Completing insurance applications for clients is risky

16 November 2017

Complaints about financial advisers highlight the risks of completing applications on behalf of clients and the need to keep good notes.

While financial advice complaints remain relatively low (the IFSO Scheme received 10 complaints and 73 complaint enquiries about financial advisers last year), all complaints provide lessons for the industry.

“We had a general rise in complaints last year and our resounding message is that complaints are not all bad!” says Insurance & Financial Services Ombudsman, Karen Stevens. “We learn from client feedback, including complaints – and this helps to avoid future complaints.”

“For example, filling out application forms on behalf of clients is a reasonably common practice, and it is a known risk,” says Karen. “We say don’t do it unless it’s absolutely necessary. If that’s the case, make sure you thoroughly explain everything, check your client understands, and always keep good records of those discussions.”

In a recent case, Sue*, a financial adviser, completed a life and trauma insurance application form for her client Bob*. Later, after a heart procedure, Bob’s trauma claim was not only declined, but his policy was also avoided because he hadn’t disclosed a number of health issues.

Bob complained and said Sue should pay the value of his trauma cover ($80,000). Bob said Sue hadn’t explained the need to disclose all of his medical symptoms, appointments and diagnoses. Bob thought the insurer would obtain all of his medical notes, as a matter of course, but was wrong in his assumption.

“This particular complaint was not upheld, as it was clear that Bob hadn’t disclosed material information. However, Sue didn’t have file notes of the meetings and conversations, which made it more difficult for her to prove what she had said and done,” says Karen. “It becomes a ‘he said, she said’ situation, with no good evidence either way.”

Non-disclosure is a common theme in complaints to the IFSO Scheme, and financial advisers have a key role in educating clients.

“Most clients will not understand their duty to disclose, or the meaning of material information and, importantly, they won’t understand the consequences of failing to disclose, which can be devastating,” says Karen. “It is important that financial advisers take the time to explain the duty of disclosure. From a risk perspective, it’s important to keep good records of those conversations.”

“In the event of a complaint, good records make it much easier to resolve issues before they escalate and start to cost everyone serious money.”

*Not real names