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What is retrospective risk?

Any review work you do as an insurance adviser that does not address the suitability risk of past advice, is potentially going to bring that into focus as today's advice issue for you.

Monday, May 6th 2019, 8:00AM 1 Comment

Huh? I hear you say.

Let's take a situation similar to our AFA adviser that got hauled before FADC recently; the client had a back twinge, you talked about it, and it wasn't disclosed back in 2016 or 2017. Let's park the added evidence of a past policy schedule with the back excluded for the moment.

When you sit down and review that client, you will be achieving two things: Triggering any section 10 risks for any new business, and if you do not address the past non-disclosure you know about, you will be putting yourself in the exact same position as our AFA before the FADC.

That's effectively making yourself responsible for the past non-disclosure of the client, because you know about it if the policy does not respond, and the client complains.

And while many will say, J-P that's a fine line and a longbow, is it?

Is it when we have past case evidence for the clients' lawyers to go looking for it specifically?

And this is one of what is likely to be many issues we have to contend with as we understand the true extent of the new legislation.

Personally, I don't have much concern around this particular issue. No doubt we have some level of non-disclosure with our clients, but it is not non-disclosure I know about. And that is the point.

And yes, making sure that the little stuff was disclosed has helped to navigate around a few things clients have missed at claim time, that I also had no idea on. Which, by the same token, was a pain in the gluteus while underwriters tied down the often ignored loose ends, which added days to polices being completed.

As I have said in past articles, talking about advice systems and process, I have been operating with the expectation that the legislation coming is what we would have to contend with. I started as an adviser in my 30s, so it would have been naive to assume that it would be decades before we saw any change, when they were already talking about it.

At the same time, I know many advisers have not been working to that standard. Yes, we sell stuff, but many advisers are just selling stuff, and this is where the majority of the change is going to create significant friction.

While I have seen many advice systems and tools, the majority of them are still focused on the product sale.

Which is going to be an issue around suitability, too. Was the sale being put ahead of the advice? And did this cause client harm?

Yes, some tools are slick and pretty, others are deep and technical, there's a balance there,. But what's right will come down to you as the adviser and what is right for the clients you serve.

I have raised the question of advice at every opportunity, "What is good advice?" I'm still looking for a definition as a clear, measurable one prior to a claim or complaint is somewhat elusive.

What is abundantly clear with what is coming our way is client first advice that is suitable for their needs, executed by a professional adviser that doesn't compromise their cover in the process, is going to be a key measure of good advice.

So what is good advice?

Advice that works as intended when it is intended to.

If you fail this test, then it has already been proven that the FMA will at least ask questions, if not pursue it further.

Tags: Jon-Paul Hale

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Comments from our readers

On 10 May 2019 at 2:02 pm Tash said:
JP I am afraid I don't agree with you. Good advice is not a legal requirement. What is a legal requirment is advice given with the necessary due care, diligence and skill having regard to all the circumstances. Mostly advice given which complies with these requirments will be 'good' even if unwelcome. By linking good advice to "Advice that works as intended when it is intended to" links the 'acceptability' of the advice ("goodness" in your speak)to the outcomes. I doubt the outcome can ever be the determinant of acceptable advice. It can of course be evidence of poor advice but this is a different thing. For example, making a recommendation to invest in equity markets does not become bad advice simply because equity markets fall unexpectedly. Similarly a recommendation that income protection is not necessary for an employed person who thinks ACC will look after them is probably not compliant advice but it may still be an example of advice working as intended.

As I see it, advice that complies with the care, diligence and skill that the law requires will depend on the client circumstances and the adviser's mandate (each client will be different) and must be within a reange of reasonable advice that would be given by the so-called 'reasonable financial adviser'in the same circumstances. The care, diligence and skill required will be that of the average financial adviser giving that type of advice (mortgage, investment, insurance etc), not that of the general population. I suspect the bar will be set higher than many coveniently expect or hope for, having regard to the various court and other precedents. This level of care diligence and skill will be assessed by reference to expert testimony as to what a reasonable adviser would do in each case.

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