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Client ignored for 20 years

A financial adviser who sold a client a personal superannuation plan and term life policy in 1993 - then didn't check in with him again - has been found not to have met his legal obligations.

Thursday, September 6th 2018, 6:00AM 9 Comments

by Susan Edmunds

The Insurance and Financial Services Ombudsman dealt with a complaint about products sold to a New Zealand man who then moved to Perth.

In 2011, almost 20 years after the sale, his wife emailed the insurer, wanting to review the plan.

She said the plan listed the financial adviser, but that neither she nor her husband had any contact from him since being in Australia.

In 2013, that adviser's firm became a member of IFSO. The adviser registered as an RFA in 2015.

In August 2016, the insurer notified all members of the plan that its structure was being wound up the next month to comply with the Financial Markets Conduct Act 2013. It directed queries to financial advisers.

The woman asked the insurer what would happen with the FMCA changes and said she had tried to contact her adviser with no luck. The insurer contacted the adviser, too.

In March the next year, the woman contacted the adviser again. He rang and she then emailed, outlining her dissatisfaction with the lack of contact over the years. She sent her questions about the life insurance in the plan.

Three days later, she asked the financial adviser further questions about the plan, and said she felt she and her husband had “been unfairly disadvantaged in regards to what life assurance actually meant and what impact it would have at the expiry date”.

The financial adviser responded to her that day to say she could “reduce the live cover only to an acceptable cost, and with you maturing the super scheme” and that he could “assure [them they had] not been disadvantaged in any way”.

She responded by email to state she and her husband “believe[d] they [had] been severely disadvantaged” by not receiving the appropriate level of time investment or expertise from the financial adviser.

By the end of the month, they had requested to move to a new financial adviser. Later that year, the complained to IFSO that they had not received acceptable service.

IFSO said both the Financial Advisers Act 2008 and the Consumer Guarantees Act 1993 set out statutory obligations in respect of the standards required in respect of providing services.

The case manager discussed the case with the financial adviser. He stated he was now retired but the manager said being retired did not exclude the financial adviser from the FAA.

The case manager understood from the financial adviser that he did not offer regular reviews to client or establish if regular reviews of the products they held were necessary.

In particular, he had not reviewed the man's plan since it was first implemented.

"It is standard practice today for a financial adviser to have a system for checking whether clients’ circumstances might have changed and whether the products they have continue to be appropriate for them, unless the clients have specifically agreed that they do not wish that to occur.," IFSO said.

"The case manager also concluded, from the information available, that the financial adviser had not responded to requests for assistance. The case manager considered that while they could be expected to respond immediately while on holiday, professional standards require having an adequate process in place to deal with client requests, particularly where, as was the case here, the matter [the couple] wanted to discuss was a fundamental change in the structure of the plan."

Taking all of the evidence available into account, the case manager concluded that the financial adviser had not met the requirements of s.33 of the FAA or s.28 of the CGA in respect of the service provided. Therefore, IFSO upheld the complaint.

However, the case manager was unable to refund the contributions made to the plan, since they were only “refundable” in the sense of being repaid if the man had passed away prior to the policy’s expiry on March 28, 2017.

Tags: IFSO Life insurance

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Comments from our readers

On 6 September 2018 at 9:53 pm interested2 said:
Interesting commentary, whats your thoughts on clients that cannot be contacted. For example, I have a client that I worked closely with for a few years, they then stated they were ok and no longer wanted our annual review, after three years we contact as a courtesy but mail was returned. Calls went unanswered/ lines disconnected. We tried many methods to just get contact details, the insurer has also asked for updated details, we have none. For all I know they have moved to Perth also. What are we to do?
On 11 September 2018 at 12:49 pm Murray Weatherston said:
This story piqued my interest so I looked out and then read the casebook summary of the complaint No 00205839, which case was closed precisely at 2.47pm on 21 February 2018..
First thing that surprised me was that this was a decision made by a case manager – not of the IFSO Ombudsman herself.
Second I don’t think the case note has been written carefully or clearly enough.
Third. I think the case manager has made some sweeping assertions as to what the adviser should have done. The case manager effectively held things way beyond what I think the duties of an adviser are:
The facts are relatively simple
1. Client bought through the adviser a Personal Super plan (plan) and a term life policy (policy) in 1993.
2. Adviser did not have a practice of following up people each year on policies written earlier. [Adviser did not appear to have a contract that required post-sale advice. Client was not paying them a fee.]
3. Client left NZ for Australia a few years later – let’s guess 1996 or 1997.
4. In 2011, client’s wife emailed insurer for contact when she was in NZ. Case notes don’t say whether there was any actual contact.
NOTE: presumably the wife had written authority from her husband to make these enquiries, unless she was the policy or joint policy.
5. 8 November 2013, the firm the financial adviser worked through became an IFSO member
6. Adviser registered on FSPR on 15 October 2015.
7. Firm deregistered from FSPR on 17 February 2016.
8. August 2016, manufacturer advised all members that the Superannuation Plan was going to be wound up 30 September, because of impending FMCA changes. - standard letter any questions contact your adviser –
9 26 September, client’s wife contacted insurer – asking about implications of FMCA changes and said she had tried to contact adviser, but no answer.
10. 2 October, insurer contacted adviser – who said he was and would be overseas until 10 October.
11. 16 March 2017, client’s wife contacted adviser about the term life policy. RFA asked her to email him her questions. She did so and RFA emailed answers the next day.
12. 20 March 2017, wife again contacted adviser with further questions about the Super Plan and complained that because the adviser had never contacted them since 1993 (a period of 24 years) when the policies were originally put in place, she and her husband had been disadvantaged.
13. 21 March - wife sent another email to say they had been disadvantaged.
14. 22 March – insurer advised husband that the superannuation plan had been wound up.
15. 22 March wife contacted insurer and asked that the adviser be replaced.
16 24 March insurer advised RFA about the replacement request.
17 28 March 2017, the term life policy ended under the terms of the insurance contract.
18. 31 March Client completed process to move to a new adviser.
19. November 2017 – client complained to IFSO.
20. The adviser retired shortly afterwards
What the case manager found
1. It seems that the advisers firm first registered on FSPR 19 April 2011 – even though they didn’t join IFSO till 8 November 2013. Under the IFSO scheme rules, adviser was held to be responsible for the financial adviser services provided since 19 April 2011.
Under the facts set out, it was clear that the RFA had not provided any advice to client since 1993, so the case manager had to be saying that the adviser should have provided ongoing advice to the client every year since 1993.
I wonder if the Australian regulations would have allowed a non-AFA NZ adviser to provide advice to an Australian resident client under the Australian regulations in any case.
2. Case manager found it is standard practice for an adviser to have a system of regular checkups with anyone for whom they had ever arranged a product, unless the client has opted out of contact..
This finding must be subject to some debate – I am sure the pointy-heads do that, (or say they do) but I frankly would be surprised if that was standard practice across the board for insurance advisers in general.. Comments invited.
3. It appears case manager looked at the service under s 33 of the FAA (the care skill and diligence requirement) and the Consumers Guarantee Act. How the latter was relevant beats me when the only advice was provided in 1993 and the complaint was in 2017.
There does not appear to have been a contract between adviser and client that they would provide ongoing review, so the case manager must have found that whether or not a contract existed, the adviser should have provided such review services.
That finding seems to me to be a huge stretch of what I would have thought the common law situation would have been.
4 Case manager could not find any reason to order refunds of contributions paid by the client. But case manager obviously thought the adviser should pay something, so awarded $1,000 (out of a maximum $3,000) because the client had incurred special inconvenience or expense in making or pursuing the complaint.
On 12 September 2018 at 9:49 am Tash said:
Murray. Do you think S33 of the FAA 2008 even applies? I doubt it does unless the adviser (in 2007) not way back at inception, provided a 'financial advicer service' under the FAA (made a recommendation about acqiring, disposing of or refaraining to dispose of a product)
On 12 September 2018 at 1:34 pm Tash said:
Sorry, should have read '(in 2017 not way back at inception)'
On 12 September 2018 at 2:59 pm Murray Weatherston said:
@Tash
I just don't know.
The Casebook document does not set out the logic that the case manager applied. As I said I do think report was written clearly or carefully enough.
Seems an EDRS is not accountable to anyone as far as decision against adviser is concerned (client can take to the Courts but adviser can't. So in that respect EDRS is actually a law unto itself.
Perhaps IFSOmbudsperson might be cajoled into making clarification, but I won't be holding my breath.
We don't know who the actual case manager was, nor the full evidence they took into account.
PS In case anyone is wondering, let me be clear I have absolutely no idea who the adviser was. I suspect s/he has just taken this decision on the chin and said "TGIHR" (thank god I have retired) ["and am free from all this stuff".]
On 12 September 2018 at 3:35 pm Murray Weatherston said:
My turn to be sorry - line 1 should be "I do not think report was written clearly or carefully"
On 13 September 2018 at 1:11 pm Davet said:
I have always worked under the understanding that if my client moves to Australia then I cannot offer them ongoing advice. If they come back to NZ even for a day I can meet and provide advice while they are here. So you would think if this is the case the Adviser had at least some mitigating circumstances for not offering advice previously. Or have I misunderstood the Australian Regulatory requirements?
On 14 September 2018 at 10:26 am Dirty Harry said:
I found an old suit at the back of my wardrobe that I purchased around 20 years ago.
I have not heard from the shop since.
I have not been to the shop since.
The suit no longer fits.
I want a refund.
On 28 September 2018 at 9:15 pm RiskAdviser said:
Murray, thanks for the well-presented timeline.

The one thing I've picked up in this is the comment in about 1993 Mr G purchased the policy.

The IFSO is on shaky ground with the application of the Consumer Guarantees Act 1993 to this situation, as the CGA 1993 while passed in August 1993 did not come into active law until 1 April 1994. After the transaction and advice were given to the client.

Assuming, as reported, the client didn't have contact with the adviser after that date, later legislation is unable to be applied to this contract and the conduct of the adviser.

I don't know if the case manager is being purposely vague, as the date of commencement on those policies is very clear, to slide this in and imply the CGA 1993 applies, but they have not checked their basic facts and the application of the law at the time in rendering their half-baked verdict.

The law applying to this policy is the law(s) preceding the CGA 1993 and not the CGA 1993.

As too, the version of the Fair Trading Act 1986 was also a significant number of versions prior to the current version of the act, with the one available online being the 3rd of September 2007 so I can't comment on the specifics of the act at the time.

The ISFO has some questions that need answering as this case should concern its members, and those members should consider their involvement in an organisation that isn't following their own due process with glaring legal ommissions that a basic law clerk would spot.

These ommissions have significant implications on advisers as advisers do not have the right of reply in DRS complaints.

Which makes this doubly concerning that a case manager has been able to render a verdict without the Ombudsman's oversight and stamp of approval.

This would be different if this was a negotiated settlement, concerns accepted, but this is an upheld complaint without the Ombudsman's stamp.

Which with my limited legal knowledge opens the IFSO up to a legal challenge on their process, as this is not challenging the decision as such.

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