Key Takeaways

AFCA’s decision in case number 725328 highlights the need for financial advisers to understand potential restrictions on cover in the context of disclosures made by a client during the application process.

The decision is also a timely reminder that on the question of loss in financial advice insurance cases, complainants will have to prove that more appropriate policies were available to them than the cover which they were recommended.

Brief Facts

Ms M obtained Total and Permanent Disablement (TPD) and Income Protection (IP) insurance through a financial adviser, Mr T (the adviser).

The adviser recommended the policies as appropriate for her circumstances. During the course of the application process, Ms M made disclosures of prior mental health treatment. Although then in receipt of that information, and having forwarded the applications to the insurer, the adviser did not make further enquiries as to how the policies would operate to exclude disclosed pre-existing conditions and did not update his advice and recommendations on the appropriateness of the policies.

Ms M made a claim under the IP cover for disability arising from a mental health condition that was declined under the pre-existing conditions exclusion.

Ms M made allegations of misleading advice by the adviser to the effect that the insurer would review her medical history when approving her application for insurance; and her medical history would not impact the cover after the policies were approved. AFCA found that there was nothing to suggest that this advice was given.

However, AFCA also considered whether the adviser had breached the best interest test under s961B of the Corporations Act 2001 and s916G which requires the resulting financial advice be appropriate to the client.

Determination

Liability 

AFCA found the advice provided by the adviser did not consider whether Ms M’s disclosures of her previous mental health treatment may impact the appropriateness of the policies, or explain to her how pre-existing conditions clauses in the policies may operate in respect of future claims.

The adviser’s obligation to provide appropriate advice in the best interests of Ms M did not end with recommendations he made following the formal Fact Find and written Statement of Advice. Once he came into possession of further relevant information, he had an obligation to investigate whether the policies would be able to provide her desired level of cover considering her disclosures and it was fair to expect him to revise his advice if the investigations revealed the policies did not suit her objectives.

Loss 

In considering what remedy may be appropriate for the failure to provide advice in the best interests of his client, AFCA looked at what would have occurred had the adviser considered those matters and given the advice regarding the pre-existing conditions clause.

AFCA emphasised that Ms M bore the onus of proving both the conduct complained of and the loss she suffered. AFCA looked at what the appropriate advice would have been and what Ms M was likely to have done once that advice was received. She had to prove that more appropriate policies of insurance would have been available to her, that the adviser should have advised her to enter into and his failure to do so caused her loss.

AFCA found that Ms M failed to prove there were policies available in 2015 which would have responded in the circumstances. Indeed, AFCA considered that the adviser could have appropriately advised that the ‘policies remained appropriate considering her objectives’, and AFCA found it was reasonable to think that Ms M would have still taken them out. Therefore, the adviser’s conduct did not cause her to suffer a loss.

Implications 

The determination is a reminder that the obligation to provide appropriate advice does not end with the formal Fact Find and written Statement of Advice and of the importance in the insurance context of assessing the medical history disclosed by a client in terms of the appropriateness of the cover recommended by the adviser.

However, the determination also affirms how AFCA approaches the issue of loss in such financial advice insurance cases and that financial advice insurance cases often turn on whether loss can be established. The issue of proving loss will often require a customer to establish that they would have obtained cover from another insurer at the time of the alleged inappropriate advice, which would have covered them in the way that they claim they should have been covered.