Fresh solution to liability gaps needed

Sector-wide collaboration is needed to find a way to bridge advisor liability gaps for both consumer and advisors’ protection, according to one dispute resolution service.

Wednesday, November 20th 2024, 8:51AM

by Kim Savage

Financial Services Complaints Limited chief executive Susan Taylor said the number of complaints to the scheme from clients of former DRS members was trending up, as more advisors retired, sold their business or merged with other providers and their advice was no longer covered by their DRS.

“We had one case earlier this year, the complainant’s son, who lived in Australia, had fallen very ill, and they had thought that they had insurance that would cover all of his medical costs in Australia, but found out when it came time to start paying the bills that they didn't.”

“And in this case, the adviser had retired from the industry and had sold his book to a new firm.”

Susan Taylor said the advisor’s new company checked back through the advisor’s records and found they had failed to put the insurance policy in place as requested by the client. FSCL helped the family contact the advisor and file a claim against the advisor’s PI insurer, which was later resolved.

“We do expect to see more of these cases and it's quite difficult explaining to the consumer when they come to us: well, look, sorry, you know, if it's about the old advisor, yes, they were a member of ours, but that was some time ago, and they're no longer a member of ours.”

“And the new firm of course, doesn't have to take liability for advice given under somebody else's license.”

FSCL, together with other dispute resolution schemes, had raised concerns about the growing number of liability gap cases with MBIE officials, but had yet to see anything come out of the talks.

“It’s a bit of a ‘watch this space’ to see if the regulators and policymakers do anything about it.”

“But I think if it’s going to become an increasing problem there will be pressure on them to try to look at some means to try to address this, because obviously it’s not a good consumer outcome.”

Dispute resolution schemes were limited in what action they could take, said Susan Taylor, aside from perhaps asking former members to voluntarily agree to be investigated.

The ability, or lack of, to address consumer discontent also served as a warning to any providers looking to buy an advisor’s business. Susan Taylor said in addition to the DRS’ one year-long notice period, most providers would expect advisors to have at least two years’ run-off PI insurance cover.

“I’m hearing from other parts of the industry that it really ought to be at least five years, so the client has some possible form of redress, even if they won’t have access to a free dispute resolution service.”

Susan Taylor said while a longer run-off period for insurance would cost advisors more it was about protecting themselves as well as clients.

Tags: complaints