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Why did I change insurance policies?

Thomas and Tracy arranged life and trauma insurance directly with their insurer in 2008 and 2017 respectively. In May 2018, they met with a financial adviser (the “original adviser”) who provided advice under the banner of a financial advice company. The adviser suggested that Thomas and Tracy cancel their existing policies and move to a new insurer. Thomas and Tracy accepted this advice and moved their cover.

The couple saw a new adviser in September 2021. The new adviser said that the original adviser should not have changed the cover in 2018 because the original policies were better suited to Thomas and Tracy’s needs. Alternatively, the new adviser said that the better advice may have been for them to reduce some of their cover.

The new adviser complained to FSCL on Thomas and Tracy’s behalf. The original financial advice company said that they were not responsible for the complaint because the original adviser was a contractor and was not providing advice on the company’s behalf. Rather, they said the company only provided the original adviser with access to their tools and platform to enable him to provide advice in his own right.

Dispute

The new adviser said that the financial advice company must bear responsibility for the complaint because the policies were written under their agency with the new insurer, and they were receiving commission. Further, the advice was presented as being on behalf of the financial advice company, with all advice documents having the company name and logo.

The new adviser said that the replacement of Thomas and Tracy’s original cover was not in their best interests. She said that the original adviser had incorrectly evaluated the couple’s personal income, did not adequately explain the cost implications of a 100% premium loading on Tracy’s policy, and had obtained policies that were more expensive but provided a lower level of cover. In particular, the new adviser highlighted that because of the high premium of approximately $20,000 per year, the sum insured under Tracy’s life policy would be fully eroded within five years.

The financial advice company said that they were not responsible for the advice because there was a contractor agreement in place between the company and the original adviser making the adviser, not the company, legally liable for the advice. Further, the financial advice company was not registered on the Financial Service Provider Register (FSPR) at the time the advice was given, and therefore they were not licensed to provide advice.

Review

We said that the financial advice company should take responsibility for the complaint because:

  1. Under the contractor agreement, the adviser had agreed to provide the service of being a financial adviser to the company. The use of “to” suggested that the adviser was providing advice on the company’s behalf, rather than simply using the company’s tools and platform to provide advice in his own right. The contractor agreement appeared to support a finding that the adviser was acting as an agent of the company. Further, the contractor agreement between the company and the original adviser did not bind Thomas and Tracy (because they were not party to that agreement).
  2. Under the contractor agreement, the company was responsible for servicing the original adviser’s clients when he left the industry. The company was always going to have responsibility for any shortcomings in their ongoing servicing of Thomas and Tracy as clients, in any event.
  3. The company held the agency agreement with the insurer – the original adviser did not hold that agency.
  4. The company could potentially breach their duties under the Code of Professional Conduct for Financial Advice Services if they did not take responsibility for the complaint. If a consumer does not have access to a dispute resolution scheme because the adviser who placed the policies is no longer contracting to the company and has left the industry, this may bring the financial advice industry into disrepute.
  5. It would have been unreasonable to expect Thomas to check the FSPR registration of the company or the adviser and understand the nature of the relationship between the original adviser and the company. Overall, for all intents and purposes, Thomas and Tracy believed they were dealing with an adviser from the financial advice company.

Resolution

We issued a preliminary decision that the financial advice company was responsible for the complaint. We did not yet have the full advice file, but there was a strong argument that the new policies were unsuitable.

We asked the financial advice company to consider whether they wanted to make an offer to resolve the complaint. Considering that the new insurer had agreed to refund the 100% loading on Tracy’s policy since inception, the company offered the couple $3,500 to resolve the complaint, which they accepted.

Insights for participants

Advising companies/financial advice providers should be aware that they may be responsible for any advice shortcomings by previous advisers when they acquire an adviser’s clients or purchase a client book.