3 Comments 3 Commentsby Steve Wright
The Australian Financial Complaints Authority (AFCA) has ruled that a client be paid A$162,886 because the adviser gave the client incorrect product advice. While this adviser was ‘in-house’ I suspect similar principles would apply to ‘independent’ advisers in similar circumstances.
Very basically:
The AFCA’s rationale for their decision in favour of the client was the adviser’s misleading and incorrect advice. (I can’t help wondering though, if the client’s adviser had been ‘independent’, more might have been made of the Insurer’s ambiguous wording (which might have been the underlying cause of the adviser’s mistake)).
This case is important because it highlights the level of product detail advisers are expected to know and accurately advise their clients on. I doubt this expectation would be any different in New Zealand.
New Zealand trauma cover (aka critical illness) products, and their options, differ significantly when it comes to what is covered on ‘buyback’ of trauma cover previously claimed on.
In particular, what might be covered following a claim for cancer can be a tricky area. Depending on the provider, the product, or the option selected, trauma cover bought back may have no cover at all for cancer. In other cases, there might be limited cancer cover, for unrelated incidences of a new primary cancer, for example.
Even in cases where unrelated subsequent cancer claims might be covered, what ‘unrelated’ means might differ between products.
I suspect it might be sensible to assume that all clients considering whether to exercise a buy-back option following a claim, would be expecting their claim condition to be covered again, so advisers should explain the position clearly and very accurately in their Statement of Advice to the client. (If the policy wording is unclear, get confirmation from the insurer.)
It may also be necessary to investigate any other options available to the client from other providers: a premium loading on a new policy may be preferable to an exclusion on cover bought back. Here again, my view is that the advice given, and any recommendations made, should be clearly set out and justified in a Statement of Advice – it might make all the difference if any form of complaint is made.
Steve Wright has qualifications in economics, law, tax, and financial planning. He has spent the last 20 years in sales, product, and professional development roles with insurers. He is now independent and helping advisers mitigate advice risk through training and advice coaching.
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However, the contrast between the decisions made when applying to independent advisers is tenuous.
There are two aspects to this:
1. Was it written down? If it’s not written down, then it didn't happen typically applies.
With our advisers you would more likely have a conversation about this rather than writing it down, making it a he said she said situation. Our policy documentation produced by insurers in this area is usually clear on whats excluded.
With this case the adviser concerned likely had some form of recording in the mix, call based, given the direct provider association that has assisted the client’s complaint.
2. The adviser concerned was employed by the insurer, making any statement a statement of the insurer and not a statement of the adviser.
This carries significantly more weight than an independent adviser getting it wrong or making a mistake.
An adviser doesn't represent the decision making and contract terms like an employee of the insurer would.
Yes, there is an agency contract in place, and that specifically excludes advisers making incorrect representations about the product to clients.
It is less likely that this would have gone the same way in the NZ market with an independent adviser. Because of the disconnect between advice and provider including the detail of the call/meeting recording.
This is an example of where offhand comments can have unintended consequences.
If this is the standard expected for our documentation, we’re entering into unreasonable requirements with technology and advice businesses.
Not to mention there are still plenty of clients that refuse to have meeting recorded, video or audio.
I’d be interested to hear the opinion of our DRS providers on this one relative to independent advicers, as there was a representation risk in the advice provided because the judgement has been made.