The 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 advisers, albeit acting in the best interests of their clients, 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 coverage levels.
When considering the impact on the duty of disclosure the re-start in the non-disclosure period , would need to be weighed up 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 balance and decision to change must be weighed against the potential greater risk of an inadvertent non-compliance with the Duty of Disclosure.
Whether a policy is under three years in force or over three years 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.
The process undertaken with a client in relation to the Duty of Disclosure, any changes in cover level and the differences in policy coverage needs to be more robust than a section in the Statement of Advice. 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.
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 impacts of the change in policy may have on claims outcomes versus expectations.
This type of rigor extends to cover levels and especially in the current environment where cashflow of clients is impacting on client decisions to reduce coverage levels or do away with coverage types. Working with a client, through scenario examples and explaining the financial impact levels of self insurance may have again needs further 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 Interest Duty’ is to be enacted effectively, then these factors should be made clear to the client both verbally, and within Statements of Advice and documented in file notes and other worksheets that we are seeing some advisers use as part of their education and advice process .