[Opinion] Trauma reinstatement/buyback advice to client must be accurate

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 client had previously claimed on her trauma cover for cancer.
• when reinstating her policy (under a trauma buyback (without medical underwriting) type option) her adviser told her that she would not be covered for cancer of the same type suffered, but would be covered for different, unrelated, cancer.
• the adviser was not correct, the client’s policy excluded all cancer on buyback.
• the client later suffered a different cancer and the insurer sought to decline the claim.
• the AFCA ruled (notwithstanding significant ambiguity in the PDS and policy wording) that this error by the adviser was sufficiently misleading and the cause of the client’s loss.

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.