If Mary was your mother

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. 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 clients' best interests, the duty to provide advice appropriate to your client and to prioritise your clients' 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.)

It’s not easy being a financial planner. It’s a 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 press release. It’s the modern-day version of the village stocks, and it's cruel. And a breach of privacy.

The FOS is a consumer champion, not an independent umpire. It plays the game as prosecutor, judge and jury. Make a mistake and you can be liable to pay up to $309,000, with no right of appeal. FOS is not obliged to follow the rules of evidence, your contract or even the law. It’s all about what FOS thinks is fair.

Good luck with your professional indemnity insurer... That’s another story.

This is the world of today’s financial planner. You know this. It’s your reality.

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 10 years and with HESTA for 20. She is happy with HESTA’s investment performance. All good. Capital stable. Its 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 it's 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. 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 Mary are not your client. You are not their trusted adviser. Your 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.

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 say 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:

(i) leave HESTA and join a similar fund that uses a different insurer or; 
(ii) stay in HESTA but arrange for additional external insurance.

A superior record in claims management is definitely a valid reason to switch, even if it increases the premium. ASIC says so in RG 175.

Whatever you decide, assume sure your SOA and your file notes will be read by FOS and ASIC sometime down the line. You can trust they will look closely at what you decide, and will 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."

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Terry McMaster is the founder and director of Dover Financial Advisers