Jaime Lumsden Kelly
Competitions where insurers or underwriters reward broking staff with a ‘prize’ for meeting certain volume goals for quotes for business placed are rife with conflicts, whether the broker wins a prize or not.
The Fold Legal senior lawyer, Jaime Lumsden Kelly says entering a competition can easily lead to a breach of the broker’s Australian Financial Services (AFS) licence. “Regardless of whether a broker wins or loses a competition, merely entering creates a potential conflict of interest,” she says.
“Participating staff could be motivated to prefer their own interests to those of their clients and brokers who give personal advice to retail clients, could also breach the best interests duty.”
Ms Lumsden Kelly says AFS licensees need to take a stand on competitions. “The options are to either avoid it altogether and not allow broking staff to participate or to manage it. When licensees tell their brokers to avoid it, they should keep reminding them and inform the insurers they deal with as well.”
If the licensee opts to manage it, they must act on two elements; disclosure and the best interests duty. “The potential for staff to win prizes needs to be disclosed in the Financial Services Guide for retail clients and in the disclosures you make to wholesale clients. All disclosures must be timely, prominent, specific and meaningful,” she says.
“To meet the best interests duty, implement a policy that broking staff must recommend insurers and policies that are appropriate for the client, without any regard to the prospect of winning a prize. Put it in writing and periodically check that it doesn’t happen.”
Ms Lumsden Kelly says that managing conflicts of interest can be complex, but seeking legal advice for identifying and developing policies for managing them can be of assistance.
