You don’t know what you don’t know

In his closing column for TMM, Steve Wright reminds advisers that we all have ‘gaps’ in knowledge and skills – and zeroes in on your job description: what, actually, is the role of insurance adviser all about?

This is my final article for TMM: 80-plus articles later, it’s time for a change.

I’ve given a lot of thought to my final words and decided I’d bow out by gazing into my proverbial crystal ball, to identify some issues I suspect will become important in the near future.

By now you should have your compliance processes well embedded because I suspect ‘advice’ –recommendations - will be next to come under the magnifying glass.

Process, no matter how valuable, is not advice. Process can be the same for all clients, advice cannot.

Advising clients on their life, disability, trauma, and medical insurance risks, and creating appropriate solutions, is complex - and compliance with regulations and process is no guarantee of suitable or competent advice.

Achieving the Level 5 qualification does not guarantee competence either.

If it did, there would be no need for continuing professional development (CPD) as required by Code Standard 9.

Code Standard 9 requires that individuals must, at least annually, plan for and progressively complete learning activities designed to ensure that they provide advice with competence, knowledge, and skill.

And it’s not just individual advisers who must do this; ‘entities’ (which are liable for the advice given by their advisers) must also, at least annually, review their procedures, systems, and expertise (my emphasis) to ensure that they maintain their capabilities.

What are your ‘gaps’?

These Code Standard 9 requirements, it seems to me, require individual advisers and FAPs to actively consider any knowledge or skills gaps, identify learning activities to close or eliminate these gaps, prepare a suitable ‘learning’ plan, and then actually undertake that learning.

This is all good and well, but how do you identify knowledge or skills gaps if you don’t even know these ‘gaps’ exist?

I’ve spoken with, presented to, and trained hundreds, maybe even more than a thousand, advisers over the past 10-15 years, and we all have gaps.

Some have fewer gaps than others, but we all have them.

As I see it, the greatest impediment to effective CPD and professional development is lack of recognition of these ‘gaps’ – and a false sense of comfort in our own ability, due to not knowing what we don’t know.

Actively seeking out these skill and knowledge gaps is a critical step towards improving our knowledge and ability to give acceptable advice (and complying with the Code and various laws which demand we give competent advice!)

Ensure clients will get enough

In terms of advice, I believe we need to reach general consensus that advisers are not obligated always to recommend the most generous (and most costly) product, particularly if consequent unaffordability leaves the client underinsured against big financial risks.

If we can’t do that then:

• Medical insurance will likely always remain unaffordable for retired people, when medical insurance with a very large excess may be the most suitable (and affordable) recommendation. For older clients, quick access to private medical treatment for every ailment may not be necessary. What may be necessary is quick access only when quick access is imperative (when using the public health system is not a suitable option) - and for protection of retirement nest-eggs from very high treatment costs which are not publicly funded at all.

• Severe underinsurance against the very large financial implications of severe illness will continue, when trauma and other products designed only to cover severe illness may be the most suitable (and affordable) recommendation.

• Income protection will remain unaffordable for many, when less generous products may be the most suitable (and affordable) recommendation.

I sometimes hear it said that an adviser’s job is ‘to maximize the client’s opportunity to make a claim’.

I think a better job description is ‘to ensure the client gets a big enough claim payment when they need it’.

There are many examples of clients entitled to insurance benefits which simply enrich them, without indemnifying against any actual loss.

Nice as such windfall gains might be, they make for inefficient premium spend and unnecessarily drive-up premium cost.

Advice strategies and combinations of products, priced to allow sufficient cover for more severe illness - even if this is at the expense of unnecessary windfall gains - are an advice alternative to ‘best product only’ that can no longer be ignored in my view.

Finally, I’ve really enjoyed writing articles for TMM and my thanks go to Phil and his team for giving me the opportunity.

I hope you got something out of them too. ✚

Steve Wright has qualifications in law, economics, tax and financial planning and is (was) general manager product at Partners Life.