Upfront commission will still be payable on replacement insurance business under the Financial Services Council’s new ‘churn’ policy, announced today.<\/p>\n
The finalised terms of the FSC’s\u00a0Replacement Business Framework introduce\u00a0a three-year responsibility period and a\u00a0tiered commission claw-back provision.<\/p>\n
Under the policy, where an advised policy lapses within three years, a claw-back provision will apply as follows:<\/p>\n
Importantly, advisers will still be entitled to receive upfront commission on replacement business, regardless of the number of years the policy has been in place.<\/p>\n
The FSC has moved away from a number of elements set out in the original Replacement Business Policy which it released for consultation in March this year.\u00a0 Specifically, the proposal sought to address the practice of churning by\u00a0removing takeover terms, and introducing consistent commission claw-back provisions and a five year responsibility period in which no upfront commission was to be payable on replacement business.\u00a0 The proposal was met with significant concern from advisers and other industry stakeholders, with the majority calling for a more robust definition of ‘churn’.<\/p>\n
FSC CEO, John Brogden<\/strong>, said the revised framework meant there was no longer a need to define churn.<\/p>\n The beauty is that churn is no longer relevant, because it’s just about a lapse<\/p><\/blockquote>\n “The beauty is that churn is no longer relevant, because it’s just about a lapse – whether somebody lapses their existing policy because they’re getting a new one, or they just walk away because it’s no longer relevant.”<\/p>\n “We’ve actually been able to fall on a policy that is literally completely neutral to the issue of why they no longer hold the policy.\u00a0 We leave that issue alone.”<\/p>\n Mr Brogden\u00a0said he believed the new framework would encourage\u00a0more advisers to\u00a0move towards fee-for-service models or to take up level commission arrangements.<\/p>\n He also pointed out that by dealing with the way\u00a0large upfront commissions are paid the FSC had made a move to address Australia’s chronic underinsurance problem by placing downard pressure on premiums.\u00a0 “That’s in our view the critical element of this policy, that it will over time reduce the cost of life insurance,” Mr Brogden said.<\/p>\n The new policy will take effect from 1 July 2013, coinciding with the commencement of the\u00a0majority of the Future of Financial Advice (FoFA) reforms.<\/p>\n In addition to the policy, the FSC also announced it would establish a working group to review a range of life insurance industry practices, including greater investment in technology to deliver more efficient underwriting processes, the extension of product upgrades to existing policy holders, and continuing to work with the advice industry to improve advisers’ skills and capabilities.<\/p>\n AFA, FPA Response<\/strong><\/p>\n The Association of Financial Advisers (AFA) and the Financial Planning Association (FPA) have issued initial responses to the FSC’s framework, saying the policy is an improvement but that further detail is required.<\/p>\n The Association of Financial Advisers (AFA) has responded to the policy announcement saying that it remains concerned about exactly how the responsibility period will work.<\/p>\n “This is a solid first step in addressing and creating a sustainable life insurance industry,” AFA CEO, Richard Klipin<\/strong>, told riskinfo.<\/p>\n “However, client circumstances can change, and that leads to lapses. Similarly, the innovation cycle in insurance means that better products are coming to market all the time which creates an issue around an adviser’s ability to comply with the best interests duty.”<\/p>\n Mr Klipin added that the AFA did not believe a punitive policy that only impacts advisers was the most effective way to approach the issue, and that all parts of the advice chain needed to be considered.<\/p>\n Despite these concerns, Mr Klipin praised the FSC for its consultative approach to date and said that discussions between the two groups would continue.<\/p>\n Financial Planning Association (FPA) CEO, Mark Rantall<\/strong>, reiterated that the Association was opposed to the original proposal, saying the new approach was “taking some steps forward”.<\/p>\n However, Mr Rantall said he could not comment further until all the details had been provided by the FSC in relation to the policy.\u00a0 He added that the FPA was looking forward to continuing its consultation with the FSC.<\/p>\n","protected":false},"excerpt":{"rendered":" Upfront commission will still be payable on replacement insurance business under the Financial Services Council’s new ‘churn’ policy, announced today.<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[282,259,8,270],"tags":[],"class_list":["post-16544","post","type-post","status-publish","format-standard","category-associations","category-breaking","category-compliance-regulation","category-remuneration","headers-new"],"_links":{"self":[{"href":"https:\/\/riskinfo.com.au\/news\/wp-json\/wp\/v2\/posts\/16544","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/riskinfo.com.au\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/riskinfo.com.au\/news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/riskinfo.com.au\/news\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/riskinfo.com.au\/news\/wp-json\/wp\/v2\/comments?post=16544"}],"version-history":[{"count":0,"href":"https:\/\/riskinfo.com.au\/news\/wp-json\/wp\/v2\/posts\/16544\/revisions"}],"wp:attachment":[{"href":"https:\/\/riskinfo.com.au\/news\/wp-json\/wp\/v2\/media?parent=16544"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/riskinfo.com.au\/news\/wp-json\/wp\/v2\/categories?post=16544"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/riskinfo.com.au\/news\/wp-json\/wp\/v2\/tags?post=16544"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}