What’s the solution to life insurance advice risk anxiety?

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[Opinion] Recent reports in Good Returns by AIA speak of the fact that many advisers are experiencing high levels of stress. Some advisers and FAPs I speak with tell me that one cause of stress and anxiety for them is uncertainty about what is expected of them when giving advice.

Monday, November 11th 2024, 4:46PM 1 Comment

by Steve Wright

This uncertainty is not surprising. The new laws and Code have given FAPs and advisers a new and largely untested (untested means uncertain) ‘rulebook’ of ‘principles-based’ requirements, by which advice must be given.

Uncertainty about what the new rulebook means in practice and for advice to each client (which, incidentally, cannot be solved by compliant process) is a cause of ‘advice risk’ concern for some. (Advice risk is the risk of being found liable for unsuitable advice resulting in some form of censure, penalty, or compensation payment).

Not all FAPs and advisers I speak with are concerned about advice risk however and it seems to me there are three categories of FAP/adviser:

• Those who recognise advice risk exists but are not yet sure about what action to take to reduce it. These FAPs/advisers appear to be most anxious about advice risk.
• Those who have not yet recognised the extent of the new requirements or their exposure to advice risk and are happily doing what they have always done. These are probably not yet anxious, but they really should be, because they are probably not doing enough to improve their knowledge, skill, and capability to give and document, suitable advice.
• Those who are taking the time to understand, as best they can, the changes and action required to reduce advice risk and who are taking active steps to improve competence and advice capability. Their anxiety is reducing the more they improve advice craft and knowledge, to higher levels.

I would say the second category is most at risk - those advisers and FAPs that have not yet, or don’t want to, recognise, or accept, that their advice risk may be very high, and are consequently doing nothing about that. 

So, if advice requirements are not certain, as I don’t believe they are, what are your options for reducing advise risk?

• You could retire or change your vocation, and some have done that.
• For those who want to continue giving life advice or running a FAP, you could do nothing and hope for the best, but that seems unnecessarily stressful and risky to me. Yes, you may have PI insurance, but how many claims can you have before your PI insurer (or your FAP) decides it’s best to part ways with you?
• Consider taking steps similar to those outlined below.  I believe the antidote, or one of them anyway, to advice risk stress and uncertainty, is knowledge, both the technical knowledge necessary for giving advice with due care, diligence, and skill and also knowledge of how to effectively deliver and document that advice. 

Increasing advice skill and the knowledge necessary for giving advice will increase competence and confidence, thereby reducing advice risk and associated anxiety.  dvisers and FAPs may choose to do this any way that works for them.  For me, I would do something along the following lines.

1. Recognise and understand the Dunning Kruger Effect!  This tells us that most people in need of more skills are not aware of this and as such do nothing about acquiring them. Understanding the Dunning Kruger Effect is essential for improving adviser knowledge and skill, even though it is, itself, a major cause of stress initially when we realise the extent of our inadequacies. We must, however, move through this stage of discomfort about our lack of knowledge, or we will never become suitably skilled, successful, advisers.
2. Actively take steps to identify knowledge gaps! We all have knowledge gaps to a greater or lesser degree and removing or reducing them through continuing professional development is an obligation anyway under Code Standard Nine. The problem is that unrecognised knowledge gaps are very difficult to identify on your own because we don’t know what we don’t know!  Find suitably knowledgeable people to ‘test’ your advice knowledge and skills, because as uncomfortable as this might be, it’s better if you discover knowledge gaps yourself and before someone else does.
3. Close those knowledge gaps!  There are many ways to do this, but always check your source of information is accurate and dependable.  Unfortunately, there is no comprehensive ‘textbook’ covering all the knowledge a life and health adviser needs that I’ve ever seen.  Accessing multiple sources of corroborating information, supported by suitable ‘authority’ for any statements (like the actual policy wording rather than ‘word of mouth’ or sales or marketing aides) will help weed out incorrect or partially incorrect information.
4. Make sure any advice given is suitably detailed and recorded. One of the uncertainties of the new requirements is how much detail to give clients? I’d err on the side of more detail not less, considering the Code Standard requirements (that advice given is suitable and understood by the client) and that clients have enough information to make informed decisions. The trick is packaging it and discussing it with your clients in a way that makes it easy for them to digest.

Advice risk and associated anxiety is not good for anyone.

The good news is you can reduce advice risk and associated anxiety: all it takes is commitment and action, action I’d recommend taking sooner rather than later, you never know when your advice may be tested.

More good news is that better skilled advisers are likely to lead to stronger, more resilient, and more profitable advice businesses.

If you think your advisers are good enough at giving suitable advice, I’d ask one question: If you don’t have a robust framework for assessing adviser knowledge, skill, and advice, how do you know?

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.

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