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Advisers need to brace for litigation

A greater focus is starting to come on the nature of financial advice, not just for financial advisers but also mortgage brokers, insurance brokers and other intermediaries.

Friday, June 17th 2011, 7:26AM

Abbott Group broker Derrick Abbott raised the issue of PI cover at the recent Life Brokers Association (LBA) conference, telling the audience of advisers that in the wake of new regulations in the UK and Australia, "PI notifications went through the roof."

Abbott expects the trend to repeat itself in New Zealand when advertising as part of the new adviser regulations makes more consumers aware of complaint processes.

Cooney Financial Services David Cooney also expects to see a rise in litigation against advisers.

"Once the public's aware we're all members of dispute resolution schemes I suspect there's going to be an encouragement for people to go down that track. In fact I read recently that a legal firm was advertising specialist advice for those wishing to take members of the advisory industry to task already, they're out there touting and setting themselves up to take action," he said.

For Abbott, these pressures make having PI cover a must.

"PI insurers are there to protect the adviser," he said.

The issue was also thrown into sharp focus when adviser Carey Church was found to have breached her duty of care and acted negligently.

Church is to appeal the verdict, and Abbott said the outcome of that appeal would determine how significant the ruling was for the financial advice sector.

"If Carey lost the appeal I think you certainly would see the floodgates opening. If the appeal was upheld, the status quo would remain. . . sometimes it just needs a situation like this Carey thing to clarify the situation."

Whatever the outcome of the appeal, Abbott believes more advisers will face legal action.

 "The more advertising there is, the more media focus there is on it that's certainly going to be the case. People are more aware of their rights to make complaints if they're dissatisfied with a particular situation," said John Lyon, the Lumley CEO. 

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