3 takeaways from a recent FSCL case
[Opinion] Good record keeping is critical but there is more to take away from this reported complaint.
Wednesday, March 26th 2025, 9:03AM 
6 Comments
by Steve Wright
In a case reported by FSCL, following a complaint by his client, an adviser stumped up 50% of a client’s income protection premiums paid from 2011 to 2024, which FSCL thought was fair.
According to FSCL, in 2024 the client “…made a complaint against her financial adviser, saying that he did not cancel her income protection policy even though he knew that she had become a stay-at-home parent and had been unemployed since 2011.”
The client told FSCL that “…she did not realise that income protection was still part of her policies package and would have expected the adviser to let her know she was paying for insurance she could not actually claim against.” No mention is made of the annual renewal notices the client is likely to have received from her insurer! Most likely these would have recorded that income protection was included in her policy.
The adviser told FSCL he believed that the client “…always planned to go back to work once her children were in school, so she did not want to cancel the policy.”
Unfortunately, the adviser had no record or file notes confirming the client wanted to keep her income protection. According to FSCL this created a “he said she said” situation, a situation where FSCL say they will likely give more weight to the client’s memory than the advisers’ (because advisers deal with many clients).
So, clearly much better record keeping was needed, but for me there are some other issues this case raises.
- Advisers must act proactively: This case suggests to me that advisers have a duty to proactively advise their existing clients, especially when it comes to matters and product information a client is unlikely to have knowledge about. Advisers are not expected to passively wait for a client’s instruction. It’s no defence to claim the client didn’t ask!
FSCL appear to have no criticism of the client’s reported expectation that the adviser take positive action to let her know she was paying for insurance that “… she could not actually claim against”. (Note: decent income protection policies will pay benefits to unemployed people, albeit for a different definition of disability and possibly at reduced monthly amounts.)
- The importance of carefully planned reviews: This client held income protection she said she didn’t need or want for about 13 years! Were there no reviews during this time? Presumably, if there were, there were no records kept.
I believe advisers would be wise to treat client reviews with some formality around actually ‘reviewing’. Simply asking the client if anything has changed since the last review is unlikely to be sufficient. If this adviser had done a proper review the question of continued income protection would have come up for decision by the client.
- The opportunity for complaints is everywhere: I see a great many opportunities for clients to feel aggrieved and make complaints against their adviser or FAP, even after receiving what many advisers would probably view as ‘acceptable’ advice.
From my work with advisers, I believe many such potential complaints are enabled usually by what advisers are not doing.
Advisers are operating under a new framework of expectation. This requires a new way of giving and recording advice, to ensure the ability to mount a strong, credible defence against complaints.
Steve Wright has qualifications in economics, law, tax, and financial planning. He has spent the last 20 years in sales, product, and professional development roles with insurers. He is now independent and helping advisers mitigate advice risk through training and advice coaching.
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Comments from our readers
I think FSCL has this one horribly wrong by using the expectations of the current regime to judge the actions/inactions of a client and adviser in 2011.
Yuck.
Under the new rules, if you've got your process sorted not so much.
FSCL did find that clients need to read and understand the material, meaning if they don't they have a responsibility to say something. Though the concern is the double standard being applied for this case.
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The proactive piece is an interesting one that came up in discussion with FSLAB at the time. The expectation of the law was that after policy issue section 10 requirements on adviser disclosure to the insurer was done, for information received after policy issue.
However, the FSLAB expectation (and it could have moved to some other piece of law, I don't remember) was that the adviser, once notified of the information, had a professional responsibility to discuss the situation with the client.
The adviser has no authority to act until the client provides instruction, aka non-disclosure. However, the adviser is liable for knowing and not advising the client pro-actively.
This explains why FSCL didn't have criticism of the client's expectation.
However, as you have said, it is a record-keeping issue. If the discussion happened and the client did not provide instruction to the adviser or complete admin requirements to execute that instruction, that is on the client. There is a limit to advisers wiping arses when clients do not complete requirements.
In this case the lack of evidence from the adviser does mean FSCL's decision, under the new rules, to find for the client is reasonable with the circumstances we know.
However, in a leave without pay situation, the policy will respond as a worker for up to 12 months with the intention to return to work, and the appropriate time to discuss cancelling the benefit is a review 12 months from the date of ceasing work.
This may have been intended, but busy homemakers often punt reviews with little ones, and it is reasonable that it could take a year or two to get to this one.
Given the date is 2011, we are talking 14 years here, so something has fallen through the cracks.
However, that's talking about advice after 15 March 2021.
The rules for advice provided before March 2021 are under the prior regime, where there was no code of conduct or regulatory response for registered financial advisers. There was no documentation requirements, a wet paper napkin was about it. Therefore, in this case the responsibility lies with the policy owner to take affirmative action to ensure they have it right.
If the adviser reviewed the client after March 2021 and didn't act on the information, then they have some culpability, but that is only for the period from 15 March 2021 and not the full 14 years!