Speaking to Risk Adviser, Connect Financial Service Brokers chief executive Paul Tynan said the proposed three-year responsibility period will mean a lack of transparency about the value of a risk practice and lead to difficulties when selling it.
“[An adviser] could legitimately sell a policy to a client and for any number of reasons the client doesn’t renew their policy – that means there is going to be clawback,” Mr Tynan said.
Since there will be no guaranteed income for that period of time, no one will be able to properly estimate what the business is worth, he said.
Therefore, the way in which risk practices are bought and sold will inevitably have to change.
The days of paying a lump sum for the value of a risk business will end and with clawbacks of three years, transactions will more likely have to be completed in instalments.
“No one is going to be paying you something upfront like now on a three times multiple [for a risk book]. No one is going to be doing that,” Mr Tynan said.
“What you are going to have to do is pay it over stages over three years.
“[It] will make it hard to attract new people to sell risk [books] and make it hard to build value and see a transparent value in the business. [As a result] a lot of people will say it is just too hard,” he said.
well said Paul. It is simply not worth the business risk. Of course the banks will view this as another win for them, getting rid of the competition!
Pre Josh, when you sold a business the renewal attached to the business written in the last year was not part of the calculation. The buyer got that value as a bonus. Yet the stinkin-thinkin of the life insurers who support the FSC, added to the the short-termism of the banks, has turned the ongoing long-term nature of the life industry on its head.
Most insurers would have mature policy holders who may have had three more advisers as their servicing adviser after the introducing adviser left, and that business remains profitable despite the wringing of hands re “legacy products ” . If we all go to fee only, there will not be any long term “stuck-on ” policy holders because advisers will not have any relationships with insurers and will ruthlessly move business for a fee – each year if possible.
Commisions are just one of the costs associated with putting business on the books, and when there can be no clawback at all because there are no commissions, some of these insurers hanging on the coat-tails of the banks in the FSC will go to the wall without a distribution team, attached to a mortgage or loan sale.
My question is this – why are AMP, Asteron, AIA, Clearview TAL & Zurich still members of the FSC.
I agree with what Paul is saying BUT there is an assumption that Risk Advisers would be stupid enough to write any new business which is subject to a 3 year contingent liability. No way Jose!