Advisers err on insurance in super

Many financial advisers have been falling short with respect to recommending insurance within superannuation, particularly with respect to premium costs, according to Australian Securities and Investments Commission (ASIC) commissioner, Greg Tanzer.

Tanzer has told an Association of Superannuation Funds of Australia event that ASIC surveillance had found many advisers recommended that clients hold their insurance inside superannuation they had failed to consider strategic issues such as:

• the merit of making concessional or non-concessional contributions to the client’s superannuation fund to mitigate the effect of insurance premiums on retirement benefits
• relevant taxation issues, and
• the need to make binding or non-binding death benefit nominations, and update those nominations as client circumstances change.

“Of particular concern, we found that advisers were recommending policy bundles and a ‘sum insured’ for clients that resulted in an aggregate premium that was unaffordable to the client,” Tanzer said.

“All too often, we found the recommended strategy to manage this affordability issue was to pay the insurance premium from the client’s superannuation guarantee contributions,” he said.

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“Our strong view is that appropriate advice that complies with the best interests duty and related obligations should actively consider the long-term effects of insurance costs on clients’ superannuation savings.”

Tanzer said that, too often, ASIC had detected conflicts of interest between advisers earning high upfront commissions that militated against the provision of advice in the best interests of their clients.

“The tension between the need to hold life insurance and manage its impact on retirement savings is an ongoing challenge for consumers, superannuation trustees, and the advice industry,” he said.