ASIC has taken accepted an enforceable undertaking (EU) from the first adviser picked up under its Life Insurance Lapse Data Project after finding he failed to meet his obligations in providing life insurance replacement advice.
There are a series of points discussed in the article about the failings ASIC identified in the advice given. Although we do not have the details, they do sound pretty bad, including:
- Failing to consider relevant personal circumstances prior to replacement advice.
- Failure to provide adequate replacement advice in the SOA
- Advised purchasing cover that was too expensive
- Failed to consider the impact on savings of placing life insurance in super
- Failed to provide adequate information about the clients' circumstances in the SOA
Some implications for compliance process and systems are worth drawing out.
- This type of enforcement activity comes from data analysis, not from complaints. Customers that receive bad advice and don't complain may still be identified by an active regulator. This trend will continue as regulators find that 'human intelligence' is fairly slow and patchy compared to 'signals intelligence' where huge volumes of data can be analysed over time.
- It appears that there were client records - SOAs to look at, and so on - what failed was the content. Suggesting that either there was a lack of appreciation of the information needed to give good advice, or a failure to process and record that information. This appears not to be a problem with 'record keeping' it is a problem with 'advice-writing'. Storing what you write is easy, writing good advice is the hard part. I am going to blog on each of the points listed and discuss the advice process issues. Do contact me if you want to make comments or suggestions on them too.
- I actually like that there are two cost issues identified: the total cost of cover (see the reference to 'too expensive') and the cost of cover and its impact on superannuation. Although the latter issue cannot occur in KiwiSaver, total cost remains an issue. Some clients may feel unable to say 'no' to a persuasive adviser, and will take out cover that is too expensive for them, only to lapse it a few short months later. Having a good process around affordability helps every party to the transaction: the adviser, the insurer, and the client.
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