Life insurance advice delivered in line with the Best Interests Duty is not always in the consumer’s best interests, according to Synchron Director, Don Trapnell.
A statement from the Australian company says it’s calling for the Best Interests Duty to be scrapped for life insurance advisers, in favour of a requirement to provide appropriate advice.
Trapnell says the Best Interests Duty forces life insurance advisers to go through an extensive needs analysis process and produce a statement of advice covering off the client’s financial situation, even if all the client wants is to increase their life insurance cover for a specific need.
He adds that it’s not the fault of their advisers, but clients are “… likely being over-serviced and consequently overcharged because of legislation brought in by a Government that appears to believe Australians are too stupid to know what they want, need and can afford in terms of life insurance advice. Australians are not stupid and should be free to choose”.
Trapnell argues that in seeking to protect people from themselves, the Government has legislated away the right to choose. “It is the very definition of a nanny state,” he says.
…because it cannot be limited to just the advice they seek, it is likely to be more expensive than they expect…
While the life insurance advice clients currently receive might be in line with the Best Interests Duty, Trapnell says that because it cannot be limited to just the advice they seek, it is likely to be more expensive than they expect and as a result, they might be reluctant to act upon it, and reluctant to seek further advice when they need it.
“Ironically, the advice may therefore not be in the client’s best interests at all,” he says, adding that a better approach would be a requirement for life insurance advisers to provide appropriate advice “… that is, advice that is in line with the advice the client is actually seeking, and actually needs”.
If the Best Interests Duty is not scrapped for life insurance advisers, Trapnell believes advice may become beyond the reach of many people who, he says, would then be forced to buy policies direct via the phone or internet, or not at all.
“This is likely to ultimately see fewer people appropriately insured and the social security burden on the Government further increase, he says.