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The week that was

It was an interesting last week in the news, and there are few things that touch on what we do as insurance advisors.

Monday, October 1st 2018, 10:21AM 2 Comments

by Jon-Paul Hale

The ongoing news from Australia and the Royal Commission,  close to home with the IFSO verdict on an adviser's conduct, and AFA's conduct censured by FDAC.

Starting with the Royal Commission while I’m sure there are examples of some of the things raised in the Royal Commission happening here, I’m stunned by the sheer magnitude and volume of the situations reported.

All of the financial providers there have been impacted, however, picking on the CBA group, having worked for them in the past, has been a stunning shock of contrast between the New Zealand operation and the conduct of the parent in Aussie.

Last year we had the CBA admit to 51,000 violations of the AML rules concerning the deposit takings of their ATMs.

Also, then their investment provider, Colonial First State who is part of that stable, had 15,000 customers where they actively delayed transferring them to a fund product that was considerably cheaper fees for the client. This can only be described as behaviour purely in the interest of the fund manager.  

Other examples are similar where several other superannuation providers failed to act in a reasonable time to move clients into fund products that were substantially cheaper for the customer as well.

Demonstrating the financial service providers operating exclusively for their own benefit, which isn't what being an adviser is about, can have a massive impact on our industry.

We have all seen the headlines about charging fees deceased people and other conduct. However, a few things are being raised that we as insurance advisors need to be mindful of.

One of the more recent has been about breast cancer and the insurer not paying a trauma claim unless it was a full mastectomy.

For those that have been around a while, you will know that this is not unusual, especially for older style policies, and at present, severe or major trauma policies.

What the discussion commentary is showing is those that are looking inwards on our industry often do not understand how it operates.

Which puts us into potential conflict; as there is a fundamental practice of insurance to transfer the risk in return for the premium paid. Moreover, that premium is reflective of the risk transferred.

We have an awful lot of old-style trauma policies that do not pay partial claims for early-stage breast cancer. When compared to the policy that is available today, they are often substantially cheaper, resulting in clients opting to remain on the old policy to their future detriment.

To follow the brief commentary from the Royal Commission, you could be forgiven for having the impression that policyholders are entitled to today’s policy wording on yesterday's premiums.

Which brings me to the release of a complaint judgement by the IFSO against a now-retired adviser. The adviser sold the policy 30 years ago and is being held to account for the servicing of the policy even after losing contact with the client and having no contact for 24 years.

There is more to this story as there appears to be some level of contact in 2013. However, much of this plays out with an adviser at the end of their career and with a client that has emigrated.

The insinuation from this is in receiving service, renewal, or asset commission, you as the adviser are still responsible for the servicing of that client.

Now many of us have clients where we get paid that renewal, at the same time we no longer hold the rights to service the policy, if the client transfers them to another adviser.

Which raises several questions; if the new servicing adviser fails to service the policy because you still receive renewals are you still responsible?

Also, the more subtle one; if you are the servicing adviser for a policy that does not pay renewals, you cannot sell that on without financial consideration, so do you remain responsible even after you have retired?

This case raises many issues, Murray Weatherston's comments on the article summing up the well-presented timeline were helpful.

The one thing I've picked up in this is the comment "In about 1993 Mr G purchased the policy." (IFSO's case notes here https://ifsosite.secure.force.com/CaseNote?CaseID=00205839 )

The IFSO is on shaky ground with the application of the Consumer Guarantees Act 1993 in their judgement of this situation, as the CGA 1993 while passed in August 1993 did not come into actual 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 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 that should be applying to this policy is the law(s) preceding the CGA 1993 and not the CGA 1993.

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

These omissions 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 were 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.

Which brings us full circle to the censure by the FADC of AFAs in a QFE.

What many of you may not realise there is a responsibility in a QFE for them to report any and all misconduct by its members to the FMA.

There has been a suggestion that the QFE hung their people out to dry; the unfortunate choice for the QFE is they either report the infringement or risk having their QFE status revoked.

What is good to see, with the actions taken, is a clear message that operating on the back of our wet paper napkin is not the way to do business in the life insurance space.

Which for us in the field is a good sign that the FMA is taking an active approach to protect our industry and uphold standards.

Contrary to the comments suggesting the review of these two advisers was nitpicking, it applied the AFA code to AFA's, something that doesn't apply to RFA's and has both frustrated the FMA to date and indicates where we are likely to have to lift the bar too, as a minimum.

This is a good thing as we have all experienced advice and transactional sales practices from the direct providers, while we have tried to do the right thing as professional advisers and still lost on the price battle, with a direct provider not advising on the real differences.

What this does say is with the forthcoming regulation we are all going to be measured by the same measuring stick, which is better than the present disjointed differing rules approach we presently have.

So to wrap up my thoughts for the week;

  • There is a risk in the external operators to life insurance making the rules for us.
  • Review and ensure you have in place a good scope of service with reasonable terms and conditions.
  • Be mindful of the DSR you are part of and how they operate, as the IFSO has demonstrated that attention to detail and due process can have massive impacts on us with very little recourse for the adviser(s) concerned.

Tags: Jon-Paul Hale

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Comments from our readers

On 4 October 2018 at 2:10 pm dmcdougall said:
I would like to comment on JP's first thought of the week " There is a risk in the external operators of life insurance making the rules for us". It is my position that for a public facing sector there is the greater risk if there is no external input. The constant pushback that I hear is; those that are not Advisers don't understand the business. while there is truth in this statement, it is equally the case that those not in the business will have a more panoramic view than those that focus on what they have done for the last 30 years. This is not an argument about which position is correct, because they both are. What is important is that if we are truly focused on the clients' needs and priorities, which we should be, we need to listen to what the client is saying about us. The client, in this case, is represented by the Government who I am afraid to say, don't just make stuff up. The Government representatives are reacting to what they have been told. It doesn't need to be factual it just has to be what they have been told. We in the industry need to engage with the Government and their representatives to help them understand our business and let them help us remove our blinkers.
The first opportunity to do that has been and gone (select committee) but there will be another opportunity (hopefully commencing shortly) when the Code of Compliance is put out for public consultation. Public consultation is just that, the public can have a say, that includes Advisers working in the business.
If you don't take the opportunity the commentary after the code is released can't be "the external operators don't know our business", it has to be we failed to help them help us.
On 5 October 2018 at 8:57 am RiskAdviser said:
Thanks Dean that is exactly my point the industry by and large has had that response to any external commentary and is at risk of rules being imposed without the engagement of the sector to have them structured in a way that works for advisers to deliver on and for the ‘client’ to get what they are looking for.

We are at real risk of having a camel with the horse that is being designed by committee.

So when the code is released for consultation take the time to respond. Because these are the rules you will have to work to. No ifs no buts, you will have to follow them.

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