The Association of Financial Advisers (AFA) says there is no evidence to suggest that churning is widespread or systemic.
Responding to the Financial Services Council’s replacement business policy, the AFA said that churning was rare and limited to a few isolated advisers.
Speaking on behalf of the Association, CEO Richard Klipin said: “While it’s important to stop the practice, action should be focused upon those advisers who churn, rather than the whole financial advice industry. It is also important that we clearly define what churn is and start to measure it.”
It is also important that we clearly define what churn is and start to measure it
He added that the introduction of the Best Interests Duty, which forms part of the Future of Financial Advice (FoFA) legislation, would highlight the importance of only moving clients from one policy to another where there is a net and material benefit to the client.
However, the AFA still contributed the following suggestions to the discussion about managing churn:
- Create a ‘watch list’ to establish who the churners are
- Update life insurance application forms to include a declaration from advisers that the replacement policy represents a net and material benefit for the client
- Update the industry Code of Ethics to include an obligation for advisers to demonstrate the net and material benefit of the new policy to the client in advice documentation
Insurers are also weighing into the churn debate, with Asteron Life saying the FSC’s proposal may have unintended negative consequences for clients.
Asteron Life conducted a survey of its advisers to determine their view on the replacement business framework, and found that the majority believe if the proposal is implemented it will penalise advisers and impart greater costs onto clients.
Specifically, Asteron Life says the impact on clients would come in the form of:
- Less frequent reviews of insurance portfolios
- Additional costs for reviews
- Reduced adviser competition
The insurer also agreed with the AFA’s position that churn was not widespread, saying the advisers it surveyed believed the focus should be on forcing dealer groups and life companies to deal with the few individuals who do practice churn.
“Churn is not something practiced by most advisers,” said Asteron Life Executive Manager, Mark Vilo.
Churn is not something practiced by most advisers
“But for those advisers that replace business where it is genuinely in the best interest of their clients, we need to ensure that their businesses are able to survive, particularly in the current economic environment where cash flow is an issue for most advice practices.
“Overall, the industry needs to take a collective approach to deal with replacement business, otherwise, structurally, this industry will be unsustainable.”
The FSC input to the churning debate did not go deep enough to find the real reasons for Insurance premiums falling off the books and their attempt at trying to fix this issue, was equally not thought through in sufficient detail.
I would go so far as to say that there was not enough input from practitioners or the clients who pay the premiums.
It is admirable to look for cause and effect, though the result may be closer to reality, if the actual parties who create, pay and take away, are consulted as to why this occurs.
Comments are closed.