In this article, Stephanie Newton, Case management Team Leader at Financial Services Complaints Limited, shares an example of a dispute about insurance advice that may have had a different outcome if it had been investigated under the new financial advice regime…

In January 2010 Andrew, aged 72, contacted his insurance adviser wanting a product that would provide a ‘nest egg’ for his family, similar to an annuity product. Unfortunately, the insurance adviser misunderstood, and thought Andrew wanted an insurance product.

The adviser recommended $15,000 of death and terminal illness cover, to cover funeral costs. The $15,000 in the needs analysis was later written over and replaced with $100,000. There were no notes explaining why the change was made.

Andrew accepted the advice, and a life and terminal illness policy was put in place. Andrew started paying the monthly premiums of $378.

In 2015 Andrew contacted the adviser, concerned the premiums he was paying were increasing substantially. Andrew discovered that he had not purchased an investment product but was paying for life insurance. The adviser explained that Andrew had three options. He could:

  1. Cancel the policy, and he would receive nothing
  2. Keep the policy and, if he died, his estate would benefit by $100,000
  3. Reduce the cover to $15,000, which would reduce his premiums

Andrew felt he had no option, but to continue with the cover.

By 2019 the annual premiums were $28,000. In 2019 Andrew’s son, David, reviewed Andrew’s financial situation, and discovered his father was paying about $28,000 annually for an insurance policy that would pay only $100,000 when Andrew died. When David explained this to Andrew, Andrew was dismayed.

Andrew said the adviser did not explain that he was buying life insurance. Andrew wanted, and thought he had received, an investment product where his money would accumulate as a ‘nest egg’ for his children when he died.

Andrew was shocked to learn that, since taking out the policy, he had paid $164,000 in premiums for $100,000 of cover and, having decided to cancel the policy, there would be no money for his children.

The adviser said Andrew wanted $100,000 of life cover.

The adviser said that he had recommended that Andrew purchase $15,000 of death and terminal illness cover and it was Andrew who decided to purchase $100,000 worth of cover, knowing that the premiums would increase over the years. The adviser considered the policy was fit for purpose because, although the premiums were increasing, so was the risk of a claim.

The adviser also said that all the information given to Andrew referred to insurance, and he did not understand how Andrew could have believed he had an investment product. In addition, the adviser said Andrew had benefited from the insurance because, if he had died, his estate would have received $100,000.

Was the policy suitable?

We questioned whether the adviser should have recommended that Andrew, aged 72 and with substantial assets, take out life cover. It should have been obvious to the adviser that the premiums would quickly increase to the point where the benefit of having funds available to pay for a funeral would outweigh the cost of the policy.

We were also concerned that the cover increased from $15,000 to $100,000 without any record of why Andrew was acting against his advice. We did not think the adviser had acted with reasonable care and skill by simply saying: “that is what the client wanted”.

However, the complaint fell outside our rules. Under our rules, we cannot investigate a complaint where the event giving rise to the complaint occurred before 1 April 2010, and this advice was given in early 2010.

The adviser declined to waive the jurisdictional time limit, so we had to discontinue our investigation. However, from the information we’d received, it appeared there had likely been poor financial advice. If we’d been able to continue investigating, it’s likely we would have awarded Andrew compensation.

Further, if this advice had been provided after 15 March 2021, we would have been assessing the complaint against the backdrop of the new financial advice regime. Namely, requirements around record keeping and Code requirements around ensuring advice is suitable, and that the client understands the advice.

Although we could not investigate, we asked the adviser whether he wanted to compensate Andrew for the shortcomings in his advice, and he declined. We noted that under the Code advisers are required to treat clients fairly and act with integrity, and disengaging from the complaint process could be seen to be breaching that requirement.


Stephanie Newton, FSCL case management team leader.Stephanie Newton is FSCL’s Case Management Team Leader. She oversees a team of case managers investigating disputes across various financial services including insurance, financial advice, consumer credit, and KiwiSaver. A trained mediator, part of her role is to share the knowledge gained from investigating and mediating disputes with consumer groups and financial service providers.