A presumption of guilt without evidence?
“If you don’t think financial advice on life insurance is a problem area for ASIC and for industry, please think again.”
It must be assumed that if Australian Securities and Investments Commission (ASIC) commissioner, Peter Kell, took the trouble to say this to a packed Money Management/Financial Services Council function last week, then it was based on hard facts.
It is therefore worth noting that Kell went on to say: “A number of our major surveillances resulting in licensing conditions, enforceable undertakings and, most seriously, licence revocations, involved evidence of significant amounts of inappropriate advice on life insurance”.
Unfortunately, Kell did not go on to detail the numbers of times or dates during which these things occurred, giving rise to a not unreasonable call by Synchron director Don Trapnell for the regulator to provide the statistical and other proof that life/risk churning is, indeed, a problem.
Over the past nine months Money Management has closely followed the debate on life/risk churn generated by the announcement of the Financial Services Council’s (FSC’s) guidelines issued at its 2012 annual conference, including the use of claw-back provisions.
Numerous attempts were made to gain industry consensus around that framework but, earlier this year, it was acknowledged that none had been achieved.
Fundamental to the difficulty in finding common ground on the issue of life/risk churn was the absence of any real agreement about a statistical basis for measuring the incidence of such practices or, indeed, any agreement about what could actually be regarded as churn.
While the FSC chairman, John Brogden, last week referenced data around lapse rates, a number of insurance company executives had earlier told a Money Management roundtable that care needed to be taken in interpreting lapse rate data in circumstances where policies could be allowed to lapse for a number of reasons totally unconnected to churn.
Given all of this, there is a real need for ASIC to back up its concerns around life/risk churn with evidence which can be both analysed and accepted by those large sections of the industry who believe that if a problem actually exists, it involves only a very small number of advisers.
Given’s Kell’s admonition to last week’s event, the FSC’s John Brogden is right when he suggests that if the industry does not successfully self-regulate on the question of churn, then the regulator will step in to impose itself.
However Synchron’s Don Trapnell is also correct in making his call for the production of evidence regarding the scale of the problem.
In the absence of that evidence, many advisers can justifiably lay claim to being denied the presumption of innocence.
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