Servicing, company agencies and the legislation

Geoff Annuls weighed into the servicing debate a couple of days ago, and while a reasonable article, failed to cover a few pertinent points.

Monday, November 19th 2018, 7:00AM 4 Comments

I appreciated what Geoff's comments are trying to convey; however, it muddied the water. What needs to be clear is Accuro, like Southern Cross, pay a service commission. This follows the servicing adviser, not the introducing adviser. (With the exception of SX sourced business, they keep that money)

The structure of the Accuro agency is different to a typical life insurance agency, where the money paid is paid for service. In this regard, Geoff's comments have more weight as the insurer on a service commission approach to ongoing remuneration have some responsibility to ensure service is actually happening.

Stepping back and applying this to the life insurance agencies is incorrect, as I have stated a few times, life insurance agencies don't pay servicing commission, they pay longevity of the contract commission as a function of the initial introduction.

Agency agreements have no obligation to provide ongoing service in them. Moreover, frankly, they shouldn't, that is a contract between client and adviser, not adviser and insurer.

One of the comments, from Tash, outlined a number of points that apply in the broader context of agency agreements that also contributed to my thinking here.

I agree with Tash in her statements. Insurance company staff mostly have no clue about advice, and what is good or bad advice. They have a view about conduct that is not necessarily correct, but often not far from the mark, and they certainly see what bad advice outcomes look like when claims don’t go well.

In stating that, even advisers can be blind to alternative views, which drives the perception of churn debate I commented on in a previous article.

Irrespective of the agency agreements, under the new law and code all advisers will have to up their game on their approach to servicing. This is part of defining nature and scope under the FSLAB legislation in addition to the expectations from a professional adviser perspective.

If insurers were to add servicing requirements to their agency agreements, they have the potential to come into direct conflict with the need for the adviser to provide service to the client and be contracted to the existing provider to provide that service.

So how does it work when the client needs to be with another provider due to a change of circumstances?

What happens if a client contracts explicitly out of the level of service required in the agency agreement?

Alternatively, they bugger off overseas, as we have seen in the shocking IFSO decision?

Being held to account on rules that never applied in the day, and having today’s rules applied even when the adviser declined to engage.

Alternatively, the client declined at the time and then changed their mind, but didn’t contact their adviser, just blames them 20 years later when it fails to work because of changes the client has made. This patently unfair on the adviser.

The issue is conduct, and while agency agreements can be prescriptive about conduct, in relation to the code of conduct, they can’t be prescriptive on service, it will create conflicts that will not be in the client's favour.

Add to that with a principal's based code we need to be mindful of those with boxes trying to draw too many boxes around us. Because they will result in conflicts of interest and poor client outcomes.

The approach of the principal's based code is to enable freedom of advice. It defines what you need to be doing in principal and has hard edges of what you should not be doing.

It’s a bit like a medical contract. As Sylvia Calnan explained it to me early in my time in the industry.

To understand a medical contract you flick to the back and read the exclusions; it tells you what you are not covered for. Pretty much everything else is covered, within the context of the policy document.

The code of conduct is much the same. It says you don’t do this and you must have this to pay.

However, on the whole, go and be a good adviser. Because it is easy to define lousy advice and poor advice outcomes. It’s much harder to define what good advice looks like.

I’ve been here nearly 20 years asking the question; what does good advice look like and can you define it for me?

I am yet to hear an answer that is simple, coherent and applies to all situations.

Let’s stick to defining the sandpit and then letting the people play in it. You toss sand out, or you piss in the pot, there’s the sin bin or the door.

Tags: Jon-Paul Hale