Most advisers object to the prospect of being paid level commission only for replacement policies.
In response to our poll on the FSC’s proposed churning policy (see FSC Churning Announcement…), seven in ten advisers answered ‘no’ to our question:
Do you support the FSC’s latest policy proposal that advisers moving existing clients from one insurer to another within a five-year period will only be eligible for level commission?
As we publish this article, 69% of advisers who have responded to our poll have voted ‘no’, while 28% agree with this latest churning policy proposal.
The major objection from advisers relates to the Best Interests argument. That is, if it is in the client’s best interest to move to a new life insurance policy, it is the duty of the financial adviser to ensure this happens. This duty applies irrespective of how long the current policy has been in force.
Advisers point out that life companies constantly search for better product solutions, both in features and in pricing, and say it is their responsibility to ensure their client is able to access the policy that best suits their needs. This product competition, say advisers, promotes the movement of existing policies as well as the placement of new business . One adviser comment summarised this argument:
I do come across circumstances where the client (for one reason or another) has a product that is either not appropriate for their circumstances or is plainly overpriced and the policy is only a year or two old. If I don’t replace this policy with one that is appropriate and/or competitively priced, I am simply not putting the interests of my client (potential client) to the foremost.
Specific suggestions from advisers include:
- Scaling back of the level commission only period to three years rather than five
- The call for life companies to offer the same premium discounts to existing policy holders as they do to new/prospective clients
- Apply the level commission only restriction to those advisers who exceed a threshold of turning over their clients’ insurance policies
- Black ban known ‘churners’ and allow the majority of advisers, who re-write business in their clients’ best interest, to continue to access the option of upfront commission on the replacement business
On the other hand, almost three in ten advisers support the proposal to restrict upfront commission:
Any adviser (or life office) wanting to build a sustainable long term risk business should not be taking up front commissions but hybrid or level. It may be more difficult in the early years but the rewards will flow and the business will ultimately have a much higher and tax advantaged sale price. So I (an adviser) am broadly in favour of the changes.
The three-month industry consultation period for the FSC’s three-point churning policy will be completed by late June 2012. We welcome your comments on this important policy proposal for the life insurance industry and will direct them to the FSC…
The FSC should be focusing on two matters – make all insurers pay the same rate of commissions for initial and ongoing, and to assist in the churning aspect pay no more than 50% of the intial commission up-front with the balance paid as monthly payments over the next 11 months. By doing this it takes away any perceived conflict of interest due to one provider paying more than the other, and it also protects against the “write-backs” when a client cancels their policy gaianst advice within the first 12 months – or is twisted by another adviser!!!
The upfront remuneration model is typically around 110% in year 1 and 10% in year 2, a 100% difference.
Why isn’t the hybrid remuneration model suggested for ALL replacement business.
Could be say 70% in year 1 and 20% in year 2, a 50% difference.
A better “long” term option.
And less of an incentive for the serial advisers to move their “existing” clients regularly.
If there are reasons why an existing client is moved, then the hybrid model should apply.
The insurers need to control and police this by :
(1) do a search in their system to see if they have received an application previously for the SAME client, from the SAME adviser ?
(2) advise the adviser’s dealer group of the date of the 1st original application, date it was cancelled and the date of the 2nd application arriving the 2nd time, so they can review the Statement of Advice document and reasons for the replacement ?
(3) inform the SAME adviser that given the fact that you have already been paid an upfront commission on the 1st original application, that the level rate will be applied to the 2nd application.
Don’t disadvantage the advisers who are not serial churners and/or doing work for a “prospect” who has multiple policies with expensive premiums, premium loadings, policy exclusions, inferior features, owned incorrectly etc.
They should have the option to choose either upfront or the ideal hybrid model for the 1st time.
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