The FSC's proposed churning policy has ignited a furore among financial planners who say it unfairly targets honest advisers. We speak to NSW AFA Director Marc Bineham and Sulieman Ravell of Funds Focus for their thoughts on the controversial proposal.
Video transcript below:
Donna Sawyer, Wealth Professional
Donna Sawyer: The Financial Services Council’s proposed churning policy unfairly targets all financial advisors instead of the few offenders. That’s the view of Marc Bineham, a financial planner in New South Wales, Director of the Association of Financial Advisors, who says even though the FSC has apologised for its initial approach, the policy will hurt honest advisors.
Marc Bineham, Noall & Co.
Marc Bineham: The claw back is going to punish all advisors for a very select minority of advisors who are churning. You know, we do recognise it’s churning, but to actually punish all advisors for what a minority of advisors are doing when those advisors can be identified, can be looked at, can have appropriate measures applied, it is terribly unjust to actually punish all advisors for the actions of a few.
Suleman Ravell, Funds Focus
Suleman Ravell: Obviously this is going to impact honest advisors who are, who have policy lapses, are out of their control, I mean that is just part of our business as financial planners or insurance writers. I think the problem they are going to find is going to impact the value of their businesses going forward.
Marc Bineham: Putting my AFA hat on, there is dialogue and there is a committee set up within the AFA to, which is having ongoing discussions with the FSC and the first part of that is that it has stopped from being a churning debate to being a sustainability debate. So we are all for that, but definitely the AFA position is that the targeting of the few advisors that are churning is wrong.
Donna Sawyer: Suleman Ravell of Funds Focus says there is a clear conflict between the advisor’s duty to act in the best interest of the client and the FSC’s claw back policy.
Suleman Ravell: I think the real issue is whether the advisor is acting in a client’s best interests and it’s not so much the churning policy that exists now. The problem that the insurers have got right now is that they are paying 110 to 120% of the first year’s commissions to advisors and continuously coming out with new products that are better for the clients. So there is a need for planners to move clients from one product to another. I would argue that the emphasis needs to be more on the best interests of the client and whether or not the new policy is actually better for the client.
Marc Bineham: There is definitely a conflict for, between the FSC’s policy and the client’s best interest duty, because for example, if there is a much better trauma policy that comes on the market, much better definition it is our duty to make sure we, our clients are aware of that and if it’s inappropriate to their situation, recommend and for them to take that on. Under the FSC because a lapse or any change of policy is going to cause a write back in the first 3 years, it is taking that benefit of what is the most appropriate for the client, which is the client’s best interest duty [away].
Donna Sawyer: But is it the role of financial planners alone to address the issue of churning. Mark Bineham says the insurance industry has a role to play as well.
Marc Bineham: One of the big issues we see between what the FSC is doing was with its initial churning statement, was it just targeting advisors a 100%. While we say yes churning is done by a relatively few advisors, we do not see this as purely an advisor problem and it needs to be addressed in that, the industry needs to take account of its own actions, so the major individual members of the FSC, the life insurance companies and as one major CEO of life insurance company did say, this is a storm of its own creation. They are out there with take over terms, they have their own BDMs who are promoting new business and not on keeping existing business and while those are there encouraging advisors to move from one company to another, that is also a part of the problem.
Donna Sawyer: This is Donna Sawyer reporting for Wealth Professional.