The closure of two suppliers last month served as a wake-up call to the travel advisory community: no matter how strong a business is, due diligence is required.

American Queen Voyages and Gogo Vacations both closed their doors at the end of February. American Queen, which has cancelled all future sailings, has implemented a refund process and has stated that all guest deposits will be fully refunded. Gogo, meanwhile, said that all existing bookings will be supported under the banner of parent company Flight Centre Travel Group.

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Shutting down a supplier can be both a logistical and emotional headache for advisors who have active bookings with the defunct business. Not only do they have to ask for refunds, but they also have to deal with the potential erosion of customer trust in the industry or even in their advisor.

While it’s not possible to know for sure the financial health of any given provider, there are telltale signs – like missed commission payments – that point to trouble in heaven. There are also steps advisors can take to ensure their clients are protected in the event of an unexpected closure.

“As we know, every once in a while, suppliers are going to have a failure along the way,” said Nicole Mazza, chief marketing officer at Travelsavers. “It happens. You just have to stay alert. Keep reading the charts. Keep reading the news.

Mazza said the closure of American Queen Voyages and Gogo is an anomaly: None of the other suppliers in Travelsavers’ portfolio appear to be struggling. But, she said, advisers should carefully consider any vendor they want to work with.

“Make sure they’re insured, make sure they’re bonded, make sure they’re financially stable,” Mazza said. “I think that’s one of the biggest benefits of being part of a consortium or a host agency. We do all that work for them when we sign them up as a preferred partner, and we all have very robust verification processes.

She encouraged advisors to book appointments with preferred suppliers in their host agency or consortium, because of this extra layer of research that allows for onboarding of supplier partners.

Peter Lobasso, ASTA’s senior vice-president and general counsel, agrees. While it’s “difficult” for individual advisers or smaller agencies to vet providers, Lobasso said if they were part of a larger network, they would have to rely on its partners.

“While it’s not a guarantee that a provider won’t subsequently go bankrupt for reasons that no one could reasonably anticipate, third-party verification can be a useful tool for evaluating which providers advisors should recommend to their clients,” he said.

Signature Travel Network, Pleasant Holidays and AAA Travel had all suspended sales of American Queen Voyages before it shut down.

If an advisor decides to book with a provider that isn’t part of a preferred partner program, “be careful,” Mazza said. Ask your peers for recommendations and book only with a credit card.

Unfortunately, Lobasso said, “there are often no signs of financial distress detectable outside.”

But he encouraged councillors to read the trade press and keep abreast of any reports of delays in the payment of commissions. This could be an indication that a company is in financial trouble, he said.

He also encouraged counselors to book with tour operators that are members of the USTOA, which requires members to participate in its traveler assistance program.

This program was designed specifically to protect consumers in the event of bankruptcy, insolvency, or the closure of a supplier. Active members of the association must deposit $1 million in security, which is held by the association and used only to reimburse consumers if such situations arise.

Lobasso also recommended that advisors purchase errors and omissions insurance, which typically covers claims made by clients that an advisor’s referral of a provider resulted in financial losses. Finally, he said, advisors should always recommend that customers purchase travel insurance with coverage against payment default.

Allianz maintains a list of covered suppliers, said Richard Aquino, vice president and head of sales at Allianz Partners. If a supplier is on that list, he said, the insured is covered in the event of financial default as long as the policy is purchased within a certain number of days after a deposit has been paid and the full cost of the trip is insured.

“I think our list is pretty solid,” he said. “We have the majority of all cruise and tour lines on this list.”

Aquino noted, however, that just because a supplier isn’t on the list doesn’t necessarily mean it’s not financially stable, and vice versa (American Queen was on the list, for example). The listing simply states that Allianz’s risk assessment team deemed the company to be an appropriate addition.

Daniel Durazo, director of external communications at Allianz, said suppliers are added and removed from the list from time to time.

“It’s not really a comment on the company if they’re not there,” Durazo said. “They may just not meet our underwriting criteria.”

Like Mazza and Lobasso, Aquino encouraged advisors to look to their networks, such as host agencies or consortia, when choosing their suppliers.

“I’m sure a consortium wouldn’t have [a supplier] on their list if they don’t feel like [they’re] a reputable company,” he said.

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