A new replacement standard

28 April 2015 Jonathan Faurie

After three years of consultation; the Association of Savings and Investments South Africa (ASISA) is in the process of changing its Standards on Replacement Policies.

This was done in an effort to bring the Standard in line with changes in the industry whereby the Financial Services Board (FSB) wants to give clients increased protection in the industry.  

What will change?

Speaking to FAnews Peter Dempsey, Deputy CEO of ASISA, says that the major departure point for the update of the Standard was that the association wanted to align the Standard with the six outcomes embedded in Treating Customers Fairly (TCF).

One of the changes is that advisers who do not follow standard operating procedure – as pointed out by the current document – will now appear before a review board as opposed to a tribunal. ASISA felt that a tribunal may have been seen as antagonistic. Dempsey pointed out that the review board will be open and will discuss the process that the adviser followed in an open manner.

The second change is that there will be a greater focus on the disclosures advisers need to make to clients when it comes to a replacement. The client then needs to sign that he/she is fully aware of the disclosures and that he/she fully understandS them.

In the past, when a client replaced a policy, the normal question to the adviser was: Why did you change the policy? Dempsey points out that there will be a major change in focus whereby the adviser will in future be asked if replacing the policy was the only option? This again places a major focus on the client making sure that the adviser is always acting in his/her best interest.

“When a policy is nearing maturity, the adviser normally approaches his client in order to ascertain whether the policy needs to be replaced, or if they wish to continue with the current policy. If the review board discovers that the adviser did not follow standard operating procedures, then the insurer, that the client has the policy with will approach the client and will extend the cooling off period that the customer is given from 30 days to 60 days,” says Dempsey.

A nudge in the right direction

The main departure point for updating The Replacement Standard was that ASISA wanted to align the Standard with TCF principles. This was done purely by ASISA and there was no pressure from the FSB for ASISA to implement the changes.

However, Dempsey did say that ASISA did take the FSB’s viewpoint about replacement policies to heart. “In the past, the FSB raised a number of concerns about the number of replacement and the costs of these replacements. While the FSB did point out that not all replacements were bad, it did add that there was not a great deal of comfort within the regulator that every replacement was done with the client understanding all the terms and conditions of the replacement,” says Dempsey.

Dempsey adds that ASISA has been thinking about updating the replacement standard for about three years. When ASISA was formed, it took over standards that it had acquired from four different industry associations. These standards have been under intense review and the necessary changes have been made.

The road is long

The road is definitely long with many a winding turn and the changes will take a while to implement. ASISA has released the standard to be viewed by the industry and the fact that the changes will only come into effect in October means that ASISA is itself giving advisers in the industry their own cooling off period where they can familiarise themselves with the new standard and adjust their business practices accordingly. 

The changing of the replacement standard came after long consultation between ASISA and the FSB where the regulator expressed their views. Dempsey also points out that ASISA held consultations with other industry associations to get their input on what is ultimately a major change in the industry.

Editor’s Thoughts:
We have all voiced our opinion on the regulatory change that is happening in the industry. It is not all bad. If the changes are implemented correctly, they will benefit the industry and we will see a greater level of trust. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts


Added by Louis, 28 Apr 2015
To change the format of the form and questions is all good and well but sadly just seems to be more window dressing. If there is no actual pro-active follow-up on dubious ones or on advisers who have a history of replacing their databases every two years the whole exercise is academic and futile. The whole process, as is now the case will still be a reactive one. The completion of these forms is simply a mechanism to cover your behind should a client lodge a complaint. Perhaps there should be a process whereby replacements are randomly picked for inspection?

Although, as you have mentioned, the FSB pointed out that not all replacements are bad, their proposed solutions are tantamount to using a sledgehammer when a scalpel is called for. If for example a replacement is not bad why then should the advisor not be in position to earn an income from furnishing appropriate advice? Surely by giving appropriate and best advice he or she is treating the customer fairly?

The stats that I would however like to see being published are:
1) what are the actual amounts of replacements
2) types of policies being switched and the general noted reasons therefor
4) from which - to which insurer the policy was switched with particular emphasis on old to new generation products within the same insurer and
5) If the old to new generation replacements are taken out of the equation what those numbers would then look like.
That should make for interesting reading I think.

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