Life/risk advisers facing COVID-19-driven clawbacks

3 June 2020

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.

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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.




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I expected that this article would have have many comments from risk advisers but 24 hours later - Nil. It may be a sign that most risk advisers are fed up with the current rules and LIF and just can't be bothered to comment.

Thanks for writing this article Mike. I believe significant claw backs have and will hit many advisers over the next few months. I for one are quite anxious about how this will play out as we have a number of clients doing it tough that took out their policies over the last two years. A dilemma we face is when the client comes to their adviser for help, their adviser has a duty to do what they can in the best interests of the client, and if that means cancellation or reduction of covers then the adviser is essentially committing hare kare in a business sense. Advisers should never have to face this dilemma. The two year responsibility period is too long and only serves to pressure advisers to encourage clients to hold their policies at all costs if possible. I can hear the fee for service advocates saying well it serves you right for going with commissions. Well in my experience, asking a client to stump up two, three, five grand for a risk advice fee wont happen for the clients that need the cover the most, as the financial impost of new policies is challenging enough, and I don't know too many clients who could have afforded to take out appropriate cover if they had to stump up the real cost to provide risk advice, especially to older clients and those with medical histories. Just like the young couple attending a finance broker for a new loan, and facing a 2-3K bill for advice, how does that encourage young people to buy a new home, rather it may force them to take out lenders mortgage insurance, another cost impost, or delay purchase. Commissions have their place most definitely in the risk industry as with the mortgage broking industry, but as with the mortgage brokers we are the only professionals I can think of who have their income on the hook for two years. Advisers ability to earn a living and keep their businesses viable is under considerable pressure and this two year responsibility period just adds to the stress many advisers and advice practices are under, in my opinion.

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