So Who do you Work for?

You may think you work for your client, or even yourself of course, but the law surrounding agency often says otherwise. In many cases, you actually have no choice in deciding whether you are someone’s agent, and that’s just the price you pay for doing business. Due to a number of recent and proposed law changes, the web of responsibility is a tangled one. But understanding agency is critical to knowing your responsibilities and perhaps liabilities. 

The starting point is lost in the mists of time. Common law says that when you approach a person to do business with them they can reasonably expect you to have their interests at heart. Quickly this changes though. Equally, common law tends to view you as the agent of the person or entity that is paying you. So even if you aren’t selling insurance, at some point in your conversation you will switch from being an agent of the client to being an agent of the company you are selling for – not the client. Stating that “I work for you” in such cases may be considered misleading or deceptive conduct, because plainly, you don’t. Of course, you do provide a service to the client, and stating that the client’s interest is your concern is entirely allowable. Provided that is reasonably demonstrated by your actions. 

With life insurance the relationship is explicitly defined by the recent insurance law reform act (meaning 1977, which is recent in the world of insurance) – and you are defined as the agent of the insurer. That’s whether you take commission or not. So if you go fee-only, it must be for reasons other than shifting the agency risk. 

Fussier insurers say that the moment this happens is when you pull out their application form with their name on. Prior to that you could have been working for the client, or another insurer. However, in practice, unless you and the client have been having your meetings chaperoned by the local Justice of the Peace, with video and audio recording in place, pretty much anything that was said before the magical moment could be claimed to be communicated to an agent of the insurer. 

The practical upshot of this is seen in many non-disclosure cases. As soon as an insurer denies a claim for non-disclosure (and there have been some recent well-publicised examples) the client may say “I told the broker about that but it wasn’t written down” or “the broker said not to write it down” or “my broker knew I had suffered from…” Hence the importance of knowing who you work for - you may think it’s the client, but right then and there, it isn’t. I have often felt that the most valuable statement that could be included in the voluminous bit of legalese just above where a client signs would be something like “If you have told your broker anything that you have not written in this form please stop now and write it in before signing here.” Lengthy explanations of sniffles and piles aside, it may do far more than the rest of the statement to reduce non-disclosure. 

Then we’ve got more modern complications. The Financial Advisers Act is silent on who you work for, but helps us out admirably by making sure you understand that the advice is your responsibility. That’s not extinguished by virtue of working for someone else – more just shared out, with increasing numbers of people added to the hook. The onus of choice in this case – to judge from a recent discussion paper, rather than the Act itself – will be on a Qualifying Financial Entity to decide whether to bring you into the tent and thereby acknowledge sharing some responsibility with you.

Finally we’ve got Anti-Money-Laundering laws coming that emphatically make you the agent of the product provider (of whatever flavour) whether you like it or not in regards to customer identification and due diligence. Being put in this position you will find that the product providers may have a bunch of new administrative work for you to do in order to fulfill their responsibilities under the Act. It may be hard, but try not to blame them too much, they don’t like it either. Just hope for one or two fewer suicide bombs or P-wrecked teenagers.

What does it all mean? It affects your behavior with both clients and product providers. We don’t know exactly what clients make of this – but clients are not, contrary to the views of many lawmakers – stupid. They know you work for someone else. That’s probably their default setting. But good communication cannot hurt and could only really help here. If you want to offer your services on a fee-only basis like an accountant or a lawyer, you go for it – but you should be prepared to explain how it works and the benefit of such an approach to the client. 

Communication is the key with your product providers as well. Almost everything said to you in a meeting with the client could have a bearing on the subsequent liabilities of the product provider. Remember, in almost all cases you are acting as the agent of that provider and you owe them that information. Whether or not they specifically ask for it, you should furnish them with it as a matter of personal protection. That way, later, they cannot come back and claim that you should have told them something. 

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