An increased risk of litigation means advisers must meet all future standards now
Advisers could face prosecution for advice they are giving now if retrospective legislation is brought in when the Financial Services Authority (FSA) comes to power.
Guests at the latest COVER Think Tank, which debated how regulation could affect protection advisers, agreed there was an increased risk of litigation unless advisers met future standards now.
Speaking at the debate, Nick Kirwan, head of protection at Scottish Provident, said: "Advice issues will come under the compulsory jurisdiction of the Ombudsman from January 2005. Because there is a risk of retrospection, advisers would be silly not to be giving the best advice they can now."
Issues such as complaint handling and record keeping are key to the FSA's new rulebook. Penny Tompkins, company secretary at UnumProvident, said some advisers could be putting their businesses at risk by not being up to speed.
"Many advisers have no real idea of how they should be recording, capturing and dealing with complaints. If they don't get it right they will be digging themselves a grave," she said.
The new rules mean advisers will have to take into account three main areas when advising clients: value for money; the financial strength of recommended insurers; and insurers' claims histories.
Kirwan said advisers should ensure they are taking these points into account now. "It may be that these issues are retrospectively looked at by the Ombudsman. Was that advice right? Was it the right quality? Simply because the regulation doesn't yet apply, doesn't mean that people aren't under a duty of agency law to give the best execution and give good advice. That applies now," he said.
Looking to the critical illness market, Kevin Carr, senior technical adviser at LifeSearch, voiced concern that advisers could be reprimanded in the future for recommending current products, at a time when their future was uncertain.
He said: "The way the critical illness market has moved in the last few years and will move in the next 12 to 24 months, will it still be value for money in three or five years' time when the product could look completely different from today?"
Ron Wheatcroft, technical manager at Swiss Re, said the risk of future litigation just made a strong case for "good record keeping".
