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,” he said.
His thoughts echo those of some riskinfo readers, who have expressed their concern at potentially having to complete education requirements that do match their area of specialisation.
Commenting on our story about the latest PJC inquiry report into education standards, Brian Howard said:
“I would also add that it is about time that dedicated life risk advisers had their own category, outside of ‘financial planner’ and were qualified as such. A different qualification, exam and title. As a life risk adviser myself I am being tarred with the same brush as full financial planners, having to do irrelevant Kaplan CPDs and now these new mooted ‘financial planner’ exams. What a waste of my time! I don’t mind exams that test and prove me for what I do all day – insurance advice. To sit me down and test me on derivatives, options, structured managed products is a waste of my time and money. It seems a no-brainer to me, to treat us separately. Why is it not done?”
Regular contributor, Jeremy Wright, added:
“Risk writers are being forced to adhere to regulations, ongoing training and a plethora of rules that have no bearing on risk writers and add to the underinsurance epidemic, with constant distractions that have little to do with insurance advice, though take us away from doing what is the most important best interest duty, which is to get more Australians insured.”
In contrast, another reader (writing under the alias ‘Alleycat’) argued that“… you can be an expert in super, investments and risk. You just have to put the time in to be educated. I was an insurance specialist and NSW Agency Manager for a major life company that’s still in existence. I lectured on income protection insurance to life agents of all persuasions on behalf of the old LUA and I was a graduate of LIMRA. I went back to University to study tax law and complete my DFP via Deakin University. I also hold a CFP designation and have run an insurance and financial planning business since 1990.” (See: Blanket Approach to Risk Commissions Unwise – FPA)
I totally agree.
Have been an advocate of this for some year
The differentiation will be most appropriate
The cost of PI should also be reflected
After over 50 years in the risk business
I can count my clients that are left as personal friends
4.9% of disputes received by FOS between Oct and Dec 2014 related to life insurance. Indisputable support for what Don T is saying. The reputation of the vast majority of ethical risk specialists continues to be undermined by the minority within the Financial Planner industry responsible for the remaining 95.1% exampled in the FOS quarterly report.
I agree strongly with both Don & Brian, it is time to separate, since the problem with Storm financial which had nothing to do with risk, we have been tarred with the same brush, as compliance gets more & more onerous.
I also believe that dealing with a clients claim for a serious illness, is so completely different to handing an investment payment or organising a pension plan.
Why not be like other professionals and have Risk specialists ? I believe the current licensing arrangement does simply allow licencing based on skills and qualifications. If you are not risk licensed then you cannot advise simple. I don’t hold the view that risk is not analytical , the future life issues are similar, death can create financial obstacles the same way as lack of saving , bad investments, poor tax structures and so on. The big issues are simply that there are no correctly priced commission free products which would allow many under insured to have the right level of cover, and more importantly keep people insured because the premiums are reasonable.
On line and direct cover is increasing with most companies starting this service , which means the end result will be pricing. Lets take control and make advice the relevant value add not the product.
It seems that all the negative comments regarding Don’s article have been removed, and only the favorable ones remain. This is, in fact, disgraceful editing.
Both sides to an argument should be shown, if Riskinfo cannot carry out this basic journalistic function, then they should, in fact, cease being a voice for the advisory community.
I, in fact, do not agree with Don. I think it is a retrograde step taking the industry back 20 years, Don you should know better.
Thank you Stephen, I agree with your comments. We have come much too far to let our progress slip backwards. I also feel that this would be playing into the hands of the sales networks that our progress has tried to eliminate.
Whats the Sales Networks?
Sorry if making a sale means my family eats, when has this become a crime? since when is having a business based on Risk Sales a crime? Ring all my clients and you’d only get excellent feedback about them having a Risk only Adviser on their team…………….
I have many very experienced Financial planners who I refer my clients if in need of other advice in Super or Retirement Investing Ect, Plus out of the Adviser I refer each of them Specialise in a area too, like SMSF, or estate planning or Retirement TTR Guru’s, so whats the difference or problem with a Risk only Adviser?
Every other Industry has specialists, why not Advisers? Even in Property sales you have people that specialize in a type of dwelling or Commercial or Units or rural ect. The list goes on.
The Hypocrisy in this industry stinks………………… Sales Networks.
Congratulations! Finally a glimmer of light in the debate. A great article and well explained thanks Don.
I work for a “Big 4,” was a “Risk Specialist” for many years and in the top 3 nationally for that total time in terms of revenue generation, customer satisfaction and compliance. A decision to remove the “specialty” was made and I am now a Financial Planner and I believe I’m a good planner who gives great Risk Advice. However, I now struggle with Compliance, who look at me like I’m talking a foreign language when I say things like “I’m a needs based salesperson” or “affordability is judged on the value that I show the client and how much they need protection, not the $100 per month they thought they could afford for some insurance before they met me.” I also struggle to see enough clients and haven’t seen the top of the ladder for so long I can’t remember what it looks like. At least I still score high in Customer satisfaction.
Risk is emotional and MUST be sold, Financial Planning is more logical than emotional. Hence why they should be separate. I have advocated for many years that they need to be separated at a Legislative level too. Please can our industry bodies start to see this point and push in this direction? I’ve never had a bereaved widow lodge a complaint against me upset that I had her recently departed husband over-insured. I’ve never had a client whinge about the cost of their protection after a successful claim. But equally I’ve seen a lot of really happy investment clients lose their “happy” and forget their goals and priorities in a financial downturn. I’ve also had many grateful clients come back and thank me for “helping them to understand their needs before it was too late.”
The massive growth of Direct Insurance should scare us but highlights the issue. Providing Risk advice should be a separate discipline and it’s compliance regime needs to recognise this. It needs to be simpler and less cost to provide quality advice and if it’s not changed really soon, it (Risk Advice) will continue to get less and less competitive and far less attractive when compared to direct products. Since when was “buyer beware” are good scenario? Not since the dark ages and that’s the outcome of making it impossible to “sell” quality risk or provide quality Risk Advice. Customers see a need and want it fixed easily but this can’t happen in the current environment. Generally I can’t fix a poor client choice after they’ve suffered an event. I need to be able to show them a better option, more easily, before they make their own poor choice out of ignorance or a misled desire to keep it cheap and easy. Financial Planning is nothing like this. Time, if available can fix or at least improve a poor investment decision.
I am 100% for increased Adviser education standards and accountability and agree that there are issues that need to be addressed, but it’s not all the same problem. Both the Financial Planning and Risk Industries have issues that need addressing, however Don has identified the start point. We need to start by recognising that Financial Planning and Life Risk Advice are very different, although overlapping disciplines.
Sorry Don but I have to disagree with you on this one. By all means if the Planner/ Practitioner is not fully compliant in Risk Advice then employ or partner up with a Risk Specialist. Our advice models should not regress to become product sales. Insurance is part and parcel of our advice and there is very little planning done these days that does not incorporate insurances of some type but, to have it as separate Licences I feel is a backward step (and most of us have come a long way to now let our opportunities slip backwards).
Brian and all the specialist risk writers that have the experiance, will know that what Don is saying is exactly right.
Comments about dragging the Industry backwards are wrong.
The reality is that advisers have very little spare time to be an expert in all facets of financial planning and it is difficult to juggle all these specialist areas, when the world is rapidly spinning and change is upon us and moving on before we can truly grasp what we have just been hit with.
To retain our sanity, being a specialist is a good thing and would enable all of us to be the best at what we love doing, without being dragged into areas that may not be relevant to what we do.
Until the GFC most FP didn’t want to waste their time on risk – too much work!
Once the GFC hit and it was hard to sell investments that were falling – the FP jumped on the risk bandwagon to keep themselves afloat.
The number of times I have met with clients (Pre GFC) that had seen a “FP” and come away with all sorts off geared investments, but no funds left for any insurance still infuriates me.
FP is a separate kettle of fish, if a client dies the investment stops, for a risk writer if a client dies it starts the whole claim process and its back to work for the client!
Why don’t FP outsource Risk and Risk Writers outsource FP? Referral partners make good sense.
Better to be a master of one trade than a master of none!
Doesn’t matter what anyone says, the Industry Heads are hell bent on getting rid of Risk only advisers like me, not worth the fight these days.
We lost this Battle years ago Don when no one stood up for the Risk Only Guys………….
I find the Supporters of making it harder for Risk only advisers like some above are only looking at it from their Holistic Advice business Model, in reality it makes them one sided and bias toward their model and business structure, not giving a crap about someone who dedicated their career on Providing clients with Excellent risk only advice. But what would you expect from these types of planners, I worked with Plenty of them and basically is the reason why I chose to specialize in Risk Only, Investment Planners Shit Never Sticks Right? haha.
I don’t disagree with what Don proposes but let’s not throw each other under the bus on the way to a more sustainable outcome.
comments like ‘4.9% of disputes received by FOS between Oct and Dec 2014 related to life insurance’
‘Storm Financial which had nothing to do with risk’
‘The number of times I have met with clients (Pre GFC) that had seen a “FP” and come away with all sorts off geared investments, but no funds left for any insurance still infuriates me.’
How does this help increase public perception of what we do as financial planners and/or risk adviser if we as an industry have no respect for each other. Each one of these comments could easily be turned around against the risk specialist. i.e
‘37% of all life insurance advice was found to be non-compliant .Blah . .Blah . . risk adviser are unethical!’
‘Denied claims, which has nothing to do with financial planners’
‘The number of times I have met with a client (pre-retirement) that had seen a ‘Risk specialist’ and come away with all sorts of exotic insurance features, but had no regard to the amount of super/investments they were left with in retirement still infuriates me’
Surely at the end of the day the client needs to receive a holistic service, irrespective of if 1 professional provides this or 15.
I am delighted to see the strong debate generated by my comments. Whether you agree with me or not is not that relevant, but to have the discussion is. I know Ted and Stephen quite well and certainly respect their views. My view happens to be different to them and I welcome the open discussion.
Great stuff Don and thanks for your lending your voice to this matter.
There is such a massive separation of the two specialties. I am risk only and although a qualified planner, I have chosen to specialize in risk only.
I have noticed that risk compliance is getting intermingled with planning compliance and all the crap we have have been tarnished with over the last few years was brought about by bad planning advice-not risk advice. We have all been effected. When licencees try to run a risk practice under the same compliance regime as a planning practice- confusion reigns.
Remember post GFC-it seemed like every planner who was loosing revenues jumped into risk all of a sudden! Needs to be separation. I didn’t see risk advisers jump into planning when the markets turned upwards, we just kept on doing what we do.
What is the next step in getting this legislated? I will be first on board.
Don, I am in agreeance and have been saying for years that specialist risk writers like us have just been bundled into the financial services legislation with no appreciation for the differences between risk and investment / super. Risk is a specialist field and for those that disagree I’d say they don’t know what they don’t know about the depth of good risk advice, which includes claim management.
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