Business depends on relationships. Relationships depend on trust. The most elegant and eloquent contract, or the glossiest PDS, cannot replace trust.
Trust makes the world go around.
In life insurance the concept of trust is enshrined and elevated. Insurance contracts are based on a mutual duty of utmost good faith, or uberrima fides. The insured, the insurer and everyone else, the courts say, has to be honest, complete, fair, decent and reasonable. Why does life insurance have this enshrined elevated level of trust? Simple. It’s life insurance. People’s lives are at risk.
Financial planners are professionals. They, like other professionals, owe each client a duty of care. They must meet the standards expected of a reasonable professional. The Corporations Act takes this common law duty of care further, with three overlapping statutory duties. These are the duty to act in your client’s best interests, the duty to provide advice appropriate to your client and the duty to prioritise your client’s interests over your own interests.
(Notice I said “clients”, not “customers”. A customer is a person to whom something is sold. Real financial planners have clients, not customers.)
Its not easy being a financial planner
Financial planning is a very scrutinised profession.
Day-to-day life is controlled by Chapter 7 of the Corporations Act, and a related raft of regulatory guidelines and sometimes vague public statements. ASIC is a hard and inconsistent task-master. Make a mistake and its PR department will publicly humiliate you with a gloating e-press release. It’s the modern day version of the village stocks, a cruel breach of privacy that scars for life: your kids will read it in 20 years time when they Google your name.
ASIC, of course, never makes mistakes. Never.
FOS is a consumer champion, not an independent umpire. FOS plays the game as the prosecutor, the judge and the jury. Make a mistake and you can be up for up to $309,000, with no right of appeal. FOS is not obliged to observe the law, the rules of evidence, your client contract or even its own precedent decisions. It’s all about what FOS thinks is fair. FOS says.
FOS, of course, never makes mistakes. Never.
The 7.30 Report journalists await your every mistake, and when it turns out your client did not disclose his prostate cancer, and you have in fact not made a mistake, but they have, they will not correct their record.
This is the world of today’s financial planner. You know this. It’s your reality.
What you have to do now
So, back to your reality. Your immediacy. Your today. What you have to do now.
Your next client comes in. Mary is a nurse. She has been with you for ten years and with HESTA for twenty years. Mary is happy with HESTA’s investment performance. All good. Capital stable. It’s appropriate and in her best interests.
Mary shows you a HESTA newsletter saying CommInsure has won a renewed mandate to provide cover for HESTA members. And that is what Mary wants to talk about today. CommInsure.
Mary watches Four Corners and reads the SMH. Mary’s doctor friends tell her its true, those definitions are out of date and very hard to satisfy. Mary knows there is more to a heart attack than troponin.
Mary is worried about doctor shopping, cherry picking and missing medical files. She is saddened to think a claims manager could do that, but gladdened to read a doctor blew the whistle. That’s what ethics is really about. Standing up and speaking out. Her colleagues tell her Dr Koh is an extremely well qualified medical practitioner. He knows his stuff. He does not lie. Well done Dr Koh, she says.
Mary is worried. Her mother suffered a severe stroke at age 51. Mary is 48.
What happens if she has a stroke too, or if her heart gives out early? Or if she gets depressed. What if she can’t work? What happens to her mortgage? What about her home? What about her marriage? What about her kids?
This is serious. This is real. It’s not a hypothetical. This is about a client’s life.
Mary is your client. You are Mary’s trusted adviser. You owe Mary a common law duty of care. The Corporations Act requires you to act in Mary’s best interests, to give Mary appropriate advice and to prioritise her interests.
HESTA and CommInsure are not your clients. You are not their trusted adviser. You do not owe them a common law duty of care (at least not here). The Corporations Act does not requires you act in their best interests, to advise them appropriately or to prioritise their interests.
It’s all about Mary. No one else. It’s what is best for Mary. Its what is appropriate for Mary. No one else matters.
What will you say to Mary? Should Mary roll out of HESTA to a similar fund that does not use CommInsure? Should Mary stay in HESTA but arrange outside risk insurances? Should Mary do nothing and trust that HESTA fixes this mess?
What would you do if Mary was your mother?
What will you say to FOS in three years time when the claims manager rejects Mary’s TPD claim on a technicality? Her stroke was not serious enough and she may recover.
What does your professional indemnity insurance policy look like?
What do I think? I think a reasonable financial planner could form the view that it is in Mary’s best interests and appropriate for her to either:
- leave HESTA and join a similar fund that uses a different insurer
- stay in HESTA but arrange for additional external insurance or
- wait for HESTA to sort it out.
Practice development opportunity: invite your clients in for a meeting
I certainly think it is a good idea to send some e-newspaper clippings and a link to ABC I-View to each of your clients, suggesting they come in for a meeting if they are concerned about their own insurance arrangements.
Log your e-mail on each client file to protect yourself against any subsequent criticisms/complaints.
You should also suggest that your client pass your e-mail on to friends and colleagues, particularly those in group life situations, and invite them in for a meeting. I have always handled this sort of a meeting for nil fee: never let a fee note get in the way of a good meeting, particularly with a new potential client who will feedback to your old client. But over to you on the fee side of things.
Do send that e-mail: not one of your clients will mind, and many will appreciate it. Remember RG 175 in effect says expected superior claims service is a valid reason for changing insurers even if the premiums are higher. Make sure any consequential SOAs stress this reason. That is, tell the truth!
Whatever you decide, assume your SOA and file notes will be read by FOS and ASIC sometime down the line. You can trust them to look closely at what you do, and to find fault if they can.
Make sure you write “I trust the new insurer’s claim managers to show utmost good faith in everything they do and say”.
As a young solicitor I was taught to “write every letter as if a court will read it”. For financial planners that is fast becoming “write every SOA as if the Age will publish it”.