Policy value and retrospective advice

I have said this a few times: the new rules will open the door to the regulator and complaints industry litigating past advice.

It seems we have had a case with FSCL recently about a funeral plan.

We know the issues of premium vs cover level with funeral plans well, but that isn't the issue here; it is the adviser's conduct.

Keeping in mind that we have someone who has had a rough time with recent life events, and we're here to help people in those rough times.

However, this case raises more than a few questions about whether it is a professional complaint about the adviser.

1. If the contract was fit for purpose at the time, why is that the adviser's fault now?
2. The contract was the contract; the client knew both the premium they were paying and the amount of coverage. It is a simple calculation to determine cost vs benefit.
3. The context of the complaint taken now bears little resemblance to any historical advice or conduct issues.

Fundamentally, the issue of the cost vs benefit with this client is one that sits before the old regime which essentially had no teeth. The policy commenced in 2007, and registration for advisers came in 20011.

In hindsight, was it a crap deal? Yes. But that is with hindsight.

It seemed reasonable at the time and would have been considered reasonable cover and advice then. I have a regular discussions like this example with clients in their 60s, and I'm sure most advisers do too.

I talked about these specific issues around funeral covers in my recent article on the case for Golden Life. 

But I don't think the funeral cover headline is the actual cover that was in place. It might be for funeral coverage, but the story raises more than a few questions for me.

The point about the premiums paid vs the value in terms of reviews, there are two issues here:

1. Reviewing this in the last three years (new rules since March 2021) means little in terms of the overall time the client had been paying premiums.
2. This also assumes the client has been reviewed.

From my own client stats with relatively high client contact, 30% of clients respond to an annual review in any given year, and 10% never respond to review requests.

If the client does not engage with the review process, how exactly is the adviser expected to help?

Assuming the client wasn't reviewed, there is a reasonable weight of experience on the client not engaging in the review opportunities presented to them, too.

• They had the cover and felt it had value for them. I infer from the comment that they are stressed about not having their funeral cover.
• The client should have been receiving the insurer renewal notices, too.

A significant point here is that the cover needed today for the premium paid is the risk and advice issue. What the client has paid is somewhat irrelevant to the ongoing cover need looking forward.

In terms of budget, the adviser doesn't determine what value a client puts on their protection, no one but the person paying the premium can say what that line is.

Is 25% high? Sure, at the same time, there is an obligation for the client to stick their hand up when there is a problem.

• Part of the reason my scope of service has the statement:
• We do expect to hear from you if/when the following happens:
• Followed by a list of risk change triggers.

Coming back to my "not a funeral plan" comment. The contract premium terms need to be clarified in the FSCL reporting. Are these YRT or level premiums?

If it's a level premium funeral cover, then with inflation on superannuation payments, the starting premium for the client would have been significantly higher than 25% of their income in 2007! Unlikely.

This suggests it's a YRT contract. Which you could argue wasn't the best choice at the time for someone age 68, and a level premium would have been far better knowing the rate of annual increases to come.

At the same time, it was back in 2007 before the current (2021) and prior (2011) regulation changes and anything goes. This case pre-dates any requirement for advisers to be registered or qualified! It's also before the GFC too!

The adviser stated they approached this as the cheapest coverage for the client at the time, which reinforces my view this was a YRT contract.

So far, I'm not seeing the professional advice issue under the current, or even the old, regulations here if the adviser had been doing the minimum annual contact for a review. Which seems to be where things have settled.

• Not enough, in my humble opinion, but I don't get to set this requirement.

My outside looking in thoughts are:

• Servicing for older clients across the industry needs to improve.
• Regular contact is more than a couple of letters from the insurer and adviser. But this is not mandated anywhere in the rule book.
• All advisers need to consider active engagement with clients, but that's not the issue here with either the current or old rules.

I have more thoughts on this case and they will be in another column soon.