The Federal Government and Australian Securities and Investments Commission (ASIC) insist that life/risk churn is real and that it is a serious issue. There exist many advisers in the life/risk space who believe ASIC and the Government are wrong or, at the very least, over-stating the seriousness of the issue.
It is in this context – and that of a letter received from the Minister for Financial Services, Bill Shorten – that we must view the Financial Services Council’s (FSC) decision to reinstitute its push for the establishment of an anti-churn framework inclusive of claw-back provisions.
The clear message coming from both the Minister and the regulator seems to be that if the industry does not self-regulate on churn, then it is opening itself up to the inevitability of regulation.
The Shadow Assistant Treasurer and Opposition spokesman on Financial Services, Senator Mathias Cormann, appears not as convinced as either Shorten or ASIC of the proliferation of churn, but he has nonetheless signaled to Money Management that self-regulation is the appropriate path for the industry to follow.
The bottom line for the industry is, therefore, that its best interests will be served by pursuing the objective of self-regulation.
However, for that objective to be reached, the industry must develop common ground. It must not only develop a common interpretation of what represents “churn”, but the major insurers and ASIC must provide the statistical evidence of the degree to which churn exists in the life/risk industry.
Only by identifying the instances and causes of churn will the industry be capable of developing an effective self-regulatory framework – while at the same time removing the distrust which many advisers feel towards the motives of the major insurers.
FSC chief executive John Brogden has received a good deal of criticism since he announced late last month that his organisation would be reopening the churn issue in the wake of its receipt of the Shorten letter and feedback from ASIC.
However Brogden, who abandoned the FSC’s original push on the churn issue earlier this year, is simply being pragmatic and recognising that his organisation has been receiving strong signals from both a minister and a regulator that something must be done.
Brogden has equally recognised that a Federal election may not see an end to the issue, particularly as ASIC has signaled it will be delving deeper into the churn issue with surveillance and other actions. If those ASIC actions produce hard evidence, it is unlikely it would be ignored by either side of politics.
In the meantime, while the Association of Financial Advisers has undertaken to re-engage on the churn issue, it is up to FSC to not only define what churn precisely is, but to provide some hard statistics which reveal how often it actually occurs.
