The Association of Financial Advisers (AFA) and Financial Planning Association (FPA) have broadly welcomed the Financial Services Council's (FSC's) new policy on life insurance sales commission clawbacks but have questions over some of the details.
In particular, the AFA was concerned that the three-year responsibility period (during which an adviser would be liable to pay back part or all of the commission earned on life insurance products sold if the policy lapsed for any reason) was overly punitive towards advisers, given the range of client circumstances that could cause a policy to lapse.
Innovation and improvements to life insurance products could also lead to clients wanting to switch or upgrade policies and this would create important implications for advisers in terms of their best interests duty, the AFA stated.
The AFA suggested a hybrid remuneration model would be the most effective way to align the interests of consumers, advisers, licensees and product providers. "It encourages a long-term view and promotes improved persistency levels for all involved. It also encourages the delivery of a clear service proposition," the AFA stated.
Where a hybrid remuneration model was adopted, a one-year responsibility period would be appropriate, the AFA stated.
The life insurance industry also needs to make it easier to access its products though technological enhancements and automatic upgrades, the AFA stated.
FPA chief executive Mark Rantall also raised concerns over the three-year clawback period and said the FPA would seek clarification over how the clawbacks would apply to hybrid and level commission structures.
"Nobody supports churning but legitimate replacement policies should not be unduly restricted for either consumers or financial planners," he said.
Both the AFA and FPA said they welcomed the consultative approach taken by the FSC and looked forward to contributing to the working group to develop the policy.