Triplejump chief executive Cecilia Farrow said she had seen "shocking" advice given to clients and based on anecdoctal evidence, there were many cases where clients were shifted from yearly renewable term (YRT) contracts to level contracts, lock, stock and barrel.

She said the worst case seen recently was a one-pager that had been written by an adviser to a couple who were in their later years and being farmers, had reasonably extensive debt. The one-pager urged the client to consider changing all their term cover over to level with a table showing that the client would save close to $500,000. The quote was for Level to age 80 without CPI, however the YRT was quoted on CPI.

"Now as far as I'm concerned that brings our industry into disrepute and it is that kind of behavior that goes on which is a concern," said Farrow.

She has had a few working parties investigate the YRT versus level paradigm and as a result the advice Triplejump has provided among its franchise network is that it is very hard to find an argument that supports the idea that customers are better off paying a level premium versus a rate for age premium balancing all the other considerations that should be taken into account in providing advice to clients.

Farrow explained that advertising for level promotes the concept that the age at which the level and YRT premium ‘cross over' is the point at which the client is ‘in the money' or better off with level premium. 

"However, these graphical illustrations do not take into account the opportunity cost of the clients paying substantially more in the early years," said Farrow.

"Depending on the clients situation this cost of capital could range from lost opportunity to invest and grow wealth through to lost opportunity to reduce debt at a faster rate and therefore save interest."

Farrow said the cost of capital can make the point of crossover significantly longer, therefore making level cover less valuable.

She said for example, in the first 11 years of comparison, if a client who had a $300,000 table mortgage applied $200 per month of the difference in premium between level and YRT they would pay off their mortgage four years earlier and save $72,000 in interest.

If the client had no debt and saved $200 per month in addition to their current Kiwi Saver scheme at an average return of 2.5% net they would accumulate additional savings of $35,000.

She believes it is in the client's best interests to protect the financial risks they face for the least cost they can.

Farrow said advisers should be helping their clients reduce debt as fast as they can to minimise the cost of borrowing, maximise the value of their capital and to help them accumulate wealth to provide for their future.

 "I think most clients would prefer to reduce debt than pay more for insurance than they need to."

She outlined that for advisers to provide best advice they should have a relevant risk management philosophy, recognise that most  clients have a need to protect and accumulate and they should use appropriate analysis processes to work out the real cost of choices.

"Advisers should present the possible range of solutions accurately and provide the best solution balancing the medium to long term goals and needs of the client," she said.