The recent implementation of the FoFA legislation, combined with the outcomes of recent court cases, sees Zurich’s Andy Marshall cautioning advisers to take great care when considering possible changes to their clients’ existing cover arrangements…
The recent decision in the case of Commonwealth Financial Planning Ltd v Couper, where the presiding bench made broader comments about appropriate advice, has significant implications for advisers when acting, albeit in the best interests of their clients, to replace insurance providers. The presiding judges argued that “…for the advice to be appropriate, we incline to the view that it was necessary to do much more than say that the new policy was, like for like, dollar for dollar, better value.”
This highlights the need that if a policy replacement is being recommended, the disadvantages of this replacement must incorporate the implications of the restarted non-fraudulent non-disclosure period, as well as the differences in coverage and cover levels.
When considering the impact on the duty of disclosure, the re-start in the non-disclosure period would need to be weighed against the advantages of the policy change. Where perhaps there is only a small advantage in premium that has seen the provider change effected, the decision to change must be weighed against the greater potential risk of an inadvertent non-compliance with the duty of disclosure.
Irrespective of how long a policy has been in-force, there remains an issue around the duty of disclosure re-applying and the re-commencement of the non-fraudulent non-disclosure period upon replacement. This needs to be properly considered and made clear to clients when a replacement policy is recommended.
Within the process undertaken with a client in relation to the duty of disclosure, any changes in cover level and the differences in policy coverage need to be more robustly communicated than simply by adding a section in the Statement of Advice (SoA). What is required is more detail in the client interview process, where the client and adviser work through the detail and sign off, literally, on their discussions.
for the advice to be appropriate, we incline to the view that it was necessary to do much more than say that the new policy was, like for like, dollar for dollar, better value
Working through matrices of product comparisons may not seem ideal, but some mechanism of doing so is vital to ensure that the client and adviser are fully aware of the potential impacts the change in policy may have on claims outcomes and expectations.
This type of rigor extends to cover levels, especially in the current environment, where cashflow issues may be impacting client decisions to reduce cover levels or cancel policies. Working through scenarios with clients and explaining the potential financial impact associated with self-insurance also requires further rigour and process to ensure the advice being enacted is understood in the context of eventual outcomes, not just the immediate solution of a reduced premium.
If the best interests duty is to be enacted effectively, then these factors should be made clear to the client, both verbally and within the SoA, and documented in file notes and other worksheets that we are seeing some advisers use as part of their education and advice process.
Under the Spotlight provides a life company view of the issues facing the advice industry.
Andy Marshall was appointed to the position of Head of Sales Strategies and Research, Life Risk for Zurich in January 2014.
Contact or follow the author: Twitter