Insurer commission records are a poor guide to actual financial adviser behaviour – but they remain the best place to start. The FMA is following up its research based on lapse rates and new business records with requests directly to advisers with higher lapse rates. This is a valuable exercise and it is already exposing some interesting findings. Take these two:
The fact that a policy lapsed while the computer records at a life company showed a given person as the servicing adviser does not necessarily mean that adviser gave an advice on termination. That adviser may not have been receiving any commission, may never have received the initial commission, and may not in fact own the right to communicate with that client. They may not even own the client records. Although many will, these situations do occur, and cast a sharp light on the structure of the current Financial Advisers Act. The Act makes the individual adviser responsible for their advice, and yet a company may have so much control over the process – and the remuneration for the business – and yet have little or no responsibility for the advice. Ideally this anomaly will be addressed in the drafting work for the new law and subsequent regulations.
On the other hand there will be some advisers that may find the request for information hard to answer. Poor records will be exposed. Although as RFAs they do not have an explicit record keeping responsibility it will be interesting to see how the FMA and RFAs approach the question of a lack of records. In a no-advice sales context records can be thin, but in a situation where a person was supposed to be giving advice it does seem a failure of the design of the law that there is no requirement to keep records. The new law appears set to address this gap.
Fixing those issues looks like a worthwhile task.