Appeals are being made to the Government and the regulators to provide some breathing room to life/risk advisers who run the risk of clawbacks when they act on behalf of hard-pressed clients to either switch off or wind-back premiums.
Association of Financial Advisers (AFA) general manager, policy and professionalism, Phil Anderson said that the rules involving clawbacks and other penalties had clearly not envisaged an event of the magnitude of the COVID-19 pandemic.
“There are a lot of people losing jobs and experiencing cash-flow problems and going to their advisers seeking relief which can often be achieved by way of a premium holiday or a winding back of premiums,” he said.
However, Anderson said the problem with this was that if the changes occurred within two years of the policy being established, it could lead to the commission clawback provisions being enforced on advisers.
The rules essentially hold that clawback occurs when a policy is cancelled or the policy cost is reduced with 60% of the commission needing to be clawed back if this occurs within the second year.
Anderson said that there was nothing within the Life Insurance Framework (LIF) rules which appeared capable of recognising the temporary nature of the situation facing clients impacted by COVID-19.
“These reductions in the premiums are not occurring as a result of inappropriate advice, but that is how they are being treated,” he said.
Anderson said that the AFA was lobbying to have the situation impacting advisers and their clients recognised along with the recognition of the need for some relief.