Clawbacks for Servicing Advisers Only?

Our latest poll asks your opinion about who should be subject to commission clawbacks under the new Life Insurance Framework reforms.

This poll is based around the AFA’s call last week for a common-sense approach to be taken when applying clawbacks as the industry prepares for transition (see: AFA Calls for Common-Sense Test on Clawback).

… clawback should apply to the servicing adviser if that differs from the adviser who originated any insurance cover

In addition to its call for common-sense, the AFA also took the opportunity to clarify to whom it believes commission clawbacks should apply. It said in its submission to Treasury that: ‘…clawback should apply to the servicing adviser if that differs from the adviser who originated any insurance cover.’

The AFA argues that current industry practice sees ongoing service remuneration transfer to the new adviser when the client changes their adviser. It adds that risks and liabilities are also transferred under these circumstances. It also noted this was recognised within the Future of Financial Advice reform regulations and should also be recognised within the LIF clawback exemptions.

It concludes: “…the Regulations should clarify that responsibility rests with the servicing adviser (at the time of clawback)…”

Do you agree that this is a fair and resasonable approach? On the surface it is. But is there an argument to be made that suggests the new adviser, if they have acted in the best interests of their client in moving them to a policy which better reflects their best interests, should not bear the financial burden of repairing what may have been an inappropriate solution implemented by the original adviser?

There are also nuances that may impact this issue. For example, we understand that the timing of the formal transfer of the client to the register of the new adviser may sometimes take place after the original policy has been cancelled. In this case under the LIF reforms, if that policy is less than two years old, the originating adviser will ‘wear’ the clawback, while the new servicing adviser will benefit by accessing new business commission without the clawback impost.

As usual, it’s now over to you to continue this conversation and we look forward to reporting your thoughts and the poll results next week…