The Australian Financial Complaints Authority (AFCA) has ruled financial firm Your Super Life gave “inappropriate” advice when it recommended a client should set up a self-managed superannuation fund (SMSF) which would also look after his personal insurance needs.

The client, who took up the suggestion, lodged a complaint with AFCA after he made an income protection claim in August 2018 and received a benefit amount that was less than the sum insured.

The insurer that issued the policy had processed the claim based on income at that time as the insurance was an indemnity policy.

The complainant alleges Your Super Life had provided him with “inappropriate advice”. He says that because the recommended insurance policy had an indemnity benefit, he was not insured for the amount he had believed he was covered for.

He says he was under-insured and is entitled to the difference in benefit amount if he had not been on an indemnity policy. He also submitted that as a result of receiving a lower benefit amount, he has incurred considerable credit card debt and his business has been ineligible for the government’s COVID-19 JobKeeper payments.

AFCA in its ruling rejected the firm’s position that it was the client who directed it to open an SMSF account for him. According to AFCA, the advice to establish a SMSF was not in the complainant’s best interests as was the personal insurances recommendations that were provided.

The complainant held personal life insurance within his existing superannuation fund including life and total and permanent disability (TPD) cover of $616,724 before he approached Your Super Life for advice. The policy cost $2089 per annum. He also held an indemnity income protection for $4960 per month with a 30-day waiting period and a benefit period to age 65, costing $3317 per annum.

Your Super Life recommended the complainant implement the same level of life, TPD and income protection insurance held within the newly established SMSF. The advice also recommended trauma cover for $150,000.

The new insurance policies cost more for the complainant, with annual premiums now raised to $2417 for his life and TPD cover. For the recommended income protection of $4,960 per month with a 30-day waiting period and a benefit period to age 65, the premiums were $4005 per annum.

“The advice simply recommended the complainant implement the same level of insurance he previously held,” AFCA ruled.

“The advice did not explain why it is appropriate for the complainant to apply for the same level of cover he previously held but at an increased cost, other than to hold it within the SMSF, which was an inappropriate strategy in any event.

“Accordingly, I am satisfied the advice to implement new personal insurances was not in the complainant’s best interests.”

Click here for the ruling.