Mr Trapnell said while he is not convinced a culture of churning exists among advisers, he said introducing disincentives like a clawback period will remove all doubt – although he added it is excessive.
In fact, Mr Trapnell likened the introduction of a clawback period as outlined in the recently proposed life insurance framework to “using a sledgehammer to crack a nut”.
“One of the biggest problems with the clawback provisions is inequity,” he said. “There are times when the adviser has no part in the policy lapsing and yet, under these provisions, it is the adviser who will pay, literally.
“Another huge problem is the uncertainty of adviser income. A clawback can occur up to three years after payment has been made. In our opinion, this is simply unfair.”
Mr Trapnell also said the clawback policy would present concerns for advisers whose clients have gone on to see another adviser.
“Clients, like voters, can vote with their feet and move on to another adviser for any number of reasons,” he said.
“Under the clawback provisions, if clients do move on the original adviser will have to pay back part or all of their past income.
“We wonder how politicians would respond if they were forced to repay part or all of their parliamentary salary after losing an election.”
Mr Trapnell said the alternative to introducing a clawback policy is to innovate on product shape.
“We are entering a new world of life insurance and we need to think differently about life insurance products,” he said.
“We believe a new product shape will help ensure advisers are adequately remunerated for their efforts, while removing all perceptions of churn once and for all.”
Three years claw-back means the cost of insuring a client is no longer worth the risk to a business. The providers will drive the IFA market into the ground and their continued conflict of interest will continue unabated.
More importantly, not one client will be better off with these changes. this is all about feeding higher bonuses to the scab providers.
How about if a consumer changed their mind about having bought a car 3 years later, and was talked into new one by another salesman. Why don’t they have to repay the commissions they earn? The inequity around this is ludicrous and politicians have no idea what they are doing to this industry.
The focus should be on the consumer in this case to pay the fee to the new adviser and that would make them think twice before jumping ship for any purpose. We are all made to pay for everything else, but no-one works for nothing.
And we know where that’s going to end up when the fee to be paid is dictated by those who don’t have to do the work, or put their time, knowledge, education or experience on the line to provide it.
Everyone talks about the commission being clawed back, but no-one talks about the premiums for the claw-back period being repaid to the client …!
Where is fair is fair? Never has been for the adviser!