DRS member or not - client care remains advisers’ responsibility
Both the regulator and government officials say the onus falls on advisers to work with disgruntled clients to try to resolve their complaint even if they have left the sector or joined a new provider.
Monday, November 25th 2024, 6:39AM 
3 Comments
Financial Services Complaints Limited chief executive Susan Taylor told Good Returns she was seeing increasing numbers of complaints about former DRS members, as more advisers retired, sold their business or merged their business with other providers.
DRS’s were hamstrung, she said, by the liability gap left when they could no longer require an adviser to participate in an investigation and a new solution was needed to help better protect consumers.
Financial Markets Manager at MBIE, Tom Simcock, said the ministry was aware the liability gap affected a handful of complaints to schemes each year but consumers were not short of alternatives.
“This issue does not affect the rights of a complainant to take other action, such as through the Disputes Tribunal and the Courts. It also does not prevent participation in a dispute resolution process, provided both the consumer and the provider voluntarily agree.”
However, FSCL’s Susan Taylor said the latter relied on a DRS tracking down the adviser who had likely moved on and convincing them to take part in the complaint process. Court action could be expensive and stressful when clients were already under pressure having perhaps lost money or as was the case recently, having a sick family member who they thought they had insurance cover for but did not, she said.
MBIE’s Simcock said the ministry would be keeping an eye on the issue and continuing to discuss cases with the Financial Markets Authority as they cropped up.
Both MBIE and the FMA issued a reminder of expectations under the Code of Professional Conduct for Financial Services, which requires advisers to treat clients fairly and to act with integrity.
Advises were expected to carefully consider their duties under the code, and work with clients to resolve any complaints.
“If the two parties are unable to resolve the complaint, the FMA expects the adviser to work with their FAP’s DRS provider to consider and resolve the complaint,” said an FMA spokesperson in a statement to Good Returns.
“FAPs have an obligation to take all reasonable steps to ensure that anyone they engage to give advice on their behalf complies with their obligations under the code. The FMA expects financial advisers and their FAPs to work with DRS providers to resolve complaints. This is in relation to advice provided when the adviser was operating,” the statement reads.
The FMA said it had discussed the liability gap issue with the schemes and was helping to advise MBIE on ways to address the gap.
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The current challenge is that we have a regulatory change coming up at 4 years old.
Prosecuting advice older than 4 years under the present regime is a problem on several fronts.
1. The advice was provided under the rules of the time; you can't retrospectively apply today's rules any more than the insurers will apply new wordings that aren't captured by passback (i.e. anything earlier than 2001)
2. The rules today stipulate the FAP is the responsible party for the very reason that there wasn't anywhere to pursue problems under the previous regime with retired AFAs and RFAs that had moved on.
If the client hasn't engaged with the FAP since March 2021, then there is no recourse through the FAP for the client. (There's an article from me pending on this subject with more detail)
3. Servicing agreements with clients are a requirement of the new rules. However, while assumed and implied, there are no stipulated minimum servicing requirements in the new rules. A client can select no ongoing service, which the law expects you to abide by. You can't assume everyone doesn't want service, that will get you in trouble; you have to offer it to comply with the law's intent, but there are no requirements for what servicing looks like.
As I have stated in other articles and comments, under the new rules as soon as you pick up an advice relationship with a client and state their product is fine to proceed with, you're on the hook for its performance into the future, well the FAP is at the very least, you to as a FA.
As to the liability gap on historical advice, that falls to the historical processes of the time, insurance and savings ombudsman, disputes tribunal, and the high court, which are all still available.
We should have this crystal clear by now. It's been 8 years of talking about how this works, and it has been consistent and fundamentally the same from 2016 to now. The rules, as intended in 2016, are the rules we have now!
If the FAP has deregistered and the policy sold to another FAP then there could be questions that fall to the new FAP, but that can be covered another day.
Alternatively, STs real complaint is the difficulty her DRS has holding advisers to account under the current regime for advice given prior to the current regime. That’s not a problem worth complaining about, in fact Her complaint is itself the problem! We’ve had too many examples of current standards being applied - especially by DRSs - to advice provided prior to those standards even being dreamt up. And that MUST stop.
ST: YTA here. Fact is the FAP is a DRS member, and if that FAP exists even when an adviser doesn’t then that FAP carries a burden of responsibility for the advice given by the adviser under that FAPs license. That’s how the whole thing under FSLAA works and the fact that it seems too many people DONT UNDERSTAND that is in itself a significant problem.
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We are required to keep files for 7 years after business has ceased but yet claims can be made after 7 years. If we leave the industry we cannot keep copies of files and yet how do we defend or research a claim made against us - in the latter situation we cannot even phone the Insurer. Unfortunately under this complaint regime we are being hung out a bit especially if we leave the industry - the adviser that takes over can blame the original adviser for everything starting a claims process but we cannot protect ourselves.