The FSC’s latest proposed anti-churning measures have opened up a can of worms amongst Australia’s financial planning community, many of whom are despairing at the potential financial punishment that they could face simply for doing their job properly.
The new proposals suggest that planners face commission clawbacks of 100% for policies that lapse within one year, 75% within two years and 50% within three years.
However, Wealth Professional readers have descended upon our online forum in their droves to pick holes in the FSC’s plans.
“The insurance companies improve their products every year or so in an attempt to win the Life Company of the year award. As an adviser are we to ignore industry information and not bring these enhancements to the clients’ attention? Please advise!” wrote Scott.
“On occasion, despite receiving advice to the contrary, a client will decide to cancel their insurance policy for reasons only understood by them. This decision may be beyond the adviser's control, and has nothing to do with churning. Despite this, the FSC is proposing to financially penalise the adviser! Come on John Brogden – give us a break!” added Louisa Jammal.
Meanwhile, Paul Bilson claimed that the life insurance companies are far from blameless.
“We already have 100% clawback in the first year but to be penalised 2 + 3 years after you do all the work for the client due to unforseen changes in their circumstances is blatantly unfair. The insurance companies have been ruthless trying to take over other policies and business from competitors and then try to paint advisers in a poor light – who can forget the offers from a large Insurance Company to take over AIG/AIA business when the parent company was in diabolicals in America, despite the fact all of their insurance liabilities were covered under APRA? Very disappointing,” he wrote.
Daniel also put the insurers in his crosshairs, writing that they “are increasing their premiums exponentially this is one way to recover costs,” adding that “the adviser pays again!”.
There was also significant concern over the way in which the FSC’s proposals could in fact end up punishing financial advisers for fulfilling their duty to act in their clients' best interests.
“What about clients best interest?” asked a reader calling themself The X factor. “Are we to not recommend upgrades because of clawbacks? What happens when the client takes the adviser to task because the adviser has put his own interest first (of not losing the commission). Also watch how individual insurance companies will waive the clawback when it suits it (especially when insurance is revamped). Ridiculous and unworkable, let’s face it advisers will not wear it.”
Commenting on Synchron director Don Trapnell’s suggestion that – should the FSC proposition to have a three-year responsibility period be universally adopted – Synchron will consider making a formal complaint to the ACCC for anti-competitive behaviour, Meike - Suggars & Associates, said the following:
“I'd support the complaint to ACCC. How are we meant to run a viable business if we can't bank on income until 3 years after the work was done? That's completely unrealistic and certainly does not work in the best interest of the client. They'll be sent off to 'direct insurers' who are purely transactional and don't offer the ongoing service that often results in a policy upgrade. Without this ongoing service, the client is likely to be left with a policy that no longer protects their circumstances the way it should.”
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