Advisers convince Trowbridge on clawbacks

Speaking to Risk Adviser, Mr Trowbridge rejected suggestions that his report closely resembled the FSC’s submission, pointing to a number of key differences between the two documents, including on the issue of clawbacks.

Whereas the FSC submission called for “extending the responsibility period” in order to “encourage behavioural change and ultimately improve the lapse experience”, the Trowbridge report called for the period to remain at just one year, which Mr Trowbridge said reflects his scepticism about the clawback policy.

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“What the FSC has done by calling for a longer clawback period, that would mean that three years after a policy was put in place you may still have to give back some of that commission if the policy holder lapsed,” Mr Trowbridge said.

“It is hard to administer clawback and it is very tough on the adviser. It is put forward as a solution to the churning problem but I don’t like it.”

Mr Trowbridge said that submissions by advisers, advice businesses and associations were “very strong” on this issue and that he “really understood their position after reading their submissions just how bad it would work out if you did it over more than one year”.

The five-year rule Mr Trowbridge applied to the initial advice payment (IAP) is a better way to stop churning, he said, since it means clients can still be placed in new policies without the incentive and with very little cost to the adviser beyond research time.

Another key difference between the FSC’s submission and his own report is that Mr Trowbridge proposed the IAP only apply on a “per customer” basis.

“The FSC submission – to the extent that it talked about such a payment – assumed that on a new policy you could get a new payment,” Mr Trowbridge said.

“I’m saying, ‘No, if you’ve got one policy and you take out another you can’t get another advice payment because the client is already insured’.

“It’s aimed at the churning issue but also a customer focus so that both the insurer and the adviser are forced to focus on the customer’s total insurance needs rather than policy by policy,” he said.

However, both the FSC submission and Mr Trowbridge rejected hybrid commissions, arguing for a move to a level commission regime.

The comments from Mr Trowbridge come as FSC chief executive Sally Loane takes aim at Risk Adviser’s coverage of the issue, defending the “integrity and independence” of Mr Trowbridge.