Whether the scheme member (an authorised financial adviser) has misrepresented benefits from an endowment policy, and on that basis causing a loss to the Customer


The Customer was the owner of a whole of life policy insuring her husband, issued in 1986.

A loan had been taken out against the policy to cover the premium arrears.

In February 2012 the insurer wrote to the Customer to advise that the net surrender amount of the policy at that time was $8,908.14; gross surrender value of $24,649.00 less the loan debt including interest of $15,740.86. That letter also advised that if no further payments were made to the policy, it would be cancelled between November 2017 and May 2018, as at that time the debt would exceed the cash value of the policy.

Two months later the Customer requested that the authorised financial adviser provide options from the insurer in relation to a Whole of Life policy with view to receiving the benefit from the policy sooner than would have occurred with original policy.

The option (of four) that was elected by the Customer was that no additional premiums would be paid, and that the policy would convert to an endowment policy, to mature in 12 months’ time. The estimated pay-out was about $25,000.

In the covering email from the insurer to the adviser, the author states that:

“Please note that for all the quotes the loan debt remains. Loan interest notices will continue to be issued and will remain payable. All future values including surrender and maturity values quoted are gross that do not take loan debt into account.”

It does not appear that this covering email was provided to the Customer.

After the new endowment policy had commenced, the Customer states that she became aware that she would only likely receive around $10,000 on settlement of the policy. The adviser states that the full policy maturation figure would be $25,018, but that the debt of $14,094.89 would be deducted, leaving $10,923.11.

The Customer raised a complaint with the adviser, on the basis that she considers she had been misled regarding the return from the policy. When that complaint could not be resolved between the parties directly, the Customer raised a complaint with FDRS.


The question the adjudicator must consider is whether the adviser had breached any obligations to the Customer in relation to the quotation provided, and if so, what the remedy should be.

There is no dispute between the parties that the original Whole of Life policy was significantly in debt, and that a loan existed.

Where the dispute arises is whether the adviser had advised the Customer that the debt would need to be deducted from the gross maturity amount or not. If the debt was not deducted, then the payment would be some $25,000, but if the debt was deducted it would be substantially less at around $11,000. The Customer considers that either the adviser or the insurer should be liable for the $14,000 ‘shortfall’.

No contemporaneous records which suggested the loan should be repaid before the option was agreed were provided by either party.

On balance, the adjudicator was not in a position to make a finding one way or the other as to whether the adviser had advised the Customer orally that the loan debt would be deducted from any final payment.

The complaint was considered in light of the ‘Code of Professional Conduct for Authorised Financial Advisers’ (the Code).

The adjudicator’s view is that there is likely to have been a breach of the ‘Minimum Standards of Client Care’ as set out in the Code. Standard 6 requires that Advisers “communicate clearly, concisely, and effectively” with their client. In this case the Customer is in her late 70’s. It can be accepted that a client in that age range may be at risk of financial vulnerability. In this case, there is also a significant history of failure to make premium payments, which also raises the question of whether a higher degree of caution is required to ensure that communications are effective.

The adjudicator was also minded that the primary written document which was provided to the Customer, was the written quotation document provided by the insurer. It could be understood how a person who considered that document may have been mistaken in thinking that the final payment received would be between $24,000 and $25,000. It is clear that the author of that document was aware there was a loan against the original policy – that was noted in the covering email. It is unfortunate that the insurer did not factor the loan debt into the quotation, so that it was clear what the final payment would be, following the deduction for the loan. However that was flagged to the adviser.

In those circumstances, the adjudicator considered there was likely to have been an obligation on the adviser to record the significant difference between the quoted return, and actual return after deduction of the loan. That should have been provided to the Customer in writing, and provided at the same time the quotation was provided.

To that extent, the adjudicators view was that there was a breach of Code Standard 6, which relates to the obligation for clear and effective communications with the client.

The adjudicator also considered there was a breach of Code Standard 12, which relates to a requirement that advisers “record in writing adequate information about any personalised services provided to a retail client.”

No contemporaneous documentation had been presented, which confirms what was discussed or communicated with the Customer, in relation to the effect the loan would have on the final amount paid under the policy. The adjudicator could only assume that documentation has not been provided, because it does not exist. As the adjudicator considered that documentation should have been generated at the time of the original consultations, his view is that failure to record that information in writing would be a breach of Code Standard 12.

Strictly, the endowment policy has paid just what it was agreed it would pay, that is some $25,018. Accordingly there would be no misrepresentation on the part of the adviser.

It is only once the debt of $14,094 is included, does the amount of the final payment reduce below the benefit amount of the policy. There is no evidence that the adviser had wrongly stated that the loan debt would be excused under the policy. While he could have done more to confirm it would be deducted, he has not wrongly stated the debt would be waived.

It must be an unrealistic prospect to consider that the endowment policy for a 12 month period would then see the final payment increasing to some $24,000 to $25,000, with no further premium payments being made

Clearly the Customer was aware there was a debt on the original policy, and furthermore the insurer has provided ongoing statements confirming the extent of the debt. It is not how the Customer considered that debt would be cleared, other than it being deducted from the final payment.


The final decision of the adjudicator was to uphold the complaint in part. The communication with the Customer has not met the standards required in the Code, and to that extent a written apology must be provided to the Customer.

However the adjudicator found that no loss has been established for which the adviser will be liable.

The adviser accepted the decision.