by Jon-Paul Hale
I have said this a few times: the new rules will open the door to the regulator and complaints industry litigating past advice.
It seems we have had a case with FSCL recently about a funeral plan.
We know the issues of premium vs cover level with funeral plans well, but that isn't the issue here; it is the adviser's conduct.
Keeping in mind that we have someone who has had a rough time with recent life events, and we're here to help people in those rough times.
However, this case raises more than a few questions about whether it is a professional complaint about the adviser.
Fundamentally, the issue of the cost vs benefit with this client is one that sits before the old regime which essentially had no teeth. The policy commenced in 2007, and registration for advisers came in 20011.
In hindsight, was it a crap deal? Yes. But that is with hindsight.
It seemed reasonable at the time and would have been considered reasonable cover and advice then. I have a regular discussions like this example with clients in their 60s, and I'm sure most advisers do too.
I talked about these specific issues around funeral covers in my recent article on the case for Golden Life.
But I don't think the funeral cover headline is the actual cover that was in place. It might be for funeral coverage, but the story raises more than a few questions for me.
The point about the premiums paid vs the value in terms of reviews, there are two issues here:
From my own client stats with relatively high client contact, 30% of clients respond to an annual review in any given year, and 10% never respond to review requests.
If the client does not engage with the review process, how exactly is the adviser expected to help?
Assuming the client wasn't reviewed, there is a reasonable weight of experience on the client not engaging in the review opportunities presented to them, too.
A significant point here is that the cover needed today for the premium paid is the risk and advice issue. What the client has paid is somewhat irrelevant to the ongoing cover need looking forward.
In terms of budget, the adviser doesn't determine what value a client puts on their protection, no one but the person paying the premium can say what that line is.
Is 25% high? Sure, at the same time, there is an obligation for the client to stick their hand up when there is a problem.
Coming back to my "not a funeral plan" comment. The contract premium terms need to be clarified in the FSCL reporting. Are these YRT or level premiums?
If it's a level premium funeral cover, then with inflation on superannuation payments, the starting premium for the client would have been significantly higher than 25% of their income in 2007! Unlikely.
This suggests it's a YRT contract. Which you could argue wasn't the best choice at the time for someone age 68, and a level premium would have been far better knowing the rate of annual increases to come.
At the same time, it was back in 2007 before the current (2021) and prior (2011) regulation changes and anything goes. This case pre-dates any requirement for advisers to be registered or qualified! It's also before the GFC too!
The adviser stated they approached this as the cheapest coverage for the client at the time, which reinforces my view this was a YRT contract.
So far, I'm not seeing the professional advice issue under the current, or even the old, regulations here if the adviser had been doing the minimum annual contact for a review. Which seems to be where things have settled.
My outside looking in thoughts are:
I have more thoughts on this case and they will be in another column soon.
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