Too Good at Selling Life Insurance?

As people study the new adviser legislation harder and contemplate exactly what it means, a question has emerged around needs analysis. A needs analysis is an indicator that a more serious job of advising on a range of financial matters is being attempted. This is why it has been considered one of the hallmarks of a ‘proper’ financial adviser – as opposed to someone that merely sells a specific product. 

Identifying a needs analysis process with category 1 services has led to confusion: if you are only selling a category 2 product – say, most term life insurance – but you do a thorough data capture in order to arrive at a robust calculation of how much life cover is required… have you suddenly stepped over the line and you are now somehow offering a category 1 service? 

Would someone deceptively complete a full financial plan recommending only life insurance? How much consumer harm is possible by doing the best possible job in assessing the need for a category 2 product well? Could you in effect end up being penalized for doing the job of selling life insurance too well? We’re not sure, and suspect clarification will come.

It seems nonsensical that the needs analysis process would actually have to be ‘de-tuned’ for category 2 products. Perhaps an argument could be constructed that single product sales are in some way inherently less good than sales within the context of a full financial plan. But then again, we know the MED has a good eye for the cost/benefit analysis of new law. They are usually unwilling to force the sale of one product – in this case, financial planning, in order to access another, such as term life insurance, or general insurance.

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