Jennings: No commission for replacement business

I question why an ethical Adviser providing quality advice should be the only party to bear the brunt of churn.

It is time insurers shared a greater responsibility for bad industry practices, i.e. their introduction of Takeover Terms, an over zealous unethical BDM, etc.

How often do insurers examine Policy Repayment forms completed by Advisers and particularly the reasons given to the client and new insurer? I suggest these are too often just filed....

If insurers are going to accept new business that is being churned from another insurer, then at claim time, they should be regulated settle against the best of policy wording, i.e. the new policy and that one which has been replaced.

There is a joint responsibility with unethical and ethical churn. No commission alone is not the answer.

The ethical adviser who replaces a policy for the right reasons should be paid. And the CEOs can stay right out it, thanks very much.

How can the CEO of a company say in one breath there is no issue with commissions, then in another breath state that there are times when commission should not be payable? The self-interest shows again. Since this is the accepted standard, it’s fine, really. But it’s not just about what’s right for the client, is it.

Smaller companies like Fidelity are more often on the new business side of the equation, so would love to be writing new policies without paying commission - of course this looks like a great idea.

Likewise larger participants like Sovereign and OnePath may be keen on the idea too, as it might slow their lapse rates a little - even if it's for the wrong reason. And yes, letting clients who are being priced out, left behind by product evolution or with changing needs, remain on one policy simply because it's not worth the adviser looking after them is the wrong reason.

The ethical adviser who replaces a policy for the right reasons should be paid

There is a massive difference between servicing and writing new policies. Does a BDM turn up without expectation of being paid? No? How about the underwriter? Bank manager? Even the CEO? All play a role in, and derive benefits from business being written, yet the Adviser is the only one whose income is under threat. Thanks a lot.

I’ll let the regulators and clients themselves be the judge of suitability, quality of my advice. Due to the chronic self-interest that appears to plague this business everyone else seems to be incapable of judging fairly the difference between "replacement" and "churn" because quite often the same transaction is labelled as both, depending who you ask.

Some very good Points DH.
Often the discussion around replacement forgets to include the view of 'the big picture' here.

Which is the insurance company's revenue and all of it's employees and shareholders, and those who distribute their products being mostly Advisers, are ALL paid by the consumer premiums.

Often Advisers will find a prospective client, who has policies no one has reviewed or advised on since inception, and after completing a full risk assessment will find what they have may not be suitable for needs, or may be too much/too little in cover, and not competitive in benefit or policy wording and premium.

The result is obvious here, and the client appreciates the review undertaken on their behalf at the Adviser's cost of time and expertise given, and education provided so the client can make an informed decision on what is best for them.

What should be included with an application to replace business is a copy of the Adviser's Statement of Advice, and reasons for the replacement, demonstrating in B & W that the Adviser knows what he is doing, and why the replacement has to occur. This way should an issue arise at claim time, the Adviser can demonstrate what was discussed and agreed on by both Adviser and Client, and signed off by both.

This would remove a lot of the current
problems around replacement, and provide sufficient evidence to the insurer underwriting why they should consider accepting the proposed application, and will either remove the so labelled 'Churners' from the industry or provide a pathway for them to become actual Advisers, placing client's needs first.

Hear, hear you three.

I see from Milton's reported comments when asked about soft-dollar, he said he thinks it may still have some life left in it, yet.

Ha. This sort of jibes with his views on churn.

Fidelity's trips are GREAT, and lavish...will Milton stop giving qualifying points for the next GMC trip to any business Fidelity takes on its books (up till his last day on 31 March 2016), that has an Advice on Replacement Business Statement attached?

@Adviserman: I've been of the view that Companies should, if they're concerned in any particular case, be able to require a copy of the SoA.

That would require an authorisation from the client at the time of application, so it would be discussed, and that discussion would be recorded.

The Companies simply don't WANT to have every SoA on their files, or to have some generalised policing responsibility.

But any Company taking on replaced business should have the right to do so, if they have concerns about a particular adviser or group.

They should have the right to report the change to the Insurer who is losing the business.

I wonder, would there be any value in the Insurer losing the business receiving a copy of the ARB statement?

@Majella: Losing co receive the ARB?
No. They already have "retention" teams calling the client to find out why they're leaving. And to put questions/doubt into the picture. Sometimes it's a good thing, and I don't really mind it - in fact, if it's my client I appreciate it.

But no, I would not trust that disclosure, which is really meant to be from adviser to client (recording/summarising a high quality process), to the losing insurer. Ever. With that much info, and the extreme subjectivity of interpretation, who knows what shenanigans might result.

Why give the insurers any ARB? Unless the insurer is also the adviser (limited to banks and maybe AMP in some cases) the insurer is in no position to make a call on anything - they do not know the client, understand their circumstances or needs - they are not the adviser and in no position to question the clients decision. If 'churn' for the wrong reasons prejudices the client then the proper course of action is a complaint against the adviser!

@ Dirty Harry - good points. Milton's consistent & persistent moaning about 'churn' has a lot to do with Partners coming in & cleaning up with competitively priced and market disrupting products.

As well, now, they're stuck with some pretty old'n'ugly overpriced Tower book that must be being devoured from the outside in (and they won't allow the old TFAS guys to 'rescue' it across to Fid plans.

So you're probably right to suspect what actions could ensue from that information.

@ Tash - yes, the proper course of action is a complaint, but by then it's too late for a client who's been disadvantaged by crap advice.

I saw a case of this last year, when I referred to a tradesman who'd had a claim fail because of how badly flawed the advice he'd been given was.

I calculate that he was out close to $30,000 on an 18 week disability claim.

The cause of claim was an accident, but with his ACC wound back to the minimum (as advised) & NO loss of revenue plan in place - just an indemnity income that paid exactly zero - he was extremely disadvantaged.

Try as I might, he would not start a complaint against the idiot who'd done this to him, who had also then fallen under the radar when my client needed help with the claim.

This guy and the outfit he works for are as classic churners, and should be drummed out of the business or educated to do the job properly.