The rules have changed for Financial Advisers indeed…
June 7th, 2010
Stuff.co.nz kindly highlighted the changes for the Financial Advisers in this article.
http://www.stuff.co.nz/business/personal-finance/3782015/Rules-change-in-the-advice-game
I see a Financial Services Provider wrote it. And she did a nice job too.
In the life insurance realm, which was not highlighted in the article, one example of how Advice can help you is seen in the area of income protection. Here is part of a case study. An older couple, who are both working discover that they have $30,000 per year tax paid cash flow more now than they had the pervious year. So they decide to reduce some of the benefit from one of their income protection policies.
The question is, should they reduce it by A) $30,000 per year? B) $30,000 after tax,C) or not at all?
What would they need to know to determine the answer? Well, here some ‘hidden’ calculations suggestions to help.
What happens, in actual dollars if one of them is on ACC or off work for some reason when the other spouse needs to claim on their income protection plan. Bad luck eh?
It’d be more than bad luck if it meant the sale of assets immediately prior to retirement just to cope with a miscalculated disability income benefit!
Another question on the same case study is this. What if the spouse who was not having their disability income benefit reduced a) quit work before the claim, and couldn’t get back into work in time to save the family cash flow, or b) only had a short ACC or disability income benefit if he or she was sick at the the time the main income earner needed to claim on income protection?
Without a spreadsheet, all the incomes, a summary of all the outgoings expected, some detailed knowledge of the insurance policy wordings and some experience thinking it through, you could easily jump to the wrong conclusion.
As an Adviser, I’m always astounded how the logical answer does not always match the researched answer. It takes a 7 step financial stress test to work out those kind of answers. Not the simplistic 5 or 6 step tests that are promoted as best practise today. The 7 step is added to this thorny area of income protection, to make sure it all thought through thoroughly.
But any 5 or 6 step test is better than no test, or no Advice. And to put that statement in the context of what the article above states about those who sought (investment) advice, and still lost money…Perhaps their advice was not as thorough as it might have been. But then I’ve heard (we’ll call it hearsay) 80% of the people who lost money with one particular asset type in recent years took no advice from an investment adviser at all.
Categories: Financial Advice, Financial Adviser Regulation
