How ASIC will fight churn

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Instead of banning all commissions on life insurance products, ASIC has had to come up with new ways to fight the churning epidemic it says it sweeping the industry.

The regulator will now focus on data straight from the life companies, in order to find out what advisers have high instances of product replacement.

The Fold legal managing director Claire Wivell Plater says that ASIC will be looking at the typical longevity of policies and how often they are ‘upgraded’.

“This will provide a pretty targeted indicator of which advisers are engaging in inappropriate switching,” says Wivell Plater.

“Some of these advisers may believe they are honestly doing the right thing for their clients and in some cases, they may be. But that’s a judgment call that ASIC will now make.”

There are still a few trip holes for advisers to be wary of says Wivell Plater.

According to Wivell Plater, even if recommendations to replace a policy are appropriate, there is still a high risk that the adviser’s disclosure won’t be adequate – if ASIC’s March 2012 shadow shopping study of retirement advice is any guide.

And advisers aren’t automatically safe if they take hybrid or level commissions instead of up front commissions.

“If an adviser takes over a client from another adviser, the best they could get if they continue an existing policy would be a small trail commission,” says Wivell Plater. “So hybrid and even level commissions can still incentivise advisers to churn, although obviously, to a lesser extent than full upfront commissions.”

Synchron director Don Trapnell agrees that getting the data direct from life insurers is the best way to track whether there is a churn problem or not, and says that he welcomes ASIC’s new approach.

“I’m very supportive of what they’re doing….That sort of data is valuable data, and we actually like to see that data too, we ask for that data on a daily basis.”

Trapnell welcomes the shift away from shadow shopping and blaming commissions.

Do you think ASIC's new approach will be successful? Share your thoughts below.

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  • hesreto on 20/02/2014 12:45:47 AM

    ASIC can't do their day job and Wivell wants them to take on a night job. Yep, definitely another lawyer from 'La La Lawyer Land'

  • Alan on 15/12/2013 10:36:24 PM

    Totally agree James, who cares what ASIC thinks. They are a complete shambles at present with no credibility. There are literally thousands of people out there who would dearly love to sue them for the loss of their life's savings. That is a direct result of lack of oversight on the cowboys in the industry. What is ASIC doing getting involved checking day to day working files of risk advisers like some sortof big brother policeman.Shouldn't the licensee being doing that with their regular audits. The whole industry is becoming a joke and I have never known it to be so bad after 25 years.

  • James Howarth on 4/11/2013 1:51:54 PM

    I dont change any policy after 12 months, in fact once it is setup inside their super it will probably be there for life.

    But as a person who thinks ASIC regulation is killing the industry, I think if the price is lower, and the benefit is there for the client, to hell with what ASIC think.

  • Big Trev on 31/10/2013 7:07:48 PM

    3 Simple Solutions.
    1) Require each Adviser to undergo a common education exam as set out in ASIC CP153. Sufficicently high to ensure that people that actually have a brain are what's left in this business. The people with GENUINE knowledge (math,law,economics and ethics) in this industry could fit onto a single bus. If you dont have a B.Com minimum, you shouldn't be dealing with people's finances. Bluster and squeal all you like, most planners I see are very light on knowledge. It shows when you ask them how to explain how portfolio optimisation works, EMH or what tracking error is. And yet, they apparently know enough to advise on what someone should do with their life savings ? Terrifying.
    2) Require every single financial product to have a client agreed dial up fee. If you can justify your cost because of the value you add to your client's lives, then do it. Every other professional has to. Instead, I hear ranting and raving about how great they are and how misunderstood they are.
    3) Do you have clients - or names that you respond to when they call (there's a huge difference). If after 10 years you still have to advertise or market to get clients. Get out of the business. The good advisers are THAT busy with referrals from their existing base, they dont spend a cent.

  • Johny Cheapskate on 31/10/2013 11:59:59 AM

    If ASIC is concerned about upfront % fees perhaps they should extend their review into the following areas:
    1. Office of State Revenue - Stamp Duty on Property purchase.
    2. Office of State Revenue- Stamp Duty on transfer of business ownership.
    3. Recruitment industry- Up to 20% of first year salary.
    4. Big 4 Accounting Firms- Up to 2% to Broker the sale of a business.
    5. Investment banks - XX % fee to facilitate merger/acquisition.
    6. Lawyer Success fees - XX % of claim won.
    7. ATO - GST and Income Tax Collection.
    8. Real Estate Agent Fees- Up to 3% of sales Price.
    Who do I vote for to pay a flat dollar income tax based on the services I use and fee for service on property and business transactions. How about legislation that enables my son Johny to get free non means tested schooling and force the private schools to let Johny access to their grounds and facilities and teachers on a fee that I determine based on what we need. And legislation should be added to enable me to sue any adviser that choses not to give me advice on the basis that they did not protect me from what I did not know or foresee.

  • PETER CORRIE on 30/10/2013 7:24:34 PM

    It must be that ASIC has not got better things to do with their time. They should be chasing white collar criminals not the very small percentage of so called churners.
    How did ASIC get involved ,when consumers are not usually disadvantaged when a policy is replaced. Replacement of policies for whatever reason is a Life insurance management problem and always has been in this industry.
    The Life companies have created more work, costs and problems for themselves with the involvement of ASIC.
    The constant regulatory changes, attacks and opinions from people outside the industry is not helping our reputation or benefitting the consumer.
    All they are doing is making it more difficult for us to do business.

  • alleycat on 30/10/2013 5:00:15 PM

    James do you even know what "churning " means?
    If you are replacing business after 12 months in order to get a lower premium for the client are you doing it for... No Commission/Fee ?
    If not then by definition, you and anyone like you are "churning" and the industry doesn't need you.

  • Mervin C Reed FChFP on 30/10/2013 2:48:13 PM

    And again uniformed comment from Ian re Corporate rates for risk insurances. If he had bothered to do some research he would have found that rates are rising by some 30% as the insurers have sucked up huge losses on these essentially non underwritten products. The simple fact is that the life insurance written by advisers remains on the books and it profitable. Insurers will simply just keep increasing the costs of the Corporate cover until the losses stop. The days of cover with no evidence of health and past claims is about over in any case.
    Summary - risk insurance with commissions is here to stay so get over it.

  • James Howarth on 30/10/2013 2:32:36 PM

    Clients aren't stupid.........

    Now this is a concept that governments dont understand.

    "Many people want the government to protect the consumer. A much more urgent problem is to protect the consumer from the government." --Milton Friedman

  • Innocent Observer on 30/10/2013 1:53:38 PM

    You know who the one party that seems to keep getting left out of the "churn" conversation is?

    The client.

    I'm a client to nearly every product I use. And call it what you will, but if someone can offer me a better deal (be it a better product, features or cost), AND they are able to do the bulk of the legwork to get me switched over, then the chances are I'll switch to their product. I'm not stupid. I can make decisions. And you know what, I really don't give a stuff how much commission they're getting. Now does that make ME part of the problem, or the guy who is presenting me with (what I and presumably he) considers to be a better option/product???

    If "churn" is such a problem, slap early termination fee on the policy like you would get on your phone plan (etc etc...).

  • James Howarth on 30/10/2013 12:54:57 PM

    Life cover is life cover. It pays when one dies. I doubt very much you have a Master in Finance, and by the way I am back at school studying law, as ASIC suggest one needs to be a lawyer to have their own AFSL.

  • Perth Adviser on 30/10/2013 11:33:41 AM

    To James Horwath. If the price is lower it can still be churning. Price is not the only consideration. What about policy benefits and definitions. These are far more important. I suggest you go back to school.

  • Ian on 30/10/2013 11:16:04 AM

    I think one must ask why is the churn issue is being discussed? They way my skeptical eyes look at why churn has been raised is because insurers are not making the huge profits they have on overpriced commission based life products. Lets just consider this, a life company must pay out over 100% of the premium before it has recovered anything more than a 1/12th from the policy payer, not to good for the balance sheet. The policy’s don't become profitable until year 3 onwards and then they increase in profit ie: price over cost.
    With the changes brought about by FOFA we see many advisers turning to life sales to prop up their revenues , and in many cases churning.
    The solution is very simple , but unlikely to be implemented by the life companies. If life companies were to produce properly priced Life cover , ie: prices like we see in Corporate Superannuation Funds, with nil commission as well as the high cost to consumer commission products then I believe churn would stop. Why ?
    Firstly under an advisers obligations to provide "best" for client would require the adviser to show the client the benefits in either paying the adviser a fee or paying the adviser via a higher premium and commission. It would mean that the practice of telling clients that the life office pays the adviser would have to cease , and the client would be able to make an informed decision about the changes being suggested by advisers.
    This is a simple solution, but I am sure not a popular one especially by the aligned commission driven advisers.

  • James Howarth on 30/10/2013 10:18:33 AM

    If the price is lower for the client it can not be "churning".

  • Mervin C Reed FChFP on 30/10/2013 10:16:02 AM

    Just another industry lawyer who has no idea of what she is talking about and who has done no research to support her contentions.
    Perhaps Claire if you had bothered to research how the whole of the no commission mess landed back in the face of the Financial Services Authority (UK ASIC) and the Govt re-introduced commissions. Not understanding the Industry you are part of Claire, says a lot, and clearly you have no idea about risk insurance.
    ASIC will find what it will find, and in any case the stupid small minority of advisers who churn will find themselves as they do now out of business. It will be interesting to see who gets them first ASIC or their dealer group

  • ABC on 30/10/2013 10:00:17 AM

    So it seems that ASIC will now determine if the advice is correct or not? ASIC is hugely understaffed and unable to carry out its base functions, how will they cope with this? the mind boggles

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