New anti-churning rules introduced
A set of new rules to stop advisers "churning" life insurance policies changes come into effect on Thursday, but are already creating concerns.
Tuesday, June 29th 2010, 5:57PM 
18 Comments
by Jenha White
The Investment Savings and Insurance Association (ISI) chief executive Vance Arkinstall says sadly there are cases where existing policies have been replaced and several years down the track when a claim arises it is found that the new policy doesn't provide the cover expected.
He says the new Business Replacement Rules and Reinstatement guidelines aim to provide increased transparency and disclosure so that life insurance policy owners who are considering replacing an existing policy with a new policy make an informed decision for the right reasons.
However, Hudford Parker Financial Services manager Giles Thorman has a few concerns about the new guidelines including the form pointing out that whomever is selling the new policy is likely to be paid for it.
"I am sorry, but since when have I been a registered charity, who expects me to work for nothing?"
He says the new changes imply that the broker is not really acting in the clients best interests.
However, Arkinstall says the change is relevant under the new financial advisers regime with a move to total transparency and disclosure.
He says it is not a requirement to tell the client of remuneration but the point is there so the client knows the adviser gets paid, giving them the opportunity to ask further questions.
Thorman is also concerned about point six which states: "I/We acknowledge that a copy of the completed form will be given to both the old and new insurer".
He believes that if the client signs it, they are effectively waiving their rights to privacy.
"My suggestion to everyone in the industry is to put a line through this clause and have the clients initial it which will mean a copy of the Replacement Business Advice cannot be sent to the old insurer as to do so would be an infringement of the clients privacy."
Arkinstall says the ISI believes there is merit in the old insurer getting to see the form so they have the opportunity to change any incorrect information that has found its way to the client.
He says if a client didn't want the old insurer seeing the form they could crossit out or refuse to answer that point.
Thorman says there are also other areas that need to be signed off by the client, namely that they have received a copy of a brochure that explains their old policy may be better than the new policy and that advises the client that the old insurer may well contact them just to check up and make sure that the broker has not "ripped them off".
"I shall be very interested to hear from the insurance companies some of whom state categorically that the broker owns the client base and the relationship is primarily with the broker.
"Here we have the possibility of someone sitting in the head office of an insurer with limited sales experience, likely very limited knowledge of other policies available in the marketplace and almost certainly infinitely less knowledge of the marketplace as a whole, contacting the client and calling in to question the recommendations of their broker."
Arkinstall says it is an opportunity for the old insurer to correct misunderstandings, not to limit the activities of advisers. He says it is to ensure the consumers decision is based on full and appropriate information.
"The new guidelines have been developed with the input of ISI members who are supportive of the changes," he says.
"We are operating in a new world and confidence and trust is important - this is a step to help build that."
Jenha is a TPL staff reporter. jenha@tarawera.co.nz
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Comments from our readers
I've been doing it since I started in 1992: it just seems LOGICAL and shows respect for the client's intelligence.
In other words, this doesn't really address the problem, because the offenders will keep on offending. There may be some extra reproach, but that's ambulance at the bottom isn't it?
I have no fear of complying with the new rules as I don't churn my own clients.
When taking business off another adviser I already fully explain everything with the client – now it just has to be done in a different way.
However I do think the RPA should also have whether or not it is the same adviser recommending a new provider and why, because then the old and new provider should know what the adviser is doing. When it is the same adviser then the client should also know that he/she is being fully paid for their business again.
I know some providers give advisers the option to discount premiums if they take a lower commission; perhaps this would be an option with all providers for the rare same advisers that are changing provider for the client's best interest, not theirs.
How about sending a copy of the form to the existing adviser as well, this way all parties will know who's doing what!!!
Personally, I have had enough of holier than thou "advisers" doing business under the clock of darkness......
In the insurance & mortgage/investment industry the term 'Churn' is used when an existing product is replaced by a new one.
The Electricity, telephone, motor vehicle industries etc, pick up new clients everyday, who leave their previous supplier for a new one.
We accept this as normal, but not for financial services?
Surely people change for a reason, & this is their choice.
Sometimes they may do so for the wrong reason, however as a consumer we can all choose the wrong provider, supplier at some time in our life.
What is interesting is the insurers don't complain when obtaining a client from a competitor, only when they are losing some?
Sour grapes maybe?
The real issue I see here is when a client claims, & misses out due to poor advice given or taken by themselves, over what was in place prior.
Can we prevent this?
Maybe, but there are so many contributing factors, we can not wrap the public in a safety blanket.
Having said that I have no problem with moving clients from company to company, as long as they are getting a better deal who gives a figs ass what the ISI or the insurance companies think, they are my clients and I will look after them to the best of my ability and using all the tools available at the time.
And if the threat off a phone call worries some of you, well ha de ha ha - insurance companies write to clients when they miss a premium or to tell them their premiums are going up, as if anything they say will alter anything discussed between the advisor and the client.
I have already drafted a letter to send out to all my clients that includes the ISI brochure, telling them that more than likely they will be filling one out in the future if the circumstances warrant it and they end up better off.
I have no loyalty to anyone but my clients, unfortunately some advisors don't have or can't have this trait.
Having said that I have no problem with moving clients from company to company, as long as they are getting a better deal who gives a figs ass what the ISI or the insurance companies think, they are my clients and I will look after them to the best of my ability and using all the tools available at the time.
And if the threat off a phone call worries some of you, well ha de ha ha - insurance companies write to clients when they miss a premium or to tell them their premiums are going up, as if anything they say will alter anything discussed between the advisor and the client.
I have already drafted a letter to send out to all my clients that includes the ISI brochure, telling them that more than likely they will be filling one out in the future if the circumstances warrant it and they end up better off.
I have no loyalty to anyone but my clients, unfortunately some advisors don't have or can't have this trait.
Low lifes like these have been the scourge of this industry for years and are the ones who have meant that these changes are needed.
Unfortunately this will all cost money and the poor sucker who has to pay for adviser dishonesty and all the new regulation is the client.
1) ISI members promoting the churning of business. Having BDMs calling on adviser suggesting and giving out the tools like one page health statements to make it easy to churn business.
2) How often do we see ISI members bring out new products. Then within a couple of years withdraw them because they don't cut the mustard. Then advisers asked to go back and replace those policies.
I think some of the ISI members talk with forked tongues. Say one thing at the ISI meetings anther when they are back in the office, where the pressure is on them to earn more profit for the shareholders.
I don't think a good Adviser has anything to worry about.
We all know that administrators don't make good sales people.
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