You work at a Financial Planning practice called PlanSecure in inner Brisbane with a colleague and Licensee, Ralph Smith. Ralph is in hospital after having a knee reconstruction and he has asked you to finalise an insurance contract he was preparing for his clients, Max, and Rose Douglas. Max and Rose are renting an apartment in New Farm and they currently hold a home contents policy with S&K Insurance Company for cover of $43 000. They realise this cover is much less than the current value of their home contents. Therefore, they wish to increase the policy value as soon as possible.

Among other things, Max and Rose have some high-value assets which they keep in their apartment. The details of some of the items are set out below:

Cost Replacement Value

Smart TV $10,500 $8,500

Home Computer $7,500 $6,500

Jewellery $51,500 Unknown

Cash $21,500 $21,500

Ralph has given you the following instructions to finalise the insurance contract:

• sell Max and Rose a $2 million householders policy with AClass Insurance Company which will give much greater cover than the value of their current household assets. When you queried this with Ralph and asked him why he was over-insuring the clients household assets he said he wanted to ensure they had capacity for the asset values to increase over time. (Ralph also mentioned that he will receive a generous commission on this policy, but that this fact did not influence his advice to Max and Rose).
• ask Max and Rose for a cash deposit today of $10,000 to secure the policy
• tell Max and Rose that an indemnity policy is better than a replacement policy because the premiums are cheaper.
• tell Max and Rose not to agree to any excess cover on their householders policy

You know for a fact that Ralph did not find out if it would have been cheaper to increase the value of contents cover under the S&K policy, instead of taking out a new one with AClass Insurance Company.

QUESTION 1 continued

Required:

1. Discuss the ethical dilemmas and/or conflicts of interest that may be present in this scenario.

2. Suggest actions that can be taken to remove, avoid or mitigate the dilemmas and conflicts in the situation with Max and Rose by reflecting on your prior knowledge.

3.In terms of upholding ethical best practice in the Financial Planning profession, what would you do to strengthen the image of PlanSecure?