Are life advisers expected to recommend the ‘best’ product?

Excellent points, Steve. I agree that the term "best" is being perverted and missing the point. Best is the best product for the client's unique circumstances. This was also a discussion point with the code working group before our code of conduct was finalised. The premise of choosing the best product based on external research, product, premium, service, etc., misses the point that, dare I say it, direct and vertically integrated providers have a place in the market. On the premise that cover on a shoddy bank policy is better than no cover at all, and this is a suitable place for people to be while they wait to find an adviser to give them real advice. By the same token, someone wanting a basic policy after having a comprehensive cover, trading a cheaper premium for fewer features and a smaller scope of claim is also perfectly fine. However, in this case you better damn well document it if you're advising this sort of change! There is nothing to say an adviser has to offer the best product features, the best price, or the best anything else. It comes back to the adviser providing a well-informed client with options for their particular set of circumstances, needs, risks, and preferences. This is where the best option(s) for the client lies. This goes along with the outdated idea that you have to present three provider options to clients; this is also rubbish. It would be unusual if you are tackling advice as I've outlined to find more than one provider that suits. TBH, if you have more than one option, you're probably not asking enough questions! Also too, with the limited number of providers in the market if you are advising a menu of 50-60% of the options, are you really doing your job as an adviser?

Steve I think you are bang on with this one. Suitability is key and ensuring you have rational for suitability. I have seen many young advisers over the past 10 years who have swallowed the story from one version of research that a particular insurer's product rates high and therefore its the best. Often, they have become caught up in mob mentality, and it is a very lazy default. They reinforce the marketing stories believing perhaps their is only 1 insurer that does this or that and selecting tales to rationilse this view. A rating model does not rate insurer suitability. Does an insurer have better-skilled underwriters who can, with great skill, determine a better solution for a client who may have a specific condition? Many young advisers over the past 10 years have almost become "tied agents", defaulting to a marketing story and little shiny features, many quite meaningless. They have become myopic fanatics and have not taken time to consider the whole market defaulting to a version of research. With most of our insurance suppliers, their products function at the core and claims are paid. I know the FMA will not accept an adviser using the, "well, they rate the best" as sufficient rationale for suitability and marketing only 1 insurer. Also, using that same phrase for changing a client's insurer. Keep going with this subject Steve, there is more in this.

Well said Backstage! bang on!

How many Tim's does the word "best" appear in the code? Zero. Advisers must give financial advice that I'd suitable. End of story. And suitability has a lot more to do with the client circumstances than stars.

I concur with the previous comments and believe Steve has touched on an issue that predates the latest regulations and remains as misunderstood as ever. As I see it, our role as professional risk advisers is not to play product reviewer or echo the conclusions of rating houses. We are not (or at least should not be) in the business of copy-and-paste recommendations. Our job is to assess and help the client understand the actual risks they face, clarify their objectives, and then recommend solutions that best fit those. Just this morning, a bank manager at BNZ asked me, “Who has the best products in the market?” My answer was simple: “Best... for what?” A product might have bells, whistles, and a gleaming gold star from a ratings agency, but if it comes with exclusion’s or loadings it’s hardly a ‘best’ anything. Suitability is everything. And that includes knowing how a client is likely to be underwritten, which is often where the rubber hits the road. It’s not much use recommending a policy with exceptional cancer benefits if the client is going to be excluded for cancer due to a history of polyps. In short, I don’t believe that we should be looking for who’s the “best.” I believe we should be looking for the “best fit.” And that’s a very different thing!

From my two FMA audits, I believe the regulator just needs a reasonable and logical justification for why you selected a particular insurer. If you can't provide one and the product selected just happens to pay the highest commission in the market, then problems could be coming your way.

"I know the FMA will not accept an adviser using the, "well, they rate the best" as sufficient rationale for suitability and marketing only 1 insurer. Also, using that same phrase for changing a client's insurer." That's an interesting thing to 'know' with such clarity. It's a good discussion point, but if you want a more realistic glimpse of what is likely to happen here in the future, speak to those involved in the Australian market about the removal of the 'safe harbour' provision in their financial advice regulation. Not only is it likely that product research into features and benefits likely to become more necessary, not less, but it also seems more and more likely that the actual underwriting terms offered across the entire market will need to be considered. Sounds good, right? In theory this might be true if all insurers were roughly of equivalent standard in underwriting and product with minor divergences. In practice, this will likely mean it's actively wrong to NOT market only one insurer for the majority of cases - whichever insurer currently has the best product to price to underwriting ratio, and marketing any insurer other than that one will be actively breaching regulation.

Well said! The FMA is going to act on answers to questions asked that don't put the client first. Mentat’s point on considering all of the market variables is what we all should be considering. Yes, its more work, but that's what we’re paid for. This is also where good scope definitions are critical. Its fine to state you only consider one insurer; you could go as far as saying you only provide $500k life cover contracts from one insurer. If its scoped and disclosed appropriately and the client accepts that scope of service, then go for gold. But don't expect that client to remain one, because another adviser explaining all of the above will pick them up in a heartbeat.