Australian Financial Services Licensing (AFSL) Forum

This topic contains 2 replies, has 2 voices, and was last updated by PeterRM peter 2 years, 11 months ago.

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  • #5257 Reply

    Jason

    <p class=”MsoNormal”>I have a compliance/ BOD question I would like some help with.</p>
    <p class=”MsoNormal”> John Smith has 4 superfunds and wanted assistance in consolidating his super and have his insurance reviewed.</p>
    <p class=”MsoNormal”> It was recommended by a previous advisor (not me) that he consolidate his super to a platform which has cheap fees, transparency etc etc that he was wanting (the recommended superfund was cheaper than all of other funds he had, and also had better 5 year returns)</p>
    <p class=”MsoNormal”> He only has insurance in 1 fund. Money was left behind to maintain that insurance and the client was referred to me to provide insurance advice.</p>
    <p class=”MsoNormal”> He is currently a labourer, and so can only get ADL TPD. His current superfund has TPD Any Occupation. So the current TPD definition is better than what he can get via his new superfund.</p>
    <p class=”MsoNormal”> What would be considered “In His Best Interest?”</p>
    <p class=”MsoNormal”> If we apply TPD ADL via his new superfund, it fulfils his objective of having insurance cover and also consolidating his super into 1 fund. However his insurance isn’t as good as what it was. The new cover amounts are more in line with what he needs, but the TPD definition is worse.</p>
    <p class=”MsoNormal”></p>
    <p class=”MsoNormal”></p>
    <p class=”MsoNormal”>If we leave money behind in his current superfund to maintain his current insurance and apply for additional/ top up insurance via his new fund, with an ADL TPD definition, he gets the insurance cover amounts he needs/wants, however, he would have 2 funds which is not what he wants. So we achieve a better insurance outcome, but not the superannuation outcome. We also cannot act as an advisor on the fund that has insurance – they do not allow it – so we couldn’t maintain or make sure that insurance stays active. the client, would</p>
    <p class=”MsoNormal”> We cannot top up his existing insurance.</p>
    <p class=”MsoNormal”> Its like we can’t give the client everything they need or want to achieve. How do you, or how can you determine whats in the clients Best Interest? The clients would rather have 1 fund and ADL TPD definition, but I think that is because they don’t really understand, although we have discussed it at length, the different the definition will make comes claim time.</p>
    <p class=”MsoNormal”></p>
    <p class=”MsoNormal”>Any help or assistance would be appreciated.</p>
    <p class=”MsoNormal”></p>
     
    <p class=”MsoNormal”>Cheers</p>

    #5295 Reply

    Hi Jason,

    Thank you for your post.

    The Compliance Forum is a general forum for discussing compliance issues.  As your enquiry raises technical legal issues regarding the application of the best interest duty obligation to your specific financial situation, we recommend that you seek legal advice.

    Our financial services team can assist you with your query should you wish to progress it further.

    Otherwise, you might wish to consider ASIC’s guidance in RG 175 and ASIC’s report on retail life insurance advice in Report 413.

    Author: Jesse Vermiglio (Partner)

    #5302 Reply
    PeterRM
    peter

    You need to be mindful that whilst the client has requested the consolidation of funds it is your role to outline the key risks and the benefits of your strategy. You will be able to retain an authority on the existing fund to always obtain information and most funds allow rollovers to top up cover. However, if you had explained all the risks and the client continued to express his desire to rollover for consolidation purposes then document this in the AtP and file notes which illustrates you have had the discussion and has continued to request to rollover.

    To be honest the two covers are miles apart in definition (ADL and Any Occupation) and being a labourer they are most likely one of the highest risks for insurers in TPD and TSC/IP, not to mention TPD (any occ) is possibly not offered by insurers due to risks. Says enough.

    Have a discussion with the client.

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