Not clearly demonstrating why a more costly product has been recommended

This is a common mistake that is easily addressed. The error is not that the adviser is recommending a more costly product. The error is that the adviser is not demonstrating that the increased cost is more than offset by increased benefits to the client. ASIC RG 175 insists that the SOA contain such a demonstration.

Sometimes, it is worth paying a little bit extra. You might buy your socks and underwear at Kmart, but don’t buy your wedding dress there as well. The same can go for financial products. Sometimes, like socks, the product is a simple commodity and the lowest price is the best. But sometimes the lowest-priced product lacks features that your client will definitely need. In those cases, the lowest-priced product is not in your client’s interests and thus you should not recommend it.

But don’t forget to tell your client that this is the case! Sometimes, advisers try to hide the fact that there is a cheaper option available. This is not a good option. Bear in mind that your client may not tell you if they are aware that there is a cheaper alternative. They may simply stop using you as an adviser, with you having no idea why the time you have invested has gone to waste.

It is much better to make a virtue of the higher priced alternative. Agree with your client that it is a more expensive option, but then point out that the features of the product better suit your client’s needs. Something like the following:

We note that the premium for the new income protection policy that we are recommending is higher than the premium you are currently paying. There are two reasons for this. The first is that the new policy has a shorter waiting period of 30 days, as against 90 days for your existing policy. This is more appropriate as you are now self-employed and thus you do not have any sick leave upon which you can rely in the event that you become ill.

The second is that our preferred insurer has premiums that are slightly higher than your existing insurer. In our experience, in the event that you make a claim, the new insurer’s claim process is much easier to navigate. Put simply, your existing insurer has a reputation for refusing to pay claims that other insurers will pay. We think that the increased premium for the new insurer is therefore well worth the expense.

The Dover Group