Financial planners are increasingly exposed to liability in a number of areas, specialist lawyers are warning.
Bowen Buchbinder Vilensky director Les Buchbinder said planners were exposed to breach of client contract and potential disciplinary action when forms were not completed correctly.
Townsends Business & Corporate Lawyers principal Peter Townsend agreed and said his firm had cases recently where an adviser's behaviour was wrong "on so many levels" that it was "hard to know where to start".
Argyle Lawyers principal financial services, tax and superannuation Peter Bobbin said the starting point was to understand that "compliance has nothing to do with risk management".
Buchbinder cited a recent case where a client provided a partly completed handwritten insurance proposal form for an insurance company, which was later entered via an online template.
In doing this, and providing answers in all the required fields, the employee of the financial planner who filled in the form inadvertently failed to notice and note that the client had in the previous two years been declined by a number of other insurers.
A subsequent investigation showed that the insurance policy issued to the client was based on material non-disclosure, Buchbinder said.
"Instead of being paid out by the insurer, the client found himself being pursued by it for money they had already paid to the client on the grounds of material non-disclosure and fraud," he said.
That client's response was to take steps to recover the losses from his advisers for negligence, breach of contract and potentially misleading and deceptive conduct, because of the way they dealt with his proposal form.
Buchbinder said that in accepting responsibility for filling in 'routine' forms, advisers exposed themselves to legal risks which went further than negligence, and might include breach of contract and arguably misleading and deceptive conduct under the Australian Consumer Law.
Townsend said his firm had cases recently "where the adviser has arranged for the client to sign a blank form and told the client they would fill it out".
"This kind of behaviour is wrong on so many levels it's hard to know where to start," he said.
"Certainly there is a level of contributory negligence by the client and they must accept some responsibility for signing a form that they have not completed or in appointing the adviser as their agent to complete a form and then not providing the agent with all the necessary information.
"But the adviser is still on the hook for a substantial part of the loss if they inaccurately complete a form or don't seek all the necessary and relevant information from the client. If the adviser is concerned at the ability of the client to complete the form they should sit with them and go through it together, making sure that the information is accurate and corroborating any uncertain information."
Bobbin said that "most complaints against planners are for 'inappropriate advice'. This will in part be because it was inappropriate for the financial planners to recommend investments that have fallen in value".
"The time for adopting complaint risk management strategies has long gone; this was needed four years ago. But there is time to get ready. As we scrape along the bottom and hope for the new bull market, now is the time to re-consider and adopt real risk-management strategies," he explained.
The starting point was to understand that "compliance has nothing to do with risk management. Compliance is mostly about making compliance auditors happy with the boxes that they tick. ASIC will be happy too. But I have seen very many compliance-compliant files that are replete with simple risk-management failures."
Advisers must understand that they must do what they said they would. Then, an engagement letter should state what the planner would and would not do, and that clients were expected to work with the planner.
"Then review your clients and sack the whingers and whiners," Bobbin said.
"They will be the most vocally happy when that bull comes back but they will also be your loudest and earliest complainers. Ask yourself, are they worth it now? If the answer is no, they will be worse later. Finally, when in doubt, file-note it. File-note everything."
