This is the balance of the article, the first part of which was published in the Moonstone Investment Indicators last Monday. It appears in the March edition of the ASISA publication “In the Loop”.
- Independent/tied agent
- The FSB agrees that while independence should involve being able to advise on a range of products, it should not mean advising on the whole universe of products. They will need to look at what an acceptable range is. They also need to consider issues such as an advisor who advises on a range of insurance investment products, but not Collective Investment Schemes. Can that be considered a broad enough range to be considered independent advice?
- If an advisor cannot give advice across a range of products, then they will need to inform customers that they can only give restricted advice.
- Risk business
- The FSB has decided that it will not do away completely with upfront commission. They will not move to full as-and-when. They recognise that there is much work done upfront.
- They will need to look at the various components involved in upfront and ongoing advice, and find a balance regarding what should be paid in respect of each component. They will also need to consider remuneration for financial planning advice versus product advice.
- The implication of this discussion is that a likely outcome will be a percentage upfront commission (not 100%) with the balance as-and-when.
- Replacement commission
- Notwithstanding submissions received to the effect that there is no statistical evidence that churn has increased, the FSB continue to receive reports that indicate that churn gives reason for concern. They will therefore prioritise taking a serious look at the FAIS-prescribed replacement process and supervise it.
- There may need to be differentiation of remuneration for replaced business.
- They will look in particular at circumstances where the same insurer pays commission on a new product with a similar premium stream as the replaced product.
- The FSB will also look at the link between policy churn and advisor churn – particularly the “buying” of tied agents. This is to be a focus of the Long-term Insurance and FAIS departments over the coming months.
- Equivalence of reward
- The FSB will need to consider the principle of “equivalence of reward”*. They will be informed by the decisions that they take in respect of other aspects of the review.
- The FSB advised that a discussion document will be issued during the first quarter of 2013 and more consultation will take place. Before any changes can be implemented, legislative changes will be necessary. They assured that reasonable transition periods will be provided for.
It should be noted that the FSB’s presentation was intended as an indication of current thinking. Nothing has been finally resolved or decided upon. There will still be extensive industry consultation. However, what is certain, is that the status quo will change.