Claire Wivell Plater of legal consultancy The Fold has told ifa that the new requirement that advisers be able to provide advice about products outside their approved product list (APL) – which was formalised in recent ASIC regulatory guidance – could cause insurance problems.
“Despite the new regulatory requirement, they may not be covered for this in their professional indemnity insurance,” Wivell Plater said, adding that most PI insurance policies generally only cover claims relating to advice on products that are on an adviser’s APL.
Wivell Plater said licensees should take responsibility and consider negotiating with insurers to ensure that policies reflect the regulatory landscape.
“Dealer groups will need to provide a procedure by which advisers can safely provide advice on those products that aren’t on their APL,” she said.
“If their APL is broad enough, it could be limited to permitting them to advise on products that clients either already hold or specifically ask for advice on.
“Dealers could impose additional safeguards: for example, product types or providers that their advisers are not allowed to recommend to clients.
“If dealers can persuade their insurers that they have a process for responsibly managing the risk of advising on products outside the APL, and insurers feel comfortable that they can assess the risk, they may be willing to consider providing coverage.”
The Financial Planning Association (FPA) has confirmed there is a concern around PI insurance and providing advice on matters outside of an APL.
“The feedback we are getting is that the arrangement between licensees and the PI insurers is coming under question with FOFA,” said FPA general manager, policy and conduct, Dante De Gori at a media briefing in Sydney yesterday.
“There is a concern as well that premiums could rise if insurers perceive greater risk in going beyond the APL,” he added.
However, De Gori reiterated that there are only three circumstances under which an adviser has a legal obligation to go outside an APL: where a client has an existing product outside the APL; where a client specifically asks about a product outside the APL; or where there is not a suitable product on an adviser’s APL.
“Apart from that, there is no requirement to go outside the APL,” he said.
I am part of a medium sized dealer group that have this totally under control which means they already have a robust system that allows products to be added to the APL with the PI insurers coverage.
Is it just me, or does FOFA look, smell & taste like another Labour policy which will fail to do anything to REALLY protect the interests of the clients (eg vertical integration), and create a costly mountain of paperwork of a practice.
Given Dante’s last point it really makes the PI issue a non event given that in the SOA the client will be warned that he/she has asked for a product outside the APL, which would then give the FA limited liability. A discllaimer for limited knowledge about the product and a defence could be mounted on “caveat emptor and “caveat subscriptor” of the SOA, surely??
but but but…Dante, the new regulations say we must look outside the APL if its in the clients best interests (or something like that), but in this article you say otherwise or have you been taken out of context? I’m confused again.
Licensees need to have a robust off APL process. Ensure your PII policy covers products where one off approval has been provided via the off APL process. Most policies will cover products that clients held before joining the adviser.