The use of jargon that is not understood by investors, and is even misleading, is likely to hold back the take-up of services that should be embraced, such as insurance, warns Michael Hutton, head of wealth management, HLB Mann Judd Sydney.
“It’s all very well for the financial services industry to come up with a new description, or coin phrases that are meaningful within the industry, but if investors don’t understand what it means, or it suggests negative connotations to them, this is clearly going to affect their decision.
“For example, the development of the term ‘risk products’ to replace the name ‘insurance’ may make sense to those in financial services but if it confuses people, it is counter-productive.
“In investment terms, ‘risk’ is normally used to describe volatile investments such as shares.
“I simply don’t think the average Australian has any idea what is meant by risk products, while insurance is well-understood, so why re-label it in this way?”
Mr Hutton believes that more Australians should carry insurance cover, and is concerned that it is not being correctly positioned.
“The reason Australians need to be insured, particularly if they are the main breadwinner, is to take care of the family. The whole point of life insurance is to help the family and protect assets, not to protect the person insured.
“Other considerations flow from this, such as how much cover is adequate, where is it needed and why. However, if some-one has already been put off by the word ‘risk’, they might not be listening anymore.”
Mr Hutton says that another example of poor labelling is the term ‘self-managed superannuation fund’ for personal super funds.
“People considering an SMSF could well be concerned about the problems of managing a super fund and may not relate to something labeled ‘self-managed’.
“While they need to understand their obligations, the reality is that they may not be interested in the problems of managing the paperwork and accounts that are implied in the name of SMSFs, but want to access the real benefits such as flexibility, control and involvement in decision-making.
“The term ‘personal super fund’ better reflects their needs, and highlights the relevance to them, especially as more and more services are available to trustees to help with, and even undertake, most management functions.”
Mr Hutton said that it would be a shame if people are put off what can be very useful and valuable wealth management strategies, because the terminology being used within the industry does not make sense to them.
“With most Australians under-insured, steps should be taken to make insurance more accessible and understandable, not potentially seen as ‘risky’.
“Every working Australian should consider at least three insurance products – life, loss of earnings and trauma.
“There are clear tax advantages in having life insurance cover in superannuation but this advantage may be wasted if it means the fund member is complacent about the cover and never checks how much it is for, is it adequate, and how much it is costing.
“People in more than one fund may also be over insured or paying too much for the two sets of cover they have. It may also be better to have any additional cover held outside super in some circumstances.
“They also need to check their cover at different stages to see if it is adequate – when they have children or increase their mortgage.
“For example, as people get close to retirement, they may not need the same level of cover for their family as they did when they had a large mortgage and dependants had many more years of dependency to come.
“Indeed, when people are retired, they will have no need for income protection, and probably no need for the same level of life cover, if any,” Mr Hutton said.
HLB Mann Judd Sydney is a firm of accountants and business and financial advisers, and part of the HLB Mann Judd Australasian Association.
For more information please contact:
Michael Hutton – Phone: 02 9020 4193
19 June 2013