Clawback policy likened to excessive force

Mr Trapnell said while he is not convinced a culture of churning exists among advisers, he said introducing disincentives like a clawback period will remove all doubt – although he added it is excessive.

In fact, Mr Trapnell likened the introduction of a clawback period as outlined in the recently proposed life insurance framework to “using a sledgehammer to crack a nut”.

“One of the biggest problems with the clawback provisions is inequity,” he said. “There are times when the adviser has no part in the policy lapsing and yet, under these provisions, it is the adviser who will pay, literally.

“Another huge problem is the uncertainty of adviser income. A clawback can occur up to three years after payment has been made. In our opinion, this is simply unfair.”

Mr Trapnell also said the clawback policy would present concerns for advisers whose clients have gone on to see another adviser.

“Clients, like voters, can vote with their feet and move on to another adviser for any number of reasons,” he said.

“Under the clawback provisions, if clients do move on the original adviser will have to pay back part or all of their past income.

“We wonder how politicians would respond if they were forced to repay part or all of their parliamentary salary after losing an election.”

Mr Trapnell said the alternative to introducing a clawback policy is to innovate on product shape.

“We are entering a new world of life insurance and we need to think differently about life insurance products,” he said.

“We believe a new product shape will help ensure advisers are adequately remunerated for their efforts, while removing all perceptions of churn once and for all.”