Advisers previously licensed by Dover may not have the necessary professional indemnity insurance to cover them for past advice in the wake of the licensee’s closure, according to a lawyer.
Speaking to ifa, McDougall Kelly and Martinis senior partner John Kelly said former Dover authorised representatives may not be covered under their new licensees’ PI policies for future claims made against the ARs for alleged errors that occurred during their time under Dover’s licence.
Mr Kelly said there were three potential outcomes for Dover’s former advisers depending on what action both Dover and the advisers’ new licensees have taken with their insurers.
“Dover purchases run-off cover. Ideally for seven years. Dover needs to do its best to arrange run-off cover as part of its obligation under Section 912B of Corporations Act. However, insurers may be reluctant to offer this cover given their own concern about future claims,” he said.
“The Dover ARs can look for a new home. However, the new licensee is unlikely to pick up the exposure from the Dover time period. In other words, for the new ARs, the retroactive date under the new licensees policy would be the day they join. Therefore, any claim against that AR for alleged errors during the Dover period would not be covered. The licensee may try to get this cover, however it’s unlikely that their insurer will agree to this.
“If one of the two solutions above is not implemented then there is no insurance cover for future claims made against ARs for alleged errors that happened during the Dover period. This is a bad outcome for the ARs and a bad outcome for consumers.”
However, Mr Kelly added that there are several steps that Dover advisers can take to help their position, including assessing their client files and notifying the current Dover insurer as soon as possible.
“This is referred to as notifying a circumstance that may give rise to a claim,” he said.
Dover advisers should also review every client file once they’ve joined a new licensee and provide updated advice under that licensee’s regime.
“Every file should be assessed. What they are trying to do is provide every client ‘advice’ under the new AFSL as quickly as possible,” Mr Kelly said.
“This will be a very challenging period for these ARs and I have a great deal of sympathy for them. It’s their livelihood and careers at risk, so I wish them all the best. To protect themselves (and ultimately consumers) they will need to consider the advice above.”
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