3 takeaways from a recent FSCL case

Good to see you covering these case studies, there's good and challenging with all of them and they don't always get it right IMHO. The proactive piece is an interesting one that came up in discussion with FSLAB at the time. The expectation of the law was that after policy issue section 10 requirements on adviser disclosure to the insurer was done, for information received after policy issue. However, the FSLAB expectation (and it could have moved to some other piece of law, I don't remember) was that the adviser, once notified of the information, had a professional responsibility to discuss the situation with the client. The adviser has no authority to act until the client provides instruction, aka non-disclosure. However, the adviser is liable for knowing and not advising the client pro-actively. This explains why FSCL didn't have criticism of the client's expectation. However, as you have said, it is a record-keeping issue. If the discussion happened and the client did not provide instruction to the adviser or complete admin requirements to execute that instruction, that is on the client. There is a limit to advisers wiping arses when clients do not complete requirements. In this case the lack of evidence from the adviser does mean FSCL's decision, under the new rules, to find for the client is reasonable with the circumstances we know. However, in a leave without pay situation, the policy will respond as a worker for up to 12 months with the intention to return to work, and the appropriate time to discuss cancelling the benefit is a review 12 months from the date of ceasing work. This may have been intended, but busy homemakers often punt reviews with little ones, and it is reasonable that it could take a year or two to get to this one. Given the date is 2011, we are talking 14 years here, so something has fallen through the cracks. However, that's talking about advice after 15 March 2021. The rules for advice provided before March 2021 are under the prior regime, where there was no code of conduct or regulatory response for registered financial advisers. There was no documentation requirements, a wet paper napkin was about it. Therefore, in this case the responsibility lies with the policy owner to take affirmative action to ensure they have it right. If the adviser reviewed the client after March 2021 and didn't act on the information, then they have some culpability, but that is only for the period from 15 March 2021 and not the full 14 years!

On another point, at what point do we allow abdication of responsibility for not reading renewal notices?

I do find it interesting that FSCL has provided a free pass to the client for not reading their policy updates when they have expressly stated "However, the insured is also responsible for reading and understanding the policy." in their findings in another published case study https://fscl.org.nz/case-studies/do-i-smell-meth/

I read 3 things - advisers have to be baby-sitters, mind readers, and a punching bags. Just saying.

There is a bigger picture here, but it is largely irrelevant. Because the terrifying part here is this is yet another example of the new regime being applied to an advice interaction that pre-dates the new regime - by many years. I think FSCL has this one horribly wrong by using the expectations of the current regime to judge the actions/inactions of a client and adviser in 2011. Yuck.

@w k with respect to advice under the old rules, pretty much with what we’re seeing. Under the new rules, if you've got your process sorted not so much. FSCL did find that clients need to read and understand the material, meaning if they don't they have a responsibility to say something. Though the concern is the double standard being applied for this case.

@jphale. to clarify, i was referring to fscl. yes, as far as fscl is concerned, clients have no responsibilities. the current fma regime is approachable and understanding. great people.

@w k That's how I took it, and I agree on the most part the FMA is pointed in the right direction with good people.