Regulation of Life Insurance Advisers in Australia
- Advisers are legally required to disclose all payments they stand to receive through the provision of their service.
- Each adviser must present the client with a Product Disclosure upon the sale of a financial product.
Many research reports carried out both in Australia and across the globe have indicated that a key factor behind underinsurance is a lack of trust from clients towards both life insurance companies and life insurance advisers. Unfulfilling claim commitments, unfair commission structures and lack of awareness and understanding of client's actual needs are some key beliefs held behind this lack of trust. A 2010 report from RiskInfo found that as much as 77% of Australian consumers would prefer to make their own financial decisions as oppose to enlisting the services of a registered financial adviser.
Advisers have and always will make up a significant portion of the financial services industry in Australia. It is important for anyone looking to receive assistance from a financial adviser when finding life insurance to have a clear understanding of the responsibilities of the financial adviser in the provision of financial advice to clients.
Regulation of Advisers Under the Financial Services Reform Act
The Financial Services Reform Act 2001 offers protection to consumers in their dealings with banks, building societies, credit unions, insurance companies, managed funds and superannuation funds. It controls the licensing of financial advisers and outlines strict legislation around their responsibilities as licence holders and authorised representatives acting under licensees.
Regulation of the Provision of False or Misleading Information
Under the Corporations Act of 2001, advisers are regulated from providing false or misleading information that is likely to induce the client into purchasing a financial product. It is an offence regardless of whether or not a product was purchased.
Misleading or Deceptive Conduct
Legislation is in place to prevent advisers withholding crucial information on a relevant matter or even making a genuine mistake in the provision of crucial information. Deceptive conduct is also recognised in failing to inform the client of crucial information on the product.
Fraudulent Attempts to Sell
The Corporations Act 2001 places tight control over advisers giving reckless recommendations that are misleading, false and deceptive to the client. This will also include not revealing facts that are central to the client’s purchase of the product.
The Corporations Act of 2001 recognises unconscionable conduct as that which treats other people unfairly, especially if the person suffers from a disadvantage i.e. selling a financial product to an illiterate person and not clearly explaining the benefits and features of the policy.
Responsibilities of Financial Advisers in Giving Life Insurance Advice
First Meeting with Financial Adviser
Financial advisers are required to provide clients with a financial services guide which basically ensures the client has a clear understanding of who the adviser is and how they will be remunerated for their service. It must contain details of the service that is being provided, any remuneration benefits they are entitled to, disclosure of key information and details of how the client can make a complaint and how that complaint will be dealt with.
The Provision of Advice to Client
The corporations act outlines clear requirements for advisers around having reasonable basis for the advice being given. Advisers must investigate relevant circumstances of the client, make investigations into the subject matter of the advice and provide advice that is appropriate for the situation.
Failure to provide appropriate advice is an offence and action can be taken by the client for any damages that are incurred as a result.
In the event that the adviser is not authorised to provide advice on products that are relevant to the client’s situation, no advice can be provided.
Provision of Statement of Advice
All advisers are required to provide clients with a document known as the Statement of Advice that records the advice that will provide:
- Details of the licensee and authorised representative
- Summary of the reasoning behind clients need for advice including details of the client’s personal circumstances, financial products to be considered and justification for the advice that has been provided
- Full disclosure of any remuneration that the adviser stands to receive from the advice provided
- Upfront commissions
- Trailing commissions
- Other benefits payable
Statement of Additional Advice
It may be necessary in some circumstances for the adviser to provide what is known as a statement of additional advice. This may reference the previous statement of advice and must be read with the original SOA.
Sale of Product to Client
Upon recommendation of a particular product to a client, an adviser must provide the Product Disclosure Statement (PDS). The PDS outlines the various benefits and features of the policy, any fees, benefits and risks of the product, how complaints can be made, details of the products cooling-off period and other information central to the client’s decision to apply for the policy.
It is the adviser’s responsibility to ensure that the PDS is up-to-date.
Life Insurance Adviser Commissions
As noted previously, it is important for the adviser to disclose to the client all relevant details around how they are being paid. This includes any commissions received from the insurer and any additional benefits. Some advisers will charge a fee to clients for the time spent to receive the advice.
It is important for all customers to have a clear understanding of how the adviser is paid to avoid being overcharged for the advice given or to be sold a product purely for the advisers benefit.
So what are the Benefits of Working with an Adviser when Buying Life Insurance?
People looking to take out cover can benefit from the advisers knowledge of the insurance market in terms of the different providers and product options available. Life Insurance advisers are able to compare hundreds of options and clearly explain what features and benefits are relevant for the policyholder’s situation. They will know what special offers are currently available know what insurers are more likely to provide competitive premiums to applicants in certain situations. What's more, an adviser will assist the client throughout the application process by helping them organise all of the necessary documentation and submitting to the insurer on time.