Christchurch FAP cops criticism from the FMA
The Financial Markets Authority (FMA) has reprimanded Go Financial Solutions for failing to meet the obligations of its financial advice provider (FAP) licence.
Thursday, December 14th 2023, 11:28AM 
10 Comments
by Andrea Malcolm
Go Financial Solutions is a Christchurch-based FAP advising on health, life and business insurance and mortgage lending. Its primary clientele is the Filipino community, including non-residents on working visas, according to the FMA.
During a monitoring review this year, the regulator found that Go Financial Solutions had inadequate record keeping, didn’t gather sufficient information about a client’s circumstances, couldn’t prove that its recommendations were suitable, didn’t ensure clients understood the advice they received and failed to exercise care, diligence and skill when providing financial advice.
In particular, the FMA saw instances where advisers failed to make reasonable enquiries or take into consideration clients’ medical circumstances when advising them about acquiring or replacing their life policy.
There were also occasions where a more detailed rationale was needed to support adviser recommendations to clients to sign up with a particular provider, or to switch providers. In the absence of this reasoning, the FMA says Go Financial Solutions failed to assess or review recommendations to a reasonable level.
No evidence
Go Financial Solutions was also criticised for having inadequate records around financial advice to retail clients. The FMA says dates in file notes for clients were ambiguous and inconsistent, making it hard to pinpoint when alleged client interactions took place.
In addition, Go Financial Solutions advisers didn’t take reasonable steps to ensure clients understood the implications of advice, said the FMA. As an example, it recommended a client opt for a level premium structure for their trauma and life cover. Then, purportedly at the client’s request, this was changed to a stepped premium structure.
Go Financial Solutions couldn’t show evidence that the client was informed of the consequences of changing the structure or that it explained the trade-offs between the two premium structures.
The FMA says the failures were a breach of the obligations required of a licenced FAP under the Financial Markets Conduct Act 2013.
Vulnerable characteristics
Peter Taylor, FMA director specialist supervision and response says, “Financial advisers are required to exercise care, diligence, and skill in their work, it is clear from the conduct we observed in our monitoring at Go Financial Solutions that this did not occur. These failures were serious and had the potential to cause harm, particularly for clients with vulnerable characteristics like English as a second language. Clients are entitled to trust their financial adviser and its conduct breached that trust and could erode the public’s confidence in financial advice providers.
“We expect FAPs to meet their obligations and to put good customer outcomes at the core of their business. Consistently delivering good outcomes requires sound systems, controls, record keeping, being disciplined about meeting compliance obligations, and good disclosure. It needs to be part of an organisation’s culture, including setting clear expectations and leading by example.”
Go Financial Solutions must submit an action plan to the FMA outlining the steps it will take to remedy the breaches and to ensure it doesn’t breach its licence obligations in the future.
The FMA says Go Financial Solutions has cooperated to date, and acknowledged its efforts to remedy the breaches. The FMA will monitor Go Financial Solutions’ compliance and completion of the action plan.
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Comments from our readers
They haven't been to see you yet have they?
The reality of life insurance advise is most of the public see it akin to chewing on dry cardboard.
I agree good fact find and needs analysis is important, but do we have to cover every nuance of a product on the off chance it may interest a client?
If this is the case they will die of boredom before making a decision on what they want and end up with no cover rather than some cover.
Documentation is important, but the commentary about level premiums vs stepped is likely one of budget rather than malice. Just not documented.
At the same time the decision on premium structure can be changed at any point once the cover is in place, move to level or stepped or mix it up.
The only downside to the premium discussion is starting the policy on level then switching to stepped, this costs the client more in that initial period.
Starting on stepped and moving to level later is a reasonable outcome, one where the client can focus on the right covers and structure now with the ability to tackle the premium structure options later. Yes there is some premium impact with leaving it, at the same time the difference of a year or two is minimal.
The idea that a policy is set and forget is critically flawed, and why I’ve been in the weeds talking about existing policy administration in my articles.
There needs to be more meat in these reports, because hanging an adviser on the quality of the premium structure discussion misses the fundamental point of the advice; what cover is needed and what cover does the client want?
The premium aspect is tail wags the dog, bath water not the baby here.
1. Getting clients to understand their financial exposure to death, disability and poor health, and actually getting them to commit to protecting themselves and their families with a suitable package of insurance – the ‘sale’; and
2. Giving compliant advice, making suitable recommendations, and producing evidence of this – the ‘compliant advice’.
By the time you get to Statement of Advice time, I’d hope the ‘sale’ was made.
As far as ‘compliant advice’ goes, I have no doubt that much more detail, explanation and justification will be required than I suspect is typically being provided. This leaves advisers and FAPs exposed to criticism and probable financial penalty and liability for client loss. One only has to look at recent decisions made against advisers to see what is expected.
In my opinion, advisers are required to provide justification for every important recommendation and aspect of the advice they give. For some issues, an explanation of alternative options, their relevant pros and cons and potential competing outcomes will be required. Without providing this to the client in writing, how can you prove your advice was compliant? How can you prove you gave the client enough information to make an informed decision? How can you prove the client understood your advice?
Every adviser SOA I’ve reviewed (advisers I regard as very well skilled and astute enough to ask me to peer review their advice paperwork even though they believed it was 'compliant') had omissions that would allow a client to claim they didn’t understand, or agree to, an advice recommendation. Such omissions would probably result in an unsatisfactory outcome for the FAP/adviser if a complaint was ever made.
One adviser client suggested I was ‘being too legalistic’. When I asked him to consider for moment who will determine a complaint if one is made, the penny dropped.
Life and health insurance is complicated, there are a great many factors to consider in a typical family protection advice situation, so a short Statement of Advice is never going to be satisfactory. I’m aware this doesn’t help the ‘sale’, and perhaps there are more ‘sale’ friendly ways of delivering all the detail required. One thing I do know is that a Statement of Advice can be your best friend or your worst enemy when facing a complaint.
Making the SOA a matter of what is needed and the decisions from there. As I mentioned the documentation is important.
But we are seeing increasing evidence that the detail being asked for is far in excess of what clients will sustain in the normal course of the advice process.
It’s a fine line to walk, enough that clients understand but not so much they balk with information overload.
I guess that's the key to a good adviser, getting enough of the right information to focus the discussion on all of the clients key points while covering the unknown factors too.
We have doubled down on the confusion by inserting points not raised.
I know of no GP's that have prescribed Panadol giving me a list of contraindications, alternatives, research to support their recommendations and if changing from Panadol, solid reasons and research, fors and againsts, places I can complain about them, how much margin they make in their practice all the while the having their income exposed for 2 years.
No advice or Statement of Advice could possibly be perfect.
In addition my experience has been over the past 2 years (especially) that budget has been a major factor prohibiting folk from taking out exactly what is prescribed.
I would be interested to know if level premium sales have increased or decreased over the past 2 years. If it came to level or RFA premium and the client getting more of the cover they need, why would you even mention level?
Advice or Statements of Advice might not be able to be perfect, but most can very likely be much better (and better protect the adviser too).
As far as premium advice goes, you ask: “If it came to level or RFA premium and the client getting more of the cover they need, why would you even mention level?”
If you don’t mention level or the other premium structures available (it's not just ‘Stepped’ or ‘RFA’, there are other options too that have merit) you’re not giving the client advice on a critical aspect.
In my view, advice on premium structure and considerations of suitability etc., are fundamentally important. Failing to make a suitable recommendation and without educating the client on the various premium structures available (and on how they actually work, the various structure's advantages and disadvantages in relation to the client etc.) denies the client the opportunity to make an informed decision on a matter that could have very large financial consequences, again exposing the adviser to criticism or complaint.
Having said this, it’s important to say, I’m not primarily focused on helping advisers make the sale at any cost, there are others that can do that. I think I’ve mentioned before, my focus is on helping advisers mitigate the risk that their advice or evidence of it, will be found to be deficient, inaccurate or otherwise unacceptable in some way. Getting it wrong can be costly.
P.S. I think managing the client’s expectations better upfront can alleviate some of the ‘sale difficulties’ that come from clients being surprised by the process, the complexity or the possible recommendation and affordability issues.
However, back to my prior point, when you are trying to educate a client on what the cover is and how it works, with what is always a limited budget, the client's focus is shoehorning the best coverage for the premium dollar they have right now.
The aspect of level vs rate for age premiums is a consideration but it isn't more of a consideration than the right coverage for the budget available. It should be part of your advice consideration when you recommend a product or provider as the long-term cost is part of your professional advice responsibility.
The illustration of the cover is an illustration and most clients don't look deep enough to see future premiums. Despite telling them the premium goes up based on their age and CPI every year.
1-2 years in with the coverage doesn't make a substantial impact on the premium conversation if converting to level premiums and there's no underwriting impact for this either, it's an admin function at a time when the client is most likely to understand and take action. The client is more likely to consider level premiums after seeing what the rate for age premium looks like in practice, people learn from experience.
This being part of the advisers' follow-up and review practice with clients is a more appropriate discussion and more likely to get engagement. This is also more likely to have the clients focus on continued affordability rather than the initial implementation of coverage.
However, when you unpack the reality of the premium discussion it almost always takes an approach of "wow that's a whole lot more" because clients are looking at today's income with the thought of income growing over time and that difference for level premiums is a significant additional chunk out of their current limited budget.
This is where a good understanding of client behaviour and what their future plans are. Most will tell you it is to pay down debt and get rid of the need for the bulk of their lump sum cover.
This typically leaves you with this picture for level premiums:
* A limited amount of life cover long term (past retirement)
* Trauma coverage, which isn't a significant level of cover as most clients I talk to trade premium here for medical cover with unfunded medicines (the biggest risk demand on trauma cover if you don't have this issue covered) and around 85% of female trauma claims are for cancer.
* Income protection, which is already expensive against most budgets.
* TPD cover if they want/have it.
Medical/health insurance, the biggest component of long-term premium need, can't be put on level premiums, and most providers don't illustrate premiums longer than 12 months anyway.
My original point above was the discussion on the change from Level to RFA is a minor point in the advice conversation that is easily explained by the premium discussion that is likely to have happened. The resulting illustration of coverage having the applied for cover without a note that the client changed to RFA from Level appears to be the FMA issue.
Most advisers would say the change from level premiums to RFA was documented in the illustration for cover that was produced with the application. By this outcome, it seems not.
This points to my other question, exactly how detailed do we need to be to satisfy the FMA?
If it is to this detail across the 25,000+ options available in the life insurance market, we're doing obscene things to spiders!
Soon we will be giving lectures on Nett Present Value and investing the same dollar into your mortgage. Also highlighting very strongly you will be over paying for 11 years to save money in an imagined future.
All the while you need to know as your assets grow over time your need for cover should diminish (that part we should do). Also, we will be having reviews annually or bi-annually.
I mean gosh, if we had to wander down every path and document it I may contrat Bryce Courtenay to write my SOA's. I do believe an experienced adviser will have a strong ability to read their audience as a good Doctor or another specialist in another discipline may. I guess as always though we do need to legislate for those who do not practice as they should.
It could be obvious I am not really a massive fan of level premium and who wins. I think there are exceptional cases where it could be useful.
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