Synchron slams new FSC policy
Life/risk focused dealer group Synchron has become the first licensee to publicly respond to the Financial Services Council (FSC)'s new life insurance sales policy, saying it will unfairly disadvantage honest advisers.
"It is disgraceful that life insurance companies, via their association with the FSC, are working together to their mutual advantage, proposing a process that will financially disadvantage honest advisers for policy lapses in circumstances that are, more often then not, beyond the adviser's control," said Synchron director Don Trapnell.
The policy involves a commission clawback of 100 per cent if the policy lapses for any reason in the first year, 75 per cent if it lapses in the second year and 50 per cent in the third year.
Trapnell said there are many legitimate reasons a policy can lapse, for example when a client's circumstances change, for which the adviser should not be penalised given they have already done the work.
"What would a life company have to say if the industry introduced a policy that meant life companies had to repay to a client 75 per cent of the non-risk component of premiums received if two years down the track the policy no longer suited the client's needs?" he asked.
Trapnell also questioned how the policy would fit with best interests provisions outlined in Future of Financial Advice reforms, because it is an adviser's duty to regularly review policies.
If life companies are serious about addressing so-called "churn", they should instruct underwriters to call for further information where a like-for-like replacement is submitted as new business, he said.
However this has met with resistance from life companies because it doesn't help them with "the unrealistic lapse rate assumptions they make in their premium rating structures", he said.
"Should the FSC proposition to have a three-year responsibility period be universally adopted, Synchron will consider making a formal complaint to the ACCC for anti-competitive behaviour," Trapnell concluded.
The Association of Financial Advisers and Financial Planning Association have each raised concerns over the three-year clawback period and said they will work with the FSC to develop the policy.
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