Clients 'should expect ongoing service'
The fact of having a financial adviser should give clients sufficient reason to expect an ongoing advice relationship - whether or not that person is paid trail commission, one insurance boss says.
Thursday, October 4th 2018, 6:00AM 
12 Comments
An IFSO case where an adviser was fined $1000 for his treatment of a client has caused consternation in the industry.
The adviser signed the client up to a superannuation plan with life insurance more than 20 years ago.
He then had no contact with the client, who moved to Australia. In 2011, the man and his wife tried to get in touch again but the adviser had retired, though he was still getting a trail commission.
IFSO said the case was primarily about the ongoing obligations, and the adviser’s response when his clients asked for assistance after 2013. It said he had not served them sufficiently.
“A servicing commission, in respect of a client, is a payment for a service to that client, usually with ongoing obligations," IFSO deputy ombudsman Louise Peters said.
But advisers said that was not necessarily the case.
Jon-Paul Hale said the trail component was just a facet of the original advice contract.The fact of commission being paid annually did not in itself. indicate any expectation on the adviser, he said.
Some companies would pay an ongoing servicing commission, others would see it as just a part of their initial commission payment, which was to remunerate the adviser for having providing the insurer with a longstanding client.
Adviser Murray Weatherston said advisers had a contractual relationship with the insurer, not the client.
"My guess is that in other than investment cases, there is actually no contractual relationship between the client and the adviser ab initio. If the client goes back to the adviser, and the adviser accepts the client for a new interaction, there will be a relationship.
"But I fail to see that an adviser who writes business for a client in 1993 and has no contract with the client to provide ongoing service and advice should be held accountable 10, 20, 25 years later."
Partners Life managing director Naomi Ballantyne said 30 per cent of any premium a client paid went to the cost of distribution, including adviser commission. Anything that was paid out as trail was "what's left of that 30%", rather than a specific payment for services.
She said clients were unlikely to know the details of whether their client was receiving trail commission.
But they would expect that if they had an adviser, that person would be there to advise them, and would keep up-to-date with any changes required through their lives.
"They would have a genuine complaint if the adviser never bothered to go back and see them again. It's not the renewal commission per se but an expectation that they should be able to expect their adviser will help them as their needs change over time."
She said with advisers, clients had a chance of regular reviews, whereas direct products were sold without follow-up.
"Is that what's meant to suit you for the rest of your life? Whether it's the adviser or the company, they ave an obligation to keep up-to-date with the client circumstances, not just the market."
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There are no set industry standards for all advisers. What sets the service offer is what an adviser says to a client that they do, or what the client and adviser agree. This may be formal in a terms of engagement, scope of service or about us document, it may be on their website or marketing material, it may be what they said in a statement or record of advice. It is totally possible that an adviser just offer advice on implementing the insurance and then hands the client over to the insurer as their client and offer no ongoing service, but still receive renewal commission for the product implemented. My advice is do what you say you do and have a terms of engagement.
Didn't Direct Life or whatever they're called just admit they are happy to make a sale but can't provide ongoing service to their clients and that advisers should step in.
Struggle to see how that works in reality...
De Jure, as J-P points out many agency agreements do not specify ongoing servicing obligations.
On the other hand, de facto, as Naomi points out, many advisers' business models will present the client with an ongoing service offer.
The onus should be with the adviser to state at the outset in their terms of business whether ongoing support services are offered or not so that the client is in no doubt what the future holds in this respect.
In this particular case, I would have thought that IFSO might have found a way to resolve the issue rather than pointing the finger at the adviser and apportioning blame. Doesn't seem to be much dispute resolution here.
The IFSO response to this leaves me cold. Glad I bailed last year, suspect a number of their members will be closely looking at their renewals.
If the discussion is going to be focussed on the arguments about post-2013 who did what and when, then it's still a little murky. But if the adviser failed to respond and engage to a request at that point then they might have a case to answer. Not about general standards of what all advisers should have always done (as implied by IFSO) but the specific response to this specific client, compared to current standards. Were their questions answered? Were they given the right help, at the right time? Disclosure, reasonable care, diligence and skill, competence, registered and so on.
What this case does show, is nothing mentioned by any contributions to date. It’s that, no matter how you cut it, calling yourself "retired" while still receiving trail commission is not OK. That is a decision made today in the current environment. You’re either registered and actually working with clients, or you’re not. You're either in the business or you're not. Have your cake, or you’ve eaten it.
Receiving trail, or sold up.
Something a reasonable number of us will have to grapple with over the next few years.
Very much the case of not measuring the case on today's standard when implemented in yesteryear.
As to the 2013 conduct, yes murky, however, the info on the case indicated that the client wanted a meeting with the adviser while they were in New Zealand visiting, and at the time the adviser was overseas and was unable to meet this request.
Now there may be questions raised at that point about what should or should not have happened, either way, the adviser was physically unable to meet the request of the client. At that point, the ideal approach would have been for the adviser to arrange an associate / friendly adviser to meet with the client in their absence.
Requirement? no, I don't think so. There was the opportunity to update records for contact details at that point and follow up on return. However, whichever way you cut this if they updated the details and forgot to follow up on their return, there's still an onus on the client to follow up as well.
At the point that the meeting in NZ was unavailable, the client also had the opportunity to return to the provider they have the contract with and request another adviser, which happens, and the company concerned would have gone through their process to follow up with the existing adviser and then allocate it out to someone else to look after.
Whichever way this gets cut up, at no point is there any reason to imply that the adviser concerned is responsible for servicing this client from a contractual perspective.
There is also the business right, open to all businesses, to tell a client they decline to service them and they are welcome to find another adviser to work with, not that doing that bodes well for good commentary about the business, but is also a factor in this discussion.
The adviser in 2013 could at that point decline to provide service on the basis that they could not offer the support the client needed due to their own technology restrictions. I do know a lawyer here on the shore that has a phone and a fax, and that is it. No email, no web, and still no mobile phone. Dark ages yes, illegal or breaking rules? not so much.
What you do raise is the ongoing responsibility under the current rules for advisers retiring, there is an expectation today that an adviser services their clients, which is going to be a thorny issue goign forward for many of us.
As trails, or not, the obligation to service is going to be embedded in the rules going forward, as they are presently for AFA's under the current rules.
However, the fact the client is in Australia doesn’t take away the advisers ability to provide information and advice around the policy itself without taking into account the rest of the clients situation.
The adviser here is better suited to give the advice on the policy in a limited scope way than an Australian adviser.
As proven by the IFSO considering the case under NZ jurisdiction by taking the complaint in the first place from a client outside NZ.
Being overseas isn’t a restriction on providing advice on New Zealand acquired products as they are intended to work worldwide.
It follows therefore that a New Zealand Financial Adviser is not authorised to offer personal advice to an Australia resident.
The exemption notices are silent on the origin of the financial products, so I'd be inclined to seek legal advice in Australia before venturing to offer advice for which the Adviser may not be authorised.
In this case, had the clients been in NZ at the time - no problem, but I think caution needs to be exercised around matters of jurisdiction, particularly in the current environment in Australia.
It follows therefore that a New Zealand Financial Adviser is not authorised to offer personal advice to an Australian resident.
The exemption notices are silent on the origin of the financial products, so I'd be inclined to seek legal advice in Australia before venturing to offer advice for which the Adviser may not be authorised.
In this case, had the clients been in NZ at the time - no problem, but I think caution needs to be exercised around matters of jurisdiction, particularly in the current environment in Australia.
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This case reflects the vast changes in the market in the last 25-30 years.
Today, there is a definite expectation that the adviser provides ongoing service and support.
And back 23 years ago that was implied not specifically contracted, which makes applying the law as it stands today on a transaction 23 years ago rather harsh.
We have a tendency today to apply today's rules on yesterday's actions. When the expectation of yesterday's actions were far below the expectations of today.
23 years ago an adviser (salesperson quite frankly) could walk off the street and start selling the product, pretty much no training, here's the rate book and the phone book and away you go. Go sell something!
To then turn around and judge that on today's requirements is somewhat unfair and unreasonable.
I fully agree with Naomi's points about clients expecting service and we aim to provide this well above the expectations, however, the contracted and legal arguments surrounding this particular adviser case are lacking. That is more the point I speak to.
And if those reading haven't figured it out, I'm J-P from Willowgrove Consulting. ;)