Up front bonuses, offered by insurance companies to entice financial advisers to leave their current insurer and join another, were prohibited by the Financial Services Board in December 2014.
In a media release on Friday, Ms. Caroline Da Silva, FAIS Deputy Executive Officer at the FSB, said that these bonuses were invariably linked to how much business the adviser brought in for the new company.
“…the outcome of this practice in almost every case was that the adviser churned clients to the new company by convincing the client that the new company’s policy or investment was a better option.”
“The FSB will be collating all the names and sales information of all advisers who received sign-on bonuses both prior to and after December 2104. This will allow the FSB to identify any business that is a replacement, and interrogate this data to determine whether this was churn driven by the sign on bonus.”
“The FSB takes incentive driven churn very seriously and will act against those brokers and companies who give poor advice to customers based on their own pockets and not the customer’s needs or interests,” says Da Silva.
We asked the FSB whether regulatory action will also be taken against product providers responsible for paying the sign-on bonus after the banning thereof.
Ms. Caroline Da Silva responded as follows:
“Where the Product supplier is a FSP, this prohibition will apply and action will be taken for contravention.”
It is interesting to note that the media release states that this action will apply to the payment of sign-on bonuses prior to and after the December 2014 banning.
This is going to be one very interesting exercise.