In FOS Dispute 247048 a decision was handed down in favour of the financial services provider (FSP) on the basis that the dispute fell outside the FOS Terms of Reference. Nevertheless there are still good lessons for advisers in this dispute.
The Applicant was a dairy farmer who described himself as a person with limited education and a limited ability to read and understand financial documentation. Despite his limitations he managed his own financial affairs. However, during the 2000s he asked his son (a solicitor) for help from time to time.
The Applicant was seeking a refund of all the monies he had paid on a term life policy (the Policy). The applicant stated that the representative of the FSP, (Mr S) misrepresented to him that the Policy was a superannuation plan which would be payable when he retired and that he was not told that he was purchasing a life insurance policy. The Applicant and Mr S were friends, they had a long association for over 30 years and the Applicant trusted Mr S to act in his best interests.
The Policy commenced on 12 March 1992 and provided for a death benefit of $50,000 indexed. At the same time the Applicant also signed an application form for a superannuation plan. Fees of $31.98 were deducted from the Applicant’s bank account on the 12th day of each month. The Policy benefits ended on 12 March 2041. The Applicant also contributed $400 per month to the superannuation plan.
The Applicant stated that he thought he was making payments into two superannuation policies.
The complaint
Between December 2010 and March 2011 the Applicant wrote to the FSP and indicated that he wanted to cash out the Policy. The Applicant then wrote to the FSP and asked why his account was still being debited. In March 2011 the FSP wrote to the Applicant and explained that the death benefit was only payable on death and the amount of the sum insured was $82,362.00.
The Applicant argued when he filled out the application in 1992 he was divorced, with no young children or responsibilities so there was no need for the Policy. He claimed he was advised by Mr S that he could cash out the Policy when he retired. The Applicant was seeking a refund of the $37,486 in premiums he had paid for the Policy.
The outcome
The FSP argued that FOS did not have jurisdiction to deal with the dispute on the basis that the Applicant had six years to lodge a complaint, from the time he first became aware or should have reasonably been aware he had suffered a loss. The FSP opined that the Applicant had taken an unusually long amount of time raise concerns about the cover he held.
FOS accepted the arguments raised by the FSP and stated it did not have jurisdiction to deal with this complaint.
The FSP argued that the fact the Applicant had to undergo a medical examination should have alerted him to the fact that is was part of the underwriting process.
FOS accepted that the Applicant was a man with limited financial literacy who may not have understood what “underwriting” means. However, the Applicant had been receiving correspondence and statements in relation to the Policy for many years which the Applicant by his own admission did not understand and threw in the bin.
The FSP provided evidence from Mr S who recalled that the Applicant had two sons and a daughter. Mr S believed the Policy was put in place as part of estate planning and was intended for the daughter as the property and businesses would go to the sons. Mr S did not believe the Applicant was misinformed about the cover that he had.
In finding for the FSP, FOS stated that the Applicant could have asked for help to understand the documents being sent to him and he would have been informed that in addition to his superannuation plan he was also paying premiums for a life insurance policy. There was no reason why the Applicant did not realise he had not suffered a loss inside of the six year period after he started paying for the Policy.
Lesson for advisers
Although an FSP is not required to keep documents for more than seven years, this decision is a good reminder about the need to ensure one can always demonstrate that they have explained to clients in language they were likely to understand, how a financial product will work, including its features and benefits. Had this decision been raised inside the six year period, (in accordance with the FOS Terms of Reference) the outcome may have been different.
