Increasing everyone’s amount insured

There is more than one way in which the same advice can be repeated in such a way that it is clear the adviser is implementing the same strategy for every client, regardless of circumstances. One is where we observe that advisers routinely recommend that all of their new clients dispose of their old insurance policies and commence new policies elsewhere with a greater sum insured. This can be more common than you might expect.

There are (frequently) three mistakes in one here. The first is that the new insurance is usually not sufficiently different to the previous insurance to justify the shift. Death cover is death cover, after all. The second is that the amount insured typically does not need to be increased. A well-insured client is often being advised to become a very-well-insured client.

Both of these mistakes – which we accept may be judgement calls on our part – create a clear impression that the advice is remuneration led. The adviser has recommended a switch and an increase so as to maximise the commissions’ payable upon acceptance of the advice.

The third, completely objective, mistake is that repeating the same advice for every client makes it very hard to argue that each advice was in the client’s best interests. For that to be the case, each client would need to be identical to each other client: inappropriately under-insured with the wrong insurer. This is a hard case to argue, and can be made even harder when advisers switch one client from a particular provider while switching another client to the same provider. We have seen this happening, and it of course completely negates any argument that the adviser might have mounted that one insurer is better than another.

Our experience in liaising with regulators is a useful thing to keep in mind here. When faced with a complaint about any particular adviser, ASIC or FOS can and will request copies of files of other clients for whom the adviser has done some work. ASIC may then compare the advices provided to each client and use the fruits of that comparison to help decide whether advice was truly in the client’s best interest. As we state above, the fact that the same – or very similar – advice has been provided to each client makes it very difficult to argue that each client had the same interests. The ‘same’ element of all the different advices is the adviser.

The Dover Group