Financial planners face being held liable for their advice when a client’s insurance policy goes wrong, an expert has warned.
Delegates at wealth management group Count Financial’s annual conference in Perth were told about their obligations in the growing area of wealth protection.
Jeffery Scott, executive manager – business growth services for the Commonwealth Bank’s insurance arm, Comminsure, said planners need to ask themselves, “am I liable?”
“Financial underwriting is as important as medical underwriting,” he said.
He gave the example of a planner who completed a fact finding exercise into the insurance needs of a client who had a $500,000 mortgage, a wife and two young children. The planner issued a statement of advice (SOA) that disclosed he was giving limited advice that recommended income protection insurance only, not death or disability cover.
The planner was negligent because disclosure does not allow a planner to avoid their obligations to a client, Scott said.
“If you identify a risk you must tell a client about it – to say nothing is negligent,” Scott said.
Giving advice on insurance offered by superannuation funds carries risks, as does recommending a different policy for a client than their existing one, Scott said.
Delegates were told even the commissions they receive might be at risk when a policy goes wrong.
Scott gave the example of a client who purchased an insurance policy through an adviser and later refused to deal with them. The client then requested a new adviser who would receive the ongoing commissions from writing the business. The client’s insurer rejected this, saying the policy did not give the client a right to have an agent of choice.
“When you’re looking at policy definitions, take a closer look,” Scott said.
“Often the claims situation of a company becomes imperative – for insurer to insurer, you see vast differences,” he said.
Scott urged planners to write more insurance to tackle Australia’s under-insurance problem
“The thing that scares me the most [is that] 30 per cent of SOAs have no risk recommendations at all,” he said.
“People just aren’t getting covered. Less than one in five Australians have life cover. We need you to sell more insurance.”
