Big professional liability risk

Financial advisers are not aware that they face a big professional liability risk. They are selling large life insurance policies to high net worth individuals, without explaining  the distribution cost (more than $100,000) or the effect of deduction (more than $500,000).

When the customer learns about these huge charges at a later date, they are likely to engage a lawyer to sue the financial advisers for negligence. It will be easy for the lawyer to prove that the financial adviser had failed to give proper advice, or worse still, had deliberately withheld relevant information or misled the customer. The damages could be large and the legal fees will add to the damage. One strong argument is that the financial adviser had breached the code of ethics and professionalism.

The financial adviser will not be able to hide behind the excuse that "they are disclosed in the benefit illustration". It is the duty of the financial adviser to explain these key points to the customer, so that the customer can make an informed decision. The failure  to provide the proper explanation will be taken against the financial adviser - who has a fiduciary duty. The insurance company can get away by saying, "we rely on the financial adviser to give proper advice to the client" but it will be difficulty for the financial adviser to escape the liability.

It is likely that some lawyers may take the case for the consumer on a special understanding, similar to a contingency fee arrangement. When this type of arrangement is made, it is likely that many cases will be taken up. Financial advisers should be careful about their role, or they can be easily bankrupted by a few of these legal suits. The days of lax supervision and non-accountability may be over.


Tan Kin Lian