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Observations from the FAP monitoring insights report

Steve Wright examines the FMA's FAP monitoring report and explains where FAPs and advisers need to lift their game.

Thursday, June 20th 2024, 10:39AM 7 Comments

by Steve Wright

The FMA have released a report on their findings, following monitoring visits to around 60 FAPs.  These are my observations of some of their findings as they relate to advice issues for life insurance advisers.  Advisers and FAPs are strongly encouraged to read the full report to understand all the issues raised.

In general terms the FMA seems to be reasonably happy with what they have found. They have given many clues to conduct they would like to see and indicated some ‘gaps’ where FAPs can and must do better.

The root cause of some of these ‘gaps’ according to the FMA is “…complacency, where the FAP has taken a ‘tick-box’ approach to compliance instead of making an effort to fully understand the purpose of the new obligations.” 

It’s probably fair to expect that if the next round of monitoring visits doesn’t show improvement in the areas identified as needing work, the FMA’s response will be tougher.

FAP obligations to monitor the advice given by their advisers

According to the FMA, many FAPs did not have appropriate oversight of the quality of advice being given. Proper oversight of the quality of advice is critical to ensuring FAPs and their advisers comply with their obligations.

FAPs cannot simply rely on their advisers getting on with their professional development on their own. The FMA wants to see FAPs have an oversight framework that tests the quality of advice given - a framework that tests the substantive advice given, not merely one focused on record keeping.

In my view this is not a simple matter for life insurance advice. Giving acceptable life insurance advice requires a great deal of knowledge about many issues, it’s not just product knowledge (although that too is critical).

Testing the quality of advice requires some form of oversight by persons who are suitably skilled in all matters necessary for giving quality advice and who know life insurance products in detail (and there are lots of them to know).

Astute FAPs will recognise that every adviser has knowledge gaps that need closing. The difficulty is that many knowledge gaps remain unidentified simply because we don’t know what we don’t know. What is required is a programme designed to identify gaps and a plan to eliminate them, which brings us to Code Standard 9 – CPD. 

FAP obligations in relation to code standard 9 - CPD

The FMA want to see “advisers plan and complete learning activities to maintain their competence, knowledge, and skill.”  Every adviser must have a CPD plan. The FMA found many that did not.  Others had CPD plans that were not updated or suitable, in particular, the FMA found:

  • CPD plans that were insufficient or relied solely on product provider webinars;
  • CPD plans that gave no consideration to keeping up to date with the regulatory framework;
  • No analysis of knowledge gaps;
  • Some plans only recorded prior learning.

The FMA wants to see a “considered approach to CPD”, by identifying knowledge gaps, covering all aspects of the financial advice offering, and planning for suitable training or other learning. This must be planned for at least annually and the identified learning achieved and recorded.

Suitability of advice

While some advisers did demonstrate how the advice they gave was suitable for their clients, the FMA noted some disappointment and mention the following unsatisfactory examples:

  • insufficient needs analysis or product research and no consideration of proposed policy terms;
  • instances where multiple products had been considered but without comparison or justification to support the recommendation;
  • recommendations which were not in line with the client’s needs or goals, or the advice process did not consider the suitability of advice at all;
  • recommendations on replacing existing products without suitable comparison of benefits lost/gained;
  • assumptions were made about affordability due to a client’s age;
  • recommendations of cover greater than a client’s need simply because they could afford it.

Interestingly, the FMA suggests that advisers also need to consider “… how suitability is maintained if they provide ongoing advice. Advisers should consider a client’s current and possible future needs and circumstances to ensure the advice remains suitable throughout the lifecycle of a product.” 

This tells me advisers typically cannot simply consider the client’s current needs, they must also consider the client’s future needs, as they progress through to and in, retirement.

Consideration must be given, today, to the flexibility and ability of their recommendation to deal with changed needs tomorrow, which may be many decades away. Some provider’s products do better than others when it comes to the flexibility to change insurance as clients age.

These points highlight how the FMA expects advisers and FAPs to do better at identifying knowledge gaps, improving their knowledge, giving suitable advice and ensuring advice given accords with the agreed (and clearly understood) scope of service.

All of this raises questions in my mind about consequences and potential FAP director liability if these issues aren’t properly addressed, something I might explore next time.

Steve Wright has qualifications in economics, law, tax, and financial planning. He has spent the last 20 years in sales, product, and professional development roles with insurers. He is now independent and helping advisers mitigate advice risk through training and advice coaching.

Tags: FAP financial advisers FMA Opinion Steve Wright

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Comments from our readers

On 20 June 2024 at 1:44 pm dcwhyte said:
Excellent remarks, Steve, well articulated.

2 observations, if I may -

1. The quality of content provided by a CPD platform is critical.

2. Processes to confirm suitabililty of advice, or to maintain knowledge, competency, and skill, should be documented in detail and FBA (Follwed By All)!
On 24 June 2024 at 2:43 pm Steve Wright said:
Thanks David
I completely agree, content of CPD is critical. I always urge advisers to 'fact check' as far as possible against original authority, whether it be policy wording, Acts of Parliament or anything else. If multiple independent sources are saying the same thing there is a good chance it is accurate.
On 25 June 2024 at 7:58 am Murray Weatherston said:
What about the vaccine is "safe and effective"?
On 25 June 2024 at 7:32 pm JPHale said:
The not-so-small challenge I have here is the idea that we can address CPD in areas we don't know about.

The whole point of don't know what we don't know is the problem!

There is a hell of a lot that we don't know, and most of it doesn't significantly impact clients.

It is not reasonable that we pursue the goal of knowing all about everything in our profession; aside from it being commercially inappropriate, it has little meaningful value.

I don't need to know and understand the 45,000 variations of AIA's historic policies for example. They exist I know that, but I'm not going to put learning them in my PDP!

The issue is addressing the gaps in what we don't know, and we don't know that until we do know. In which case, it is no longer an unknown.

I don't know what others do, but when I am presented with evidence that I may have a knowledge gap, I stop and find out what's missing or not understood there and then. The risk of client harm from being aware of that gap and not addressing the lack of knowledge is not worth taking; that's part of putting clients first and doing the right thing here.

I'm unable to pre-determine what that gap is for a PDP, and once I have found the gap and fixed it, it's no longer a gap for my PDP.

It does, if it is time-consuming enough, get added to my CPD register. Though much of what I seek and discover is just plain documented for reference and work goes on.

This whole PDP piece is an exercise in ever-decreasing circles, leading to time-wasting documentation that serves little practical purpose.

Not to mention if you have been in the industry for some time the routine of industry sessions becomes a repeat performance of the same stuff.

I have said elsewhere I am critical of the value of the CPD provided in the industry as it is light on detail and heavy on sales features.

My recent article on unfunded medicines is an example of the stuff not covered that should have been actively covered by the insurers, at the least.

I agree that we have plenty of FAFindOut going on because our CPD is not focused on the areas needed, and they are either unappreciated, unknown, or considered boring and technical. Yeah, CPD is boring and technical!

BTW, this isn't slating the need for CPD just how we are all approaching it is ineffective and inefficient when it's focused on knowing the unknown when we don't know what the unknown is!


On 26 June 2024 at 10:20 am Steve Wright said:
JP: my point exactly, no one knows what they don’t know, but there are some solutions.

I’m currently working with a great bunch of advisers; we’ve had one-on-one sessions identifying individual adviser’s knowledge ‘gaps’ and areas of low confidence and are now workshopping our way to reduce those commonly identified gaps that I can help with.

We may not have identified every knowledge gap yet, but for now we are working on reducing and eliminating some pretty important ones.
On 26 June 2024 at 12:41 pm Backstage said:
@JP, loved that piece on CPD, thought you may have had Eckhart Tolle write it. Silence didn't exist until sound appeared, space didn't exist until an object emerged.

You may have slightly overcooked your concerns. If we have ever had employees, we often recognize certain learning gaps or areas they may need assistance with. If we were to get formal, regular performance reviews where we measure their skills against the opportunity (Job) they were employed into.

I guess if we gave ourselves an honest performance review from time to time we could consider where we could, skill up.

Or we could sit silently and contemplate the length and depth and all other dimensions regarding CPD and gaps. I say lets charge on until the 3rd ref comes up with some call.
On 27 June 2024 at 11:58 am JPHale said:
@Steve, it's great to see your skills being put to work.

The challenge is that when you've been around this industry for a long time, the knowledge gaps tend to be in the margins, minutiae that most don't want to talk about or don't even know exists. It may be unusual that my brain soaks up new information like a sponge, but it's not easy to identify blind spots when the bar of expectations is set reasonably low.

A now-retired mortgage adviser registered from the start as an AFA had similar complaints. There was a required CPD as an AFA, but it wasn't available in a formal setting to qualify as a CPD.

This is the no-man's land we're all in presently.

@Backstage, thank you. In one of my more lucid moments, I was a bit terse about the situation we're in without good pathways forward.

You make a good point about managing employees. Their questions have been helpful in identifying gaps as they ask questions from a do-not-know perspective. That has helped build out areas where things have been light to non-existent, but at the same time, it also needs an environment of trust and openness for people to speak up when they don't know.

I'm naturally curious, and anything that doesn't add up becomes an itch to scratch, and there have been some doozies, too.

We can all do better. In this area, we lack clear definitions, direction, and leadership. It's a bit like a ship in the southern ocean without a rudder; if it's not sorted, it's going to wreck on a deserted rock with no one around while we either starve or drown.

As you have said, I too will box on until we get more specific direction from the 3rd ref.

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