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Overcomplicating Advice

There has been a lot of debate with various advice approaches over the years. Russell Hutchison has written a good article on practices recently here https://www.goodreturns.co.nz/article/976519597/advisers-key-to-closing-the-protection-gap.html.

Monday, March 14th 2022, 12:32PM

by Jon-Paul Hale

I want to discuss the issue of overcomplicating.

An experienced adviser has a sense of what cover for a client looks like, but that's not good enough for our present rules.

So we need to have a more robust approach.

Documented and thought out, but how much is good enough?

There are plenty of systems that calculate and amortise cover levels to the last cent. And the engineer in me agrees with accuracy.

However, the practical reality is this is overkill, and the average client isn't going to care about the $0.87 your complex tool spots out. Hell, they probably won't care if you round to the nearest $1,000.

Not to mention the zeros, they will take off the final numbers you present. Some out there will say their clients don't, and sure, that's some people. The majority have to make decisions with more modest means to address the issues.

The pool you fish from for clients may be causing blinkers to the rest of the world's reality. Good for you if you have a successful business in this space, but that's not everyone either.

This brings me to the over complications.

For years, I've heard from clients that what I do is complex and weighty. And yes, it is from their perspective. On the other side, I have had plenty of advisers suggest I don't go deep enough on the modelling too.

And this comes back to we know aspirations vs income are an issue. We also know limits on cover levels mean advising the 'risk' is distracting from the conversation needed.

Sure, point out more income is needed, but insurance is about loss; illustrating a $150,000 annual income protection risk with a $75,000 income doesn't help anyone.

More the point, simplifying advice to deliver effective solutions without confusing the client is the idea.

We have for a long time operated as a sales industry, and while this meant people had cover, many still don't understand what they have. We need to be better.

"But, that's the point of the new rules?"

Our job is to figure out how to meet the objectives of sound advice, documentation of it, and having our clients understand that advice.

While amortising to the last $0.87 is justifiable for advice, it makes little practical sense once clients decide on cover and underwriters apply financial underwriting rules.

Ideal world, vs, incremental, vs average 'class' advice strategies, there needs to be some consideration of the personal needs.

Reflecting on the reality, clients will 'manage' the solution; products have restrictions and CPI/Inflation protections, simplifying calculations makes sense. It speeds up your process, still provides the ballpark on the numbers for your advice and leaves the client(s) with a simpler decision.

As I have discussed before, lifetime cash flow modelling has its use with interactive modelling. However, the reality for most clients is they are processing what they need and are in information overload.

Most of the work I have seen on this sort of modelling has been focused on selling lump-sum products, more cover, more premium, more income. That's not necessarily the correct answer and reflects back on the approach from days gone by, where the only products we had were whole of life or endowment, and it had to address every situation.

We don't have that product here anymore. And we need to keep in mind that many of the overseas tools and models are for markets that still have the whole of life and endowment products available.

They're good products and frankly make sense in a well structured financial plan for those with means, but we don't have them here in New Zealand. We need to take that into account when we import tools from offshore.

Back to the clients, yup, they are overwhelmed with all of the information we provide. Even with simple planning and solutions, they still get there quickly.

This is why past "advice" has mainly been sales rather than informed buyers.

Does this mean we need simpler products?

No, the issues we deal with have complex situations with complex needs. Simple products don't work here, as we have seen in more recent times with Sovereign's simple life and Partners Life's Volo products that are no longer available.

My parting question:

Sitting in your clients' shoes, are you presenting the best presentation possible for your clients?
* Are you doing enough?
* Are you doing too much?

Yes, the Goldilocks story.

Tags: advice risk

« Has Consumer got it right on insurance and advisers?Should we have simpler products? »

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