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NZ regulator finds potential evidence of churning

A report from New Zealand’s Financial Markets Authority (FMA) has uncovered possible evidence of churning among a subset of financial advisers.

The FMA’s report into sales practices within the life insurance industry uses data from 12 life insurance providers in the year ending 30 June 2014.

It found that of the approximately 8,200 financial advisers in New Zealand, 200 met its criteria for a high estimated rate of replacement business.

The report found that those 200 advisers had 65,000 active policies between them, involving about $110 million in annual premiums, and earned almost 50 per cent more from commissions on life insurance than other high-volume advisers.

Replacement business carries the highest risk of potential churning, where the switch is primarily done to benefit the adviser and not the consumer, the FMA said.

"We saw that the majority of advisers do not have high levels of replacement business, regardless of the way they are paid for their services," said the FMA’s director of regulation, Liam Mason.


"However, there is a clear link between high rates of replacement business in certain areas and high upfront commissions, or incentives for high sales volumes, such as overseas trips laid on by providers."

Mr Mason said that FMA staff will take a closer look at the conduct of those advisers with the highest volumes of replacement business as part of the next stage of its work.

The findings of the report have been provided to the Ministry of Business, Innovation and Employment to consider as part of its review of the Financial Advisers Act.

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