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Trowbridge Report: Advice Failures

Third in our series covering the Australian Trowbridge report (you can read the report at this link) is the issue of advice failures. The report identified four areas at a high level: 

The specific areas identified where advice could be improved included:

  1. Inappropriate scaling of advice: where the adviser failed to exercise sufficient prudence and judgement in the scope of their inquiries into the client’s relevant circumstances

  2. Lack of strategic life insurance advice: where the adviser failed to add any meaningful value to their clients by: (a) helping them set an appropriate sum insured, balancing the competing priorities of under-insurance versus affordability; (b) testing the value of optional extras against the client’s ability to sustain the insurance over time by prioritising the essential and the non-essential; or (c) helping the client evaluate the merits of stepped versus level premiums relative to the amount of time the client may expect to hold insurance.

  3. Weak rationales for product replacement advice: where the advice lacked strategic consideration of the issues that brought the client to the adviser in the first instance.

  4. Failure to consider the relationship between life insurance and superannuation: where the advice failed to adequately consider the effect on retirement savings where insurance is funded through superannuation..

These areas of concern all probably exist, to a greater or lesser degree, depending on the financial adviser, here in New Zealand as well. 

I am particularly interested in the question of the ability of the client to sustain the insurance over time, stepped versus level premiums, and the last issue of the relationship with superannuation. Although KiwiSaver includes no life insurance component the sums in many KiwiSaver plans are significant, and should therefore be included in planning as an available asset in death and total and permanent disablement contingencies. 

 

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