Secondary

Special Audit on Sign-On bonuses and Churning

FAIS Newsletter 17 contains details of the outcome of this special compliance audit to investigate the link between the payment of sign-on bonuses and the replacing of products as a result thereof.

The sign-on bonuses were offered to advisors who had an established client book which was profitable for the existing product providers. The expectation was thus that the “new” employer would be able to leverage off the advisors client book. The sign-on bonuses often had built-in “hurdles” which were linked to the advisor’s ability to meet specific performance targets over a period of time. These “hurdles” then led to advisors finding themselves in a situation where they could only meet the performance criteria if they “churned” all or a part of their existing client book to products offered by their new employer.

In March 2015 the Registrar requested registered long-term insurance companies, who are also authorised FSPs, to submit a special compliance report. The purpose of this report was to determine the situation regarding the payment of sign-on bonuses, and the extent to which this could be linked to churning of policies by the recipients of the sign-on bonuses.

A total of 46 FSPs were requested to submit the special compliance report. The report was due by 30 April 2015. At the date of publication of FAIS Newsletter 17, 42 FSPs submitted their special compliance reports. No responses were received from 4 FSPs.

Details of the responses can be downloaded here.

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