Your duty to provide appropriate advice

Your duty to provide appropriate advice arises under section 961G of the Corporations Act. ASIC discusses this duty in paragraphs RG 175.340 to 358.

This duty is separate and in addition to your duty to provide advice that is in your client’s best interests. Once you have established that your advice is in your client’s best interests, ie is likely to leave your client better off, you must them establish that your advice is appropriate to your client.

To establish that your advice is appropriate to your client you must first ascertain your client’s “relevant circumstances”.

Your client’s “relevant circumstances” includes their ability and willingness to pay the premium on a particular insurance policy. For example, recommending a sum insured of $1,000,000 for a forty year old widow with caring for two young children and working part time on a salary of $40,000, with a premium of $5,000 a year may be in her best interests, but it will not be appropriate to her and will breach section 961G of the Corporations Act.

(There is also a strong probability that such advice breaches your duty to prioritise your client’s interests over your own interests.)

In the case of the forty year old widow you have to work hard to create a strategy that suits her relevant circumstances, including her capacity to pay a premium. Issues to consider include:

  1. using the group life provided by industry funds
  2. selecting (lower cost) stepped premiums
  3. selecting (lower cost) indemnity value sums insured
  4. limiting the insurance to life insurance and income continuance insurance (ie no TPD or trauma insurance)
  5. selecting a low cost two year waiting period income protection insurance to work with the existing (two year) industry super income protection
  6. considering Centrelink benefits when computing the sum insureds
  7. place the new insurances in a super fund to aid affordability.

Your SOA should stress that you are striving to create a cost efficient strategy and this means trade-offs with the amount of the sum insured and the range of benefits achieved.

The Dover Group