The financial services regulator has made it clear it would like to see life insurance commissions banned as it would be the most effective way of combating churn, according to The Fold Legal managing director, Claire Wivell Plater.
Wivell Plater warned that the Australian Securities and Investments Commission's (ASIC's) recently announced surveillance of risk advice entailed investigating advisers at random, but that it would rather work to specifically expose those who churn.
Although many advisers believe they are acting in the best interest of their client, it will be a judgement call that ASIC will make, she said.
"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," Wivell Plater said.
"So hybrid and even level commissions can still incentivise advisers to churn, although obviously, to a lesser extent than full upfront commissions."
ASIC's March 2012 shadow shopping study of retirement advice found even if recommendations to replace policies are appropriate, there was still a high risk that the adviser's disclosure was not adequate.
This is why advisers needed to review their business practices now to ensure they are acting in the best interest of their client, Wivell Plater said.
She added advisers should develop a product replacement policy that clearly explains the circumstances in which they can recommend how existing insurance products can be replaced, and review their Statement of Advice template to ensure that they are compliantly explaining the implications of switching.
"The common industry practice of incorporating system-produced product comparisons, with little else, is not adequate," she said.