The Financial Services Council’s (FSC) proposals on preventing insurance churn could have negative consequences for clients, according to a pool of independent financial advisers.

Asteron Life EM Mark Vilo, who recently participated in a “think tank” with 70 independent advisers, says advisers find the term “churn” offensive.

“It isn’t always churn,” he said. “Advisers move clients for a range of reasons, like a trigger event or the current financial climate. An adviser has the right to review products.”

While he commends the FSC for taking the lead on the issue of advisers who churn business, Mr Vilo says it’s equally important for the Federal Government “to listen to the actual practitioners out there wearing their shoes out providing advice”.

He says Asteron Life advisers feel the FSC proposal to cap their remuneration at 30% should be removed from the framework, since it could impact on the ability of business-owners to pay overheads.

And since only a small number of advisers actually engage in churn, the FSC framework “should focus on standards to force dealer groups and life companies to deal with those individuals, like reducing commission”.

He says Asteron Life advisers are particularly concerned with the FSC proposals to put level commissions on replacement business and the establishment of a two-year “adviser responsibility period with associated clawbacks”.

According to Mr Vilo, this could impact on advisers’ cashflow and result in costs being passed on to clients.

“It could mean advisers are potentially more reactive to requests for insurance cover, as opposed to proactive,” he said.

He says advisers might then need to look at their own remuneration models and reconsider their pricing models.