Insurance provider, Synchron, would support a new model for adviser remuneration if it were driven by competitive forces rather than imposed by the Financial Services Council (FSC).

Synchron director, Don Trapnell, has been a long-standing and vocal critic of the FSC’s vision for a new life-insurance framework, accusing large life-insurance companies of collusion and anti-competitiveness.

In August, the FSC announced a new self-regulatory standard effective from July 1, 2013 that includes a controversial clawback mechanism and a consistent responsibility period.

“What we are seeing now is life insurance companies, via their association with the FSC, working together to form a policy that imposes a uniform remuneration model with uniform responsibility periods on advisers,” said Trapnell.

“That is anti-competitive and Synchron will never support that kind of behaviour.”

The fruit of competition

He added that it was competitive forces that introduced a one-year adviser responsibility period in the past and it should be competitive forces that reshape responsibility periods in the future.

“In the 1970s, advisers had a three-year responsibility period. By the 1980s, due to competitive pressures, this moved to a two-year responsibility. By mid-1980, again as a result of competitive pressures, this moved to a one-year period,” Trapnell said.

“These changes were the result of a competitive market at work.”

Withdraw the clawback clause

The FSC has proposed a clawback process in relation to upfront commissions, which would result in 100 per cent of the commission being paid back to the insurance company by the adviser if a policy lapses in the first year.

If the policy lapses in the second year, 75 per cent would be paid back and, if it lapses in the third year, 50 per cent would be paid back.

It is Trapnell’s belief and Synchron’s position that policies lapse for a variety of reasons, many of which are outside the adviser’s control.

“It’s a fact of life that client circumstances change and what once suited them may not suit them, three or even two years later,” he said. “This is not the fault of advisers and advisers should not be penalised for it.”