note: the authors, , may not be disclosed without express...
TRANSCRIPT
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ResponsetoCP284To: [email protected]
Due: 12July.2017
From: FirstMutualAustraliaPtyLtd,AFSL423710
Note:Theauthors, ,maynotbedisclosedwithoutexpresswrittenpermission.
Re: SampleSoAinCP284
Thefollowingisinfoursections
1. ResponseintheformatoftheexampleSoAinCP284+pointsspecificallyaboutnominateditems2. Commentsinrelationtotheadvicebeingshownintheexample3. Arecommendedstructure4. Analternative(compromise)structurefortheSoAinthestyleputforwardbyASIC
WewouldbemostwillingtobeinvolvedonaworkgrouptoaddresscontentandsizeoftheSoA.
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2. CommentsreAdviceintheExampleProvidedinCP284
Page1-CommissiondisclosureASICseemstobeintending(onbehalfofthegovernment)toeliminatecommissionsonliferiskproductsassoonaspossible,expectingFeeforServicetobeutilised,adirectinitialchargetotheclientinsteadofanindirectchargetotheinsureroverthelifetimeofacontract.Theunderlyingassumptionseemstobethatmumanddadandsmallbusinessclientswillbehappytopayfeesaround$3,000-$4,000forscaledriskadviceandimplementationoftheproductrecommendations.Noserviceproviderwouldpresentaproposaltoaclientwiththefrontpagesolelyoccupiedbythedetailoftheupfrontfeestobepaid asitisillogical..Generally,noriskadvisorhasaproblemwiththedisclosureofcommission,ifit’sinatimelyandappropriatedisclosure.Experiencedriskadviserswillbringthematterofremunerationupverysoonintothefirstappointmentwiththefactgatheringexercises,becausetheydon’twishtoruntheriskofhavingtheadvicerejectedatimplementationstagebytheclientbeingdistractedbywhatmayappearinitiallyasanunreasonableamountofremuneration.(Clientsmustbeconstantlyremindedofthecostsofrunninganadvisorybusinessandareusuallyamazedwhenadvisersgivethemareasonablydetailedlistofcosts.)Ifpage1oftheSOAistocontaindetailsofthecommission(asillustrated)whichmaybepayableiftheproductsaleiscompleted,thenthelifeinsuranceadviceindustrywillfold withtheresultbeingthousandsoutofworkandmillionswithinadequateinsurancecoverresultingonanadditionalburdenongovernmentbenefits.Thereisnoobviouslogictothisrequirement.Wedon’tknowwhyASICofficethinkthatdisclosureofthefirstandsecondyearcommissiononpage1oftheSOA,Noexperiencedliferiskadvisorwouldrunthechanceoftheclient,whohadpreviouslyagreedtoproceedontheprinciplethatcommissionswouldbepaidbytheproductmanufacturertotheadviserafterthepolicieswereinforce,changingtheirmindwhentheysawthedollarvalueofthecommissioninthetableintheSOA.Advisersjustdon’tdothat-it’stoorisky.Adviserswillalwaysbringthecommissiontotheattentionoftheprospectiveclient
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Oneeasysolutiontothisexpressionofunwarrantedconcernaboutnon-disclosureofcommissionbyadvisersisthatAdviserscouldberequiredtohavetheclientinitialanddatethecommissiondisclosuretableinthefilecopyoftheSOA,atthepointofsigningthe“AuthoritytoProceed”attherearoftheSOA.Page2“Attachments”Thetableofcontents(index)shouldbeonapagebyitselfsotheycanbeeasilyreadataglance,notcrowdedout.
Itisincorrecttostate“eachPDSisaboutaspecificfinancialproduct”.Noneofthe12primaryretailinsurershavePDS’swhicharelimitedtojustonetypeofinsurance:PDSscontaininformationonalltheofferingsofthatinsureracrossthelinesoftermlifeinsurance,TPDcover,traumacoverandincomeprotection meaningclientsarereceivinginformationthatisirrelevanttothem.MostPDSsareover40pagesofveryobtuselegalisticlanguage,andtheymaybeconfusingtoeventhemostknowledgablyconsumer,particularlyifthePolicydocumentisalsoincluded.Forexample,mostPDSscontaininformationonthe“professionallevel”incomeprotectiononofferbythatinsurer,aswellasthe“tradesmanspecial“withasimilarname.AdvisersprovidethePDStoclientsbecausenotonlyisitalegalrequirement,thePDScontainsdetailsoftheproducttheadviserisrecommendingandalsotheapplicationformandtheadviser’s“signoff”ontheinterimcoverwhichexiststhemomenttheclientsignstheapplicationandprovidesaninstrumentforthefuturepaymentofthepremiumsSOAscontainanAuthoritytoProceed,andeachoneofthoseauthoritiescontainreferencestoPDSsassociatedwiththeparticularriskproductsrecommendedPage3–PersonalDetailsWhydoesthefactfindhavetoberepeatedonpage4ofanSOAwhentheclienthassignedthatthefactfindisaccurate?ToinsistontheFactFindbeingrepeatedintheSOAmerelytoassuageauditorsdoesnothingforclientcommunication.However,thatdoesnotstoptheadviserfromreferencingintheSOAaparticular“fact“inthefactfindertojustifyparticularadvice.IfASICisgoingtoinsistonthefactfinderbeingrepeatedonpage4oftheSOA,thenit’sprobablybetterthatthefactsbecompleteandaccurate.Forexample,itisassumedbasedontheinformationprovidedintheASICsamplethatBradworksinprivateenterprise.UnlessBradisworkingforanoverseas
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basedITcompanyoperatinginAustralia(earningmorethanthe$85,000peryearshown)noAustralianprivatebusinesswillofferafacilitytoaccumulative
sickleavebeyondthestatutory2weeks.TheamountofsickleavethatBradholdsallowshimintheorytoruna90-daywaitingperiodonhisincomeprotection,whichisinfact120daywaitingperiodwhenyouallowfortheextramonthforthefirstpaymentofbenefit.Recommending90daywaitingperiodsforincomeprotectionbasedon,ifnotactuallymatching,accumulatedsickleaveoveronemonth,isahigh-
riskstrategy.AsnotedaboveBradmayhaveeliminatedhis90-daysickleavecreditsbyaseriesofshortsicknessesbeforeheisforcedoffwork.Butthereisoneotherdanger:ifBradhasaperiodofTotalDisabilityofsometwoyearsandissuchavaluablepersonthatwhenhisdisabilityendshisemployerwantshimtoreturntohisoldjob.AtthispointBradhasadilemma,broughtonbypoorstrategicadvice.Hissickleavecreditsarenolongerinexistenceandifthesamedisabilityre-occurs,oranotherdisabilityoccurs,Bradwillbewithoutpayfor120days.WhatisrequiredhereisaquestionofbalanceandaseriousdiscussionwithBrad,highlightingthefinancialstressthatwillbeinvolvedinnormalsituations,butalsobecausehiswifeworkspart-timeforaverylowwage,andmayevennotworkforthatwagesifshemustcareforhimathomebecauseofhisdisability.
Twootherissuesstandoutofthispageofincompletepersonaldetails.• WhatisthebasisforthefamilyhistorystatementofBrad?• Theassetsandliabilitiestablelists“Ozindustry”asbeingZara’ssuperannuationfund.Itiscriticallyimportanttonotewhethertheinsurancecover
isdefaultcover,theageitstartstospiraldowntozerocover,anddoesthatconflictwithidentifiedneed.Alternatively,thecovermayhavebeenpurchasedafterunderwritingfromthefundoneitherafixedcoverbasis,oristhebenefitsubjecttoCPI.
Allofthatinformationisofhugerelevance.Thisinformationingreaterdetailshouldbeinthefactfinderandnotstraddlingpage4ofanSOA.
Page5Thisinformationshouldbeinthefactfinderonfile,notintheSOA.Afterall,theclienthasverifiedthefactfinder.IfASICisgoingtoinsistthatthisinformationshouldbeinthefrontoftheSOA,thenitmustbequalified.Thereisnodetailonwhetherthesuperannuationcoverisdefaultorpurchasedfromthefundwithunderwriting,averyimportantdifference;thereisnostatementthatthereisnoincomeprotectionincludedintheinsuranceofferingoftherelevantsuperfunds;moreimportantlythestatementthatBradhas$200,000TPDinsuperismisleading,becauseittakesnoaccountofthelumpsumTPDtaxwhichisapplicable,dependingonageandvariousvariables,atarateofaround20%.Bradinrealityholds$160,000ofAnyoccupationTPDcover.
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ThereshouldbeawarningintheSOAregardingthedefaultinsuranceheldinapublicoffersuperannuationfundwheresuchcoveristobereliedon;thatthedefaultcoverwillreducefromaroundage35toapproximatelyzeroatage65,andif,atacertainage,theclientisanticipatinganincreasedneed,andthatthelevelofcoverwouldhavetobeobtainedelsewhere(subjecttogoodhealth)ifthereducingfundcoverisretainedandlosingitsvalue.ItisnotuncommonforcouplestodownsizeandincreasetheirdebtwhenchildrenleavehomePage6ASICwarnabouttheuseofinsurancejargoninadvicedocuments.Yettheclientusesthephrase“comprehensivepersonalinsurancecover”.Whatexactlydoesthatmeaninthecontextofthisclient?Thisadvicehasaconsistent,mainflaw:theleveloftraumacoverand/orownoccupationTPDcoverisalarminglylow.Considerationshouldhavebeengiven,inthecircumstancesofthefamilysupportingtwoteenage/youngadultsineducationononeandahalfsalaries,topurchasingatraumapolicydesignedtotakeoutatleasthalfofthefamilymortgage,and,ifnecessary,reducingtheamountcalculatedforuninsurablemedicalexpenses.Thereshouldhavebeensomeannotateddiscussionastothemeritsorotherwiseofprotectingthatmortgagetoagreaterdegree,ifsomethinghappenstoZara,givenherlow-wage.Theremaybeanaffordabilityissueandperhapsthefutureplanstoeliminatethemortgageearlier,orputmoreintosuper,mayhavetobebalancedoutwiththeneedtoprotectthatmortgageifseriousillnessstrikes.The phrase “you would prefer any personal insurance premiums to be funded using your superannuation benefits” is jargonistic and should beaccompaniedbyawarningabouttherapidlydecreasinglifeandTPDpremiumsinsuminsured(orcoverage)inpublicofferfunds,ifthatisthecase.
Page7Ifthereisasimpleonesentencereferencetothecollectionoffactsavailableinthedocumentsignedbytheclientcalledthe“FactFinder”thisiswheretheSOAshouldstart.ThediscussionsonwhatBradwantshisTPDtodoshouldcontainreferencetothehighcostofhomemodificationswhenoneofthepersonslivinginthehomeisdisabledtosomeextent.Usuallythiswillinvolvemodificationsofbathrooms,kitchensandentryandaccesstothefrontandbackdoors.$100,000coulddisappearveryquicklyjustonmodifications.Withoutprovisionforreasonablehomemodifications,themaintenanceof“currentlifestyle”couldbedifficult.Asmentionedabove,thetraumarecommendationsinthisSOAaresubstandard.Firstpriorityshouldbetopayingoffeitherallorasignificantproportionofthemortgage,andthismayrequirerenegotiationwiththebanktoreducemonthlycommitments.TherecommendationinthisSOAisforasumof$50,000tobemadeavailabletocovertwoyearsofmortgagepayments,whichintrinsicallypresumesthatthefamilyhasthedisciplineto
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retainthatsumofmoneyinanuntouchableaccountwithadrawdowneverymonth,inanenvironmentwheresomeorallincomemayhaveceased,asinthecaseofZara.Traumaclaimsareatimeofhighstress,andmostclients,ifproperlyadvised,willunderstandtheneedtorelievethemainnon-medicalstressintheirlives(theirmortgage)whenaseriousillnessorinjurystrikes.Solutionsshouldbediscussedandnoted,andcompromisesmayhavetobemade-that’sthenatureofouradvicebusiness,butproperlyinformedclientswouldprefertofindthemoneyfortheadditionalexpenseifitgivesthemoptionsatthetimeofsuchaseriousissue.Page8There is a philosophical debate illustrated on this page. Investment advisers advising on risk favour the utilisation of the surviving partner’s superaccumulationtocalculatetheamountofinsurancecoverrequiredondeath.Manyriskadviserswouldarguethatinmostcasesthat,thelowerearningpartnerhasverylittlesuperannuationaccumulation,andthataccordinglythehusband’saccumulation,(unlessitisasignificantamountofmorethan(say)$500,000)shouldbecreditedtothewife’ssuperannuationaccumulation,oraccessedbyhertocommenceapensionifappropriate.
Thecheapestformofinsuranceinanyfinancialplanislifeinsurance,andinmostcasesaccessingtheavailabilityofherhusband’ssuperannuation
fundbalance for the sakeofa fewpennies tobe spenton insurance isnotgoodpractice. Zarawill needall thehelp she canget tobuildupheraccumulationintheremainingyearsofherworkinglife,inordertohaveareasonablestandardofretirement,intheabsenceofherhusband.Thisadvicerecommendstheutilisation,ifBradhasaseriousillnessorinjuryandistotallyandpermanentlydisabled,oftheTPDpayoutcontainedinhissuperannuation.Thereisnoparticularmentionthatsuperannuationbenefit,ifcontainedina“splitpolicy“,isfirsttestedontheSISAnyOccupationtest,which means a requirement to prove serious and significant severity in the total & permanent disablement. It’s not clear in this advice whetherconsiderationshouldhavebeengiventotheuseofOwnOccupationTPD(it’soutsidesuperbutit’smuchmoreappropriate)tocanceloutthemortgageoncertificationofTPD,whetherornotina“splitcontract“.
Page9Thisisacontinuationofpage8inthatitsetsouttheinsurancerecommendationsforBrad.Asmentioned,thisandearlierreferencestoBrad’sincomeprotectionshouldcontainreferencetothedangersofmatchingsickleavewithawaitingperiodwhentheaccumulationofsickleaveismorethan30days.Therealsoshouldbementionedthatincomeprotectionbenefitsareassessablefortaxation.
There is also amore appropriatemethod tobeused in the calculationof hismonthlybenefit. Brad salary is $85,000per annumandhis employercontributes9.5%of$85,000tosuperi.e.histotalremunerationpackageis$93,075.Basingthebenefitonthetotalremunerationgivesamonthlybenefit
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of$5,817.CalculatingitinthismannerallowsBradandSaratodecidewhethertheycanaffordtocontributetowardsBrad’ssuperannuation,orretainthatmoney,evenonamonthlybasis,tomeetmedicalexpensesandongoinglifestylecosts.ItaddssomeflexibilitytoasituationwheresavingswillbeexhaustedafterdisabilitystrikesandnoonehasthecapacitytosavemoneyafterafewmonthsofbeinginreceiptofbenefitsPage10Thereisnoparticularmentionastohowlongtheincomestreamof$30,000peryearistolast.Anycalculationofareplacementincomeneedafterthedeathofaspouseshouldnever,relyuponacontributiontohouseholdexpensesfromteenagersengaginginsecondaryeducation.Thatisindeedararity.TheTPDcalculationinvolvingreplacementofincomeshouldalsoaddressprovidingsomefundsforcarecosts,afterdiscussionwiththeclient.Page13The intention in the product overview for Brad. Is the TPD cover recommended being sourced from super (any occupation TPD) or non-super,OwnOccupationTPD.Isunclear.ThenthereisareferencetotheTPDdefinitionandtheuseoftheword“unlikely”asthoughitweretobepreferred.IassumethatthewriterofthisSOAbelievesthatanAnyOccupationTPDdefinitionwhichusestheword“unlikely”(inpreferencetothewords”unable”) ispreferableandindicatestheavailabilityofsomegreaterlevelofgenerosityinthedecision-makingprocessoftheTPDclaim.InApril2016TAL&MetlifevShuetrimresultedintheNSWAppealCourtdeterminingthatinthecircumstancesofaninsurerdecidingwhethertopayanAnyOccupationTPDsuperclaim,thewords“unlikely”and“unable”heldthesamemeaning.IntheTPDrecommendationsforZarathereisnomentionwhatsoeveroftherapiddrop-offofdefaultcoverdeathandTPDcoverinmostnot-for-profitsuperfunds.IfanindustryfundistoberecommendedtoholddeathandTPDcoverthensurelytheclientmustbewarnedofthestagingofthecoverreductionsthatstartataroundage35,rapidlyescalatingtoage60.Page15Mostnotforprofitsuperfundshavenowinstitutedfeesspecificallyfortheprocessingofrolloversforinsurancepurchasedoutsideofthatparticularsuperfund,aswellas limitingtherolloverstooneperyear.Thosefeesandtheactualpremiumalso involvebuy-sellcharges.Secondlytheso-called“enduringrollover”isnotalwaysavailableandcertainlynotalwaysabletobesetuponautomaticbasis.
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Page16Thereareseveralerrorsofdefinitionsinthisdocument.InthesectionheadedRisksofmyAdvicethereisareferenceinbulletpoint3toaTPDpolicywhich“leavesyouunabletoworkinyourownoccupation”.Ifthisstatementisnotclarifiedbytheinsertionofthewords“leavesyoutotallyandpermanentlyunabletoworkinyourownoccupationquote”thenitis effectively a description of income protection, not lump sum total and permanent disablement cover. It is extremely important that the clientsunderstandthatTPDofanydefinitionalstructuremustbetotalandpermanentbeforeaclaimisconsidered,andshouldnotbeconfusedwithTotalDisabilityinanincomeprotectioncontract,otherwisetheclientisbeingmisledbytheadvice.ThereisnoreferenceinthisSOAtothequalifyingperiodofeither3or6monthsbeforeaTPDclaimofanytypecanbelodged.Insomecircumstancessuchadelaycouldcauseconsiderablefinancialstress,evenbeforeaclaimhasbeenassessed.InFourthbulletpointthedescriptionsoflifeinsuranceproductsrequirepreciselanguage,astheymaybereliedonbytheclient.OnewouldhaveexpectedmoreprecisionifthisSOAwasauthoredandapprovedinitsfinalformbyspecialistriskadvisers.Page18Inrecommending$1,110,000deathcoverforBrad,theSOAnotesthatthequotes“amountoflifecover(ifinvested)willgenerateenoughtoreplace50%ofwhatyoucurrentlyearn”.Thefirstissuethatshouldbeaddressediswhetherwearewediscussinggrossincomeornetincomeaftertax.Thenextissuethatshouldbeaddressedistheactualpercentageofincomebeingsought.Forsomeyearsithasbeenaconventionamongstriskadvisersthat75%ofnetincomewasafairandaccuraterepresentationofwhatwasneededtoreplacetheincomeoftheprimaryincomeearnerinafamily.Settingthatincomefigureat50%of(?income)Isbelownormalpractice.Itisalsoessentialtoestablishandreiteratehowlongtheincomeistobegeneratedfor.
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Page19Thefirstsectionheaded“whyitisappropriate”containssevenbulletpoints.Therearepreviouslynotedomissionsinpoint3wherethewords“totalandpermanent“aremissing.Point4isinerror noTPDjudgementinsuperoccurswithoutthesupportingopinionsoftwomedicalspecialists,not“adoctor”.The fifth point regarding terminal illness omits theperiod forwhich terminal illness is required to havebeen certified by two appropriatemedicalspecialists.Thesixthpointmakesaclaimasto“superiordefinitionsprovidedbyMNO”withoutanyjustificationonwhatis,bynecessity,ahardtoproveclaim,particularlywhenaclaimfails.Thispointrequiresclarificationandthat’swhatariskSpecialistwoulddo.ThenextsectionontraumaisconfusingwhenreadinrelationtoothercommentselsewhereintheSOA.Theinterpretationoriginallywasthatthetwoyears’ payments were to provide a ”payment holiday”. This section now talks about “a lump sum mortgage reduction equivalent to 2 years’payments”.Thatstrategywouldhaveimpactonthelevelsofmonthlyrepaymentsunlesstheloanwasre-negotiated,alwaysaprocesswithissues.Thethirdsectiononthispagetalksabout“partialpaymentsforcertainconditions”andqualifiesthatstatementbysaying“otherprovidersoftrauma
coverwillnot”.Withperhapsoneexception,allthequalityretailtraumapoliciesofferaformofpartialpaymentforcertainconditions.Usuallythatprovisionisanextracost,butinsomecasesitiscontainedintheregularpremium.Thisstatementrequiresclarificationandaccuracy.Onpage19thesectionregardingMNOinsuranceonceagainlacksprecisioninthesecondpoint,byfailingtoqualifythelayman’sdescriptionwiththeword“permanently”.Theimportanceofusingafulldescriptionandincludingthewords“totalandpermanent”cannotbeoveremphasised,because
withoutthosetwowordsnoclaimforTPDwilleverbepaid.Asitstandstheclauseismisleadingtheclient.Page20Point5shouldhavecontainedareferencetoaBindingDeathNominationanditsprovenadvantagesoverastandardnomination.Page21ThisSOArecommendsthatZararetainhercoverintheOzindustrysuperannuationfundandgoesontosaythat“itstermsanddefinitionscomparedwelltootherproductsavailableandthecostofcoveralsocomparedwell”.
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IndustrysuperannuationfundshavetheirinsurancetermsandconditionssettoaminimumlevelbytheSISAct.Inrecenttimesmostindustryfunds,facedwitharapidlyincreasinglevelofTPDclaims,haveattemptedtorestrictthepaceofthoseclaimsbyadding“severity”totheirTPDdefinitions.Itisnowcommon,tofindarequirementfor“rehabilitation”hasbeeninsertedintowhatisarelativelystandardTPDdefinitioninindustryfunds.Inaddition,someindustryfundshavegiventhemselvesanentitlementtospreadoutthepaymentsofaTPDsum,andthereforenotpayitinaonelump
sumofasizesuitableforpayingoutasubstantialcapitaldebtsuchasmortgage.Thememberclientwouldnormallybeexpectingalumpsum,minusthelumpsumtax.It’sprudentthatwhenrecommendingthataclienteither joinsan industryfundfor insurancecover,ortheadviserrecommendstheystaywiththatparticularindustryfundfortheirinsurancecover(andinvestments),thatawarningmustbegiventotheclientthatthereisapotentialforthetrusteeofanyindustryfundtoseektocontainTPDclaimsevenfurtherandtightenupTPDdefinitions,aswellisspreadthepaymentsoveraterm.Thissituationappliestoeitherdefaultcoverorpurchased(underwritten)deathandTPDcover.Thereisnoprovisioninretailinsurancewhichisnon-cancellableandguaranteedrenewablewherebyaninsurancedefinitioninacontractcanbechanged,positivelyornegatively,withouttheexpressapprovalofthepolicyholder.Becausethepolicyowner,inthecaseofindustryfunds,istheTrustee,it isexpectedthatTrusteesmaycontinuetodemonstrateacapacitytochangetheinsuranceruleswithoutmemberconsultation,priortotheevent.
Page23There isadeficiency inthesectionheaded“whatmyadvicedoesnotcover”,withtheadviserhavingexcusedhimself fromincludinganydiscussiononchildinsurancewhenadvisingafamilywith2children.Childdeathcoverandtrauma insurancecanbeattachedtoanynon-superadult life insurance,TPDortraumacover. It is relatively inexpensive. Itspurposeistoprovidefundsforafamilywhohasachildorateenagechildstruckdownwithaseriousillnesssuchascancer.Paediatricandyouthcancers,andsomeformsofneurologicaldisorders,canonlytreatedinthemajorcapitalcities.Itiscommonforparentsofachildstruckdownwithaseriousillness,requiringmanytripstoacapitalcityforinvestigationandtreatment,foroneorbothparentstoseektotakesometimeoffworkandprovidesupporttoeachotherandtotheafflictedchild.Somepeoplehavegenerousemployersbutthegenerosityonlyextendstoacertainextent.SoonerorlatertherewillbeaseriousfinancialimpactonthatfamilyanditbehovesanyriskadvisortohaveatleastaskedthequestionoftheclientsandmakeappropriatenotesonthefilesandintheSOA.Thereisnoevidencethatthathappenedinthiscase.
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3. RecommendedStructureThefollowingisrecommendedstructure,allowingfor:
• Mandatory,legislativerequirements• Providingallinformationinoneplace-necessaryfortheclienttomakeaninformeddecisionwithouthavingtogoandlookforother
documents.
1. Coverpage a. CalledanSoAb. IndicationoftheSubjectMatter,e.g.AdviceinrelationtoRiskInsurancefor[Client]c. Providerd. ContactdetailsofAuthore. AFSLLicenseef. Whatthisdocumentisaboutg. WhyitshouldbeReadh. Expiry
2. TableofContents3. ScopeofMyAdvice
• Whatmyadvicecovers• WhatmyAdvicedoesn’tcover• NotbasedonIncompleteInformation• MyAdviceisLimited• TaxAdvice• ExpiryofAdvice 30days
4. DetailsoftheClient5. Whatyouwant–
a. PrioritisedNeedsoftheClient,b. FeaturesandBenefitsrequiredofasolution
6. StrategicRecommendations,including*Takeoutthesetypesofcoverandtheselevelsofcover*Have12monthlyreviews ongoingService*Covershouldbein/outofSuper
• InsideandoutsideSuper
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• Covershouldbeownedby….7. UseofInsurances
• $10,000forafuneral,• $200,000towardspayingoffthemortgage• $50,000fortheeducationofchildren• Providesasourceofincomeof$xpermonth,
8. ProductRecommendationsa. Specific:InsureDeathviasayAIA,TPDviaMLC,etc.b. HowProductswereSelected,includingwhatproductsolutionswereconsidered
i. Genericii. Specificiii. LevelVsStepped
9. WhatwasConsidereda. MaintainingCurrentandAddingtoitb. WhatProductsmighthaveSuited
10. ConsequencesofmyAdvicea. ‘Self-insuring’b. Maintainingcurrentcoverandaddingtoitc. CompanyaVscompaniesb,c,d,e,etc.
i. Premiumsacrossthe‘lifetime’ofthecontractii. FeaturesandBenefitsagainstthosetheclient/sneed
d. Fulldetailsofthissolution/si. InoroutofSuperii. FandBratings seeAppendixiii. Premiumsoverthe‘lifetime’iv. Whytheadviceisappropriatev. ConsequencesofReplacementvi. Benefitslostvii. Benefitsgained
11. AdditionalConsequences12. Risks13. AdvantagesandBenefits14. WhymyAdviceisAppropriate
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15. Whatelseyouneedtoknowa. WhatmyAdvicecoversb. WhatmyAdvicedoesn’tcoverc. MyAdviceisLimitedd. Feese. Commissionsf. ContinuingReviewServiceg. CoolingOffPeriodh. YourPrivacy
16. AdviserDeclarationa. NoproductAssociationsof
• Adviser• AFSL
b. NootherBenefitsc. FeesandCommissionshavenobearingonAdvice
17. StepstoimplementRecommendations18. AuthoritytoProceed(ClientSignoff)
a. Affordabilityb. Variationsc. AcceptAdvice AuthoritytoProceedd. etc.
19. AppendicesThisareashouldgenerallyholdthedetailedfactualinformationthatsupportstherecommendations,i.e.
• FandBcomparisons• LifetimePremiumComparison ExistingVsProposed• Quotes• PDSs• ReiterationoftheFactFinddata datauponwhichtheSoAisbased.
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Toenhancecomprehensionandreadability:• Objectiveinformationshouldbeintablebasedbulletform notfullsentences• ThereshouldonlybeoneplacewhereAdviceisprovided• General/strategicrecommendationsshouldbemadewellbeforeanyProductrecommendation,e.g.
o Whattypesofcoveredisneededo Howmuchcoverisappropriateo HowaWillandnominationofBeneficiariesshouldbeputinplace
• ReferencestocoverontheClientandPartnermustbecorrecto DeathcoverontheClientisnotforthebenefitoftheClient,itisforthebenefitoftheownersofthepolicy
• Informationshouldbepresentedinalogicalfashion eachcomponentattherighttime• TheIndexshouldbeonapageonitsown.• Eachsectionshouldstartonanewpage• Thefontshouldbenomorethan11pt• TheuseofBoldandItalicsshouldbeminimised onlyusedtoemphasisesmallimportantsegmentsofthetext• Thereshouldalwaysbeasmuch‘whitespace’aspossibleonapage.
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4. AlternativeSampleThefollowingshowsanalternativestructure,acompromiseastowhatlegislatorswouldlikeVswhatadviserswouldpreferandwhatclientsreallyneedtomakeaninformeddecision.Pleasenotethatthetextwouldnotnecessarilybeasdefined.Thatwouldbethesubjectofafurtheranalysis.
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Page1of33
LimitedScopeStatementofAdvicerelativetoPersonalandFamilyRisk
PreparedbySallyChong
ForBradandZaraBlack
31March2017
PreparedbySallyChomgPhone: (03)92803200Email: [email protected]: 12MonetStreetMelbourneVIC3000
Authorisedrepresentativeno.45678ofPlanforitPtyLtdwww.planforit.com.auAustralianfinancialserviceslicenceno.456789ABN: 12345678901
WhatthisDocumentisAboutItiscalledaStatementofAdvice(SOA),whichIamrequiredtoprovidetoyouundertheCorporationsAct2001.WhythisdocumentshouldbeRead:ThisStatementofAdvice(“SoA”)containsinformationtohelpyoumakeaconfidentandinformeddecisionregardingtheadvicewehavegiveninrelationtoyourPersonalRiskinsurance.Ifyoudon’tfeelconfidentinmakingthatdecisionorbelieveyoudon’thaveenoughinformationthenyoushouldnotproceed.Instead,contactmeandIwillassistwhereIcan.Note:Iamrequiredbylawtoactinyourbestinterestswhenprovidingyouwithfinancialadvice.ExpiryTheinformationcontainedinthisdocumentexpires30daysfromthedateitwasprepared.
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TABLEOFCONTENTS Page1. ScopeofmyAdvice 2. YourDetails 3. WhatyouWant 4. StrategicRecommendations 5. UseofInsurances 6. ProductRecommendations 7. WhatwasConsidered 8. ConsequencesofmyAdvice 9. AdditionalConsequences 10. Risks 11. AdvantagesandBenefits 12. WhymyAdviceisAppropriate 13. Whatelseyouneedtoknow 14. AdviserDeclaration 15. StepstoImplementRecommendation AuthoritytoProceed Appendix1 FeaturesandBenefitsComparison Appendix2 LifetimePremiumsComparison Appendix3Quotes Appendix4 ProductDisclosureStatements Appendix5 FactsUponWhichthisSoAisBased
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1. SCOPEOFMYADVICEWhatmyadvicecoversAsagreed,Iamprovidingafullreviewofyourpersonalinsuranceneedstoensureyourfamilyhasadequatefinancialsupportintheeventofdeath,disabilityorillness.Specifically,myadviceaimsto:
• ensureyouarefullyprotectedintheeventofprematuredeath,disablement,seriousillnessorinjuryasdetailedinthe‘Whatyouwant’sectionabove
• recommendappropriatetypesofinsurance• recommendhowtopayfortheinsurancepremiums• recommendsuperannuationcontributionstrategiestooffsettheeffectofinsurancepremiums
onyourretirementbenefits• informyouoftheimpactofthesearrangementsonyourcashflowandyoursuperannuation
benefits• recommendthatyoumakeappropriatedeathbenefitnominationssoyoursuperannuation
assetsandinsurancecoverarepassedoninaccordancewithyourwishesandneeds.
WhatmyadvicedoesnotcoverMyadviceislimitedtotheabove,anddoesnotcover:
• anyotheraspectofyourfinancialaffairs(includingchildinsurance)• thesuitabilityofyourexistingsuperannuationarrangements• whetheryouwillhaveenoughsuperannuationforyourretirement• Icangiveadviceabouttheseifyouwantit,foranadditionalcost
Ø Iamnotataxadviserandcanonlygiveyoulimitedadviceabouttax.
MyadviceislimitedIamabletorecommendproductsfromthePlanforitapprovedproductlist(APL)andproductsthatarenotontheAPL.IfIrecommendaproductthatisnotonthePlanforitAPL,ImustseekapprovalfromPlanforit.
• ThePlanforitAPLisputtogetherbyaPlanforitresearchteamandisregularlyreviewed.Askmeforacopyofthelist,ifyouareinterested.
• WhenIpreparedyouradvice,Ilookedonlyatproductsonthatlistandatyourexistingproducts.• Ididnotlookatotherproductsavailableonthemarket.• Myadviceexpireson30April2017.• Youshouldnotrelyonmyadviceafterthattime,ifyouhaven’tactedonitbythen.
NotbasedonIncompleteInformationTheadviceisbasedontheinformationyouprovidedindiscussionsandintheClientQuestionnaire.Appropriate advice can only be based on complete information and by providing limited information orchoosing toutiliseproductsother than those recommended, you riskmakinga commitment toproductsthatmaybeinappropriatetoyourneeds
MyAdviceisFirst Mutual maintains an approved product list (APL). This means when preparing this SoA I may onlyrecommend products on the APL. The APL is approved by First Mutual’s compliance and investmentcommitteeandsourcesmostofitsresearchfromexternalresearchfirms.
TaxAdviceIamnotaregisteredtax(financial)adviserunderthecurrentAustralianlaw;andIfyouintendtorelyontheadvice tosatisfy liabilities or obligationsor claimentitlements that arise,or could arise, under a taxationlaw,youshouldrequestadvicefromaregisteredtaxagentoraregisteredtax(financial)adviser.”
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4. STRATEGICRECOMMENDATIONS YourPriority Recommended
Priority
IrecommendthatBrad
1. HaveLifeCoverof$1,500,000sothatthereiso $10,000towardsafuneralo $190,000fortheeducationof[Dependent1]o $500,000topayoffthemortgageo $800,000toassistZaratoreplaceBrad’dincome
(generating$32,000ifitwasabletobeinvestedat4%
1
2. HaveTPDcoverof$500,000topayofftheMortgage 23. Replacehislifeandtotalandpermanentdisability(TPD)
insurance,soastoreducethelevelofpremiums 3
4. Retainhisincomeprotectioninsuranceandtakeouttraumainsurance
1
5. TakeouttheLifeandTPDwith[ProductProviderA] 16. HavetheLifeCoverandTPDownedasJointTenantsoutside
Super 1
7. HavetheIncomeProtectionownedbyhisSuperannuationfund 1
IrecommendthatZara
8. increasetheamountofcoverunderherlifeandTPDinsuranceto$500,000,and
1
9. takeouttraumainsurance. 2
Ialsorecommendthat
10. YouensurethatyoueachhaveenduringNominationofBeneficiaryforyoursuperfunds,asthisimpactspaymentofbenefitsunderSuperannuation
1
11. Youhave(atleast)anAnnualReviewofyoursituation. 112. Irecommendthatyounominateeachotherasbeneficiarieson
yourrespectivesuperannuationaccountsandlifeinsurancepolicies.
1
ThetableslaterprovideasummaryoftheproductsIrecommendonBradandZara.
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8. WHATWASCONSIDERED?MaintaingCurrentandObtainingTopUp
Ananslysiswasdonetoseehowyourcurrentpolicies/covercouldbe‘toppedup’
Itwasdeterminedthatthiswouldnotbeappropriateasyouindicated:• Youwantedtoreducepremiums• YouwantedInsuranceinsideSuper• [Other]
WhatProductsmighthaveSuited
ArangeofProductswasconsidered,andthenashortlistwasexamined.Productsontheshortlistwere:• A• B• C
Theproductsfinallyrecommendedwereselectedbecauseof:• FeaturesandBenefitsthatbestmetyourneeds• Premiums• [Other]
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13. WHYMYADVICEAPPROPRIATEANDINYOURBESTINTERESTS
BradandZara,IhaverecommendedthatyouobtainhigherlevelsoflifeandTPDcoverandthatyouobtaintraumacover.Ensuringthatyouhavetherighttypesandlevelsofinsuranceisimportantforyoubothbecauseoftherolesyouplayinthefamily.Brad,yourfamilyreliesonyourincometomeetthemajorityofexpenses.Zara,youhavesignificantcarerresponsibilities.
TheamountsIhaverecommendedtakeintoaccountyourincome,yourcoverunderyourexistingsuperannuation,yourcurrentassetsincludingsavings,investments,andsuperannuationbalances,andthecostofhiringhelptoreplacetheworkcarriedoutbyZara.
Myadvicewillleaveyouinabetterpositionbecauseintheeventofdeath,accidentorillnessyourfamilywillhaveadequateprotectionthatyoucanafford.Yourinsurancewillbefundedthroughacombinationofyoursurpluscashflowandsuperannuation,notonlytoensurethatyoumeetyourgoalofreducingyourmortgage,butalsotoaccountfortheimpactofpremiumsonyoursuperannuationbalances.Asaresultofmyadvice,Zara’ssuperannuationbalancewillalsobenefitfromaGovernmentco-contribution.
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15. ADVISERDECLARATIONDeclaration
AsyouradviserIdeclarethat:• The information contained in the Fact Find is an accurate and complete record of the information
obtained from the customer(s). • The information contained in the Statement of Advice is an accurate and complete record of the
advice and recommendations that I gave to the customer(s). • I have only provided advice on products on which I am authorised to advise. • Unless disclosed in this document, these products were appropriate for the identified needs and
objectives of my customer. • I have provided the client with a copy of:
o The current Product Disclosure Statement for each product selected by the customer(s). o The Financial Services Guide.
• Xxxx• IhavenoassociationswithProductProviders• PlanforithasnoassociationwithProductProviders• Idonotreceiveanyotherbenefitsotherthanthatdescribedabove• FeesandCommissionshavehadnobearinginmemakingtheproductrecommendations• In all cases my primary concern is for the financial well-being of my clients.
Signed…………………………………………………………..[Adviser]Date:....../ /20
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APPENDICESAppendix1–FeaturesandBenefitsComparisonAppendix2–‘Lifetime’PremiumComparisonAppendix3–QuotesAppendix4–PDSsAppendix4–FactsUsed
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APPENDIX1–FEATURESANDBENEFITSCOMPARISON
ThefollowingshowsacomparisonoftheFeaturesandBenefitsofthe• currentinsurance
• whatyouhavesaidyouneed
• thenewinsurance.
Itshowsthat:• Thenewinsurancealignsmoretowhatyouneed
• Thecurrentinsuranceisquitedeficient
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APPENDIX2–‘LIFETIME’PREMIUMCOMPARISON
Thefollowingshowsthepremiumsacrossa‘Lifetime’usingLevelandSteppedpremiumsforthecurrentinsuranceandthenewinsurance.
Itshowsthat:• Steppedbecomesextremelyexpensivelateron
• Thecurrentinsuranceismoreexpensivethattheaqlternative(new).
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APPENDIX3–QUOTES
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APPENDIX4–PDSS
[PDSsforthespecificproductversionsthathavebeenrecommended i.e.notthefullPDSsthatcurrentlyshowarangeofproducts.]
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APPENDIX5–FACTSUPONWHICHTHISSOAISBASED
[MaterialnformationextractedfromtheFactFindandrepeatedheresotheclientcanseethebasisfortheadviceandnothavetorefertootherdocuments]