- No (45%)
- Yes (32%)
- Not sure (23%)
The contention this week that advisers will have the opportunity under the LIF legislation to avoid clawbacks forms the basis for your first poll of 2017.
It appears possible the clawback provisions may be avoided by merely engaging in an ongoing program of ‘rebates’ to clients…
Imac legal and compliance Principal Lawyer, Ian McDermott, asserts that inconsistencies in the treatment of clawback under the proposed Life Insurance Framework regulations may allow advisers to circumvent the rules by rebating commissions to their clients to retain their policies (see: Inconsistent LIF Regulations Create Loopholes). He says, “It appears possible the clawback provisions may be avoided by merely engaging in an ongoing program of ‘rebates’ to clients, no matter how minimal the rebate so long as the rebate was applied in order to induce the client to acquire or continue to hold, the product.”
Where do you stand on this issue? Do you agree that this potential loophole exists, irrespective of whether you would adopt the strategy? Is rebating commissions to clients a valid action? It is a practice that has existed for decades.
One remuneration model articulated to Riskinfo over time has been where the adviser applies a set fee to place a new life insurance policy ‘on the books’. An example is where the adviser told Riskinfo he charges his clients $2,500 as his standard fee for implementing a new policy, and any commission received in excess of that amount would always be rebated to the client.
While more evolved practices have been developed in recent times on how to determine an appropriate fee for the provision of life insurance advice, does this necessarily make the practice of rebating commissions any less valid? Has it always been a reasonable practice? Has it ever been a reasonable practice?
Tell us what is acceptable to you. Will it be ok, particularly once the LIF remuneration reforms are implemented, to continue to rebate a proportion of commission to clients if this forms part of your business model, in order to obviate the impact of clawbacks on your business?
Tell us what you think and we’ll report back to you next week…
LIF did not create this issue. The servicing adviser has ALWAYS been responsible for the clawback, whether they received the comms or not.
When I have had to pay thousands of dollars to staff and to cover my Business overheads, discussions about what is a valid and moral way to recoup my losses when a client changes their mind or the Life Company slugs them with a 25% premium increase in the second year and they cancel, does not take away the fact that I am thousands of dollars out of pocket.
I am not in a no income position. I have lost thousands of dollars.
I would have been better to write no Insurance, then I have saved thousands of dollars, though it defeats the purpose of covering more Australians to remedy the under-Insurance epidemic.
The 2 year clawback with nil responsibility on the Life Company, means the deck is stacked against the innocent adviser practices, which will lead to a decline in new Business written as the risks become higher than the potential rewards.
Employee Advisers always get paid and do not carry this risk, so it is not them who will ultimately decide if the writing of Life Insurance is viable.
The real risk for employees, is when the boss has to let them go because it is no longer profitable to keep staff and the Australian public will also ultimately lose, as they no longer have independent advisers to guide them through the maze, with the end result, them being grossly under-insured.
The Government seem incapable of understanding that what they have created, has NIL BENEFIT to Australians.
In the future advisers will not be able to afford to give risk advice let alone rebate commissions.
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