In March this year, ASIC’s Financial advice: Mind the gap report (REP 614), found that most consumers don’t understand the difference between general and personal advice; nor know the responsibilities of advisers in each case. At the time ASIC Deputy Chair, Karen Chester, said: “This disturbing gap in understanding whether the advice they are getting is personal or not means many consumers are under the false premise their interests are being prioritised, when no such protection exists.”
“The survey not only revealed consumers are not familiar with the concepts of general and personal advice, but only 53 per cent of those surveyed correctly identified ‘general’ advice. And even when provided the general advice warning, nearly 40 per cent of those surveyed wrongly believed the adviser had an obligation to take their personal circumstances into account,” Ms Chester said.
“The survey also revealed that the responsibilities of financial advisers, when providing general advice, is not well understood. Nearly 40 per cent of those surveyed were unaware that advisers were not required by law to act in their clients’ best interests.”
The reason for highlighting this somewhat disturbing level of consumer ignorance is that we; as an industry; need to play a role in more proactively helping to educate our clients about the products and services we provide. Like you, AFRM provides personal advice that does indeed have the client’s best interests in mind, but recent experience prompts us to put on the agenda that we all need to do more to raise awareness among our clients that they should take the time to really understand any products they take up on our advice. In the case of insurance policies, we need to encourage our clients to thoroughly acquaint themselves with the kind of scenarios for which they are covered. Over the past 12 months, it has not been uncommon for AFRM team members to discover after the fact that a client has gone through a claimable scenario but has not recognised it as such. A common thread among the cases we are uncovering, is that a client may be discussing with us changed financial circumstances necessitating in their mind a reduction in, or cancellation, of insurance cover. It has only been through the AFRM team member taking the time to dig a little deeper and asking questions about the client’s broader circumstances that we have discovered the client has had a valid claim but has not recognised it; nor filed a claim when they could have. It is without exaggeration to say that several of these claims we have managed in recent times have resulted in positively life-changing outcomes for our clients. Positive contributions to their financial circumstances that would never have happened had AFRM team members not taken the time to ensure the client had a thorough understanding of their current circumstances. Accordingly, we have recently made successful retrospective insurance claims and now have several retrospective claims under way. We also have a few enormously grateful clients who have a new-found enthusiasm for taking the time to properly and thoroughly understand the terms of the insurance policies they hold. This includes clients who are working in the financial services sector. So, even financially astute clients can fail to recognise a potential claim. To me, this highlights a responsibility to never take for granted your clients understanding of the products you have recommended. It also highlights that we should never shy away from encouraging our clients to keep us informed of any changes to their personal circumstances and that we should strongly and repeatedly urge our clients to take the time to familiarise themselves with the types of scenarios for which they are covered by their various insurance policies. The very least we should aim for is to foster an awareness and a relationship in which our clients don’t hesitate to contact us if they have had a change of personal circumstances, or if they are not sure if their current circumstances merit a claim. Please take a moment to read the Case Study below which illustrates how doing so could be one of the best decisions you ever make.
Until next time, live your life well!
Sincerely,
Nicholas Hatherly
Managing Director AFRM
Case Study
A number of years ago, when Paul [names changed to protect client privacy] was in discussions with AFRM about recommendations for appropriate risk mitigation measures, Paul was not entirely convinced he needed to take out Trauma cover for his wife, Julie.
The only reason he was reticent was that Julie is the family homemaker. Therefore, he perceived the family’s financial position to be more at risk if he; as the family’s breadwinner; suffered from Trauma rather than his wife.
His AFRM adviser talked him through a scenario in which his wife suffered a trauma and was unable to look after the household and their children. How might that affect Paul’s ability to continue earning an income for the family?
That was when ‘the penny dropped’ and Paul agreed that Trauma cover for Julie would be a good idea.
The above scenario is of interest because Paul is financially savvy and works in the financial sector. The point being, that even financially educated people sometimes don’t see every possible risk scenario they may face into the future.
And even when that scenario comes to pass, they are not always sure what circumstances constitute a claim.
Earlier this year, Julie was diagnosed with skin cancer and surgery was required to remove a mole and surrounding affected skin. Scans of the rest of her body were also required to ensure they had caught the cancer early enough. Fortunately, the procedure was a success.
Even with his industry knowledge, after reading through his insurance PDS, Paul was not sure if Julie’s skin cancer and treatment merited a claim under the family Trauma cover, so he contacted his AFRM adviser for a second opinion.
AFRM confirmed the circumstances merited a full claim and within a month, Julie and Paul received a payment well in excess of $500,000 from their insurer.
When his AFRM adviser contacted him to let him know Julie’s claim had been approved Paul was, at first, speechless. After taking a moment to compose himself, Paul thanked everyone in the AFRM team for the work done in managing the claim.
To his adviser, he then said:
“Thanks for convincing me to take out this Trauma cover for Julie back in the day. I honestly never ever thought we would claim on it, but geez, I’m happy about it now. I can’t thank you guys enough!”
Needless to say, the large financial payment has significantly changed the family’s financial position.
Accordingly, Paul is now re-assessing the family’s circumstances, reviewing all remaining insurances, closely considering risk mitigation requirements appropriate for their ‘new’ financial position.