Advisers enter at their own risk

Ask any financial planner if they use risk research and the answer more often than not is yes. But the extent to which a planner should rely on research is one of the more contentious issues in the risk planning profession.

There are no doubts about the benefits good quality research can offer a planner.

Just ask Grant O’Riley, the managing director of Capstone Financial Planning.

“Financial planning software incorporating risk gives the adviser the ability to make more holistic, repeatable and dependable decisions,” he says.

Research software helps on the compliance front too, according to Plan For Life risk research consultant Peter Sobels.

Under the Financial Services Reform Act, aligned dealerships will be keen to assure clients and regulators that they are unbiased in their product choice.

“So they will go to a respected, independent risk researcher to cover their hides,” Sobels says.

But there can be a down side to risk research as well. AXA’s risk research manager Jim Gulli says although saving time is important, risk research is not the only factor that comes into play when advisers choose a product for their client.

“I hate the idea of advisers relying specifically on ratings,” he says.

Gulli says risk research isn’t always reliable, especially when researchers only update their product listings once every six to eight weeks.

“Often I find when an insurance company changes its products, it doesn’t quite line up with the way the research house rolls over its products.”

Gulli also has a problem with research that rates a product in its entirety, rather than the individual features that make up the product.

“Coming up with a total product score gives an equal rating for every feature within that product. So you can have a feature which is very important having the same rating as an ‘I don’t care’ feature,” he says.

To overcome this, Gulli tells his advisers not to take research recommendations as gospel.

“It’s a matter of getting to know your clients and getting to know the things that are going to affect them and then sort of aligning that up with the product in mind.”

Associated Planners marketing manager for risk products Col Fullagar sees nothing wrong with planners using research to help narrow their options.

But he says it’s “folly in the extreme” to simply grab the product that has the most stars and recommend it.

Another risk that advisers take by relying totally on research is they might miss out on smaller errors in the wording of policy documents. This could lead to a dispute at the time of claim.

“You look at all these court cases going through, they are very rarely based on something obvious. It is usually an idiosyncrasy or an ambiguity in the way the contract’s worded,” Fullagar says.

He says dealer groups need to go through product statements with a fine-tooth comb. Consequently, risk researchers who provide full policy statements of the products they recommend are a good starting point for advisers.

When Associated Planners identify a problem in a contract, it will bring it up with the life company. If negotiations don’t resolve it, products will be tagged so an adviser can inform their client of the problem. If the error is deemed too serious and the life company doesn’t back down, a product could be removed from the dealership’s recommended lists altogether.

“Research is just the visible bit,” Fullagar says.

“Yes, it serves a purpose. Does it make the adviser safe? In your dreams.”