Inappropriately high fees – including risk insurance commissions – breach the Corporations Act requirement that a financial planner must act in the client’s best interests and must prioritise the client’s interest over their own.
Inappropriately high fees usually signal that the advice itself is not appropriate to the client, and serves the adviser’s best interest rather than the clients best interests.
You must advise the client sitting in front of you. If the client sitting in front of you has a low income and a low level of assets then you need to find a low cost solution that the client can reasonably afford. Everything else is advice that is not appropriate to the client and not in the client’s best interests.
Judgement is needed. And there are grey areas. But there are also black and white areas. For example, a 44 year old single mother earning $40,000 p.a. with relatively low assets and poor income prospects will be happy to know that she is not a grey area. She should not be charged $12,000 of fees in the first year alone (with similar amounts to be paid into the future).
You can read an example of such an SOA here: SOA quoting a fee of $12,000 to a low income/low assets client. This SOA was not approved by Dover because the advice was not in the client’s best interests or appropriate to the client.
How do you reconcile your desire to provide top notch service with your client’s ability and willingness to pay? Simple. Provide a menu of possibilities, and ask your client to make a decision. But for low income/low assets/low life-prospects clients we expect to see common sensible sums insured and a preference for low cost industry super funds with conservative risk profiles.
And advisers should do everything possible to minimise the cost of insurance premiums for their clients.
Remember, you have not helped anyone if your client rejects your advice because of excessive fees, and ends up staying un-insured. But you may have placed yourself at risk of a complaint.