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.

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