Moonstone 2008-06-30: When is replacing not churning

WHEN IS REPLACING NOT CHURNING?

Shaun Neuhoff: IFAnet

Is it fair to say that our role in the financial planning world, as entertained in the legislative, ethical and moral world, is to ensure that our clients have appropriate solutions to their financial needs, at a price they can afford and provided by a product provider that is able to meet the terms of their contracts?

Before my soapbox gets too slippery, let me explain what has prompted the above verbiage. Over the past number of months the financial vice has started to squeeze me in places it hasn’t squeezed for some time, and it’s getting rather uncomfortable. With the increase in interest rates, fuel prices, food prices as well as the consequent pressure to increase the salaries we pay our staff, I’m wondering if there are many out there who are not feeling similarly pressured. Some might consider me fortunate that it’s only started happening recently!

So, the other day I was sitting with my personal financial adviser, name withheld to protect the innocent, and we were chatting about how much premium I could save if I restructured my risk policies by using different premium patterns, perhaps converting stand alone benefits to accelerators, but always keeping the sums insured the same. The potential saving on one policy alone was about 16%, if I kept the policy with the same company. Imagine the saving if I shopped around for a better deal? The saving on my life policies by using different premium patterns and converting stand alone to accelerator benefits, and shopping my short term for better rates was a good couple hundred rand; enough to relieve some of the pressure and enough to ensure I keep the policies in force.

So let’s do it, right? If I can save some money without compromising the benefits I have, why not? Well, it seems that some folk in our industry still believe replacing policies is a bad thing. I agree; replacing policies simply for the sake of earning commission is a bad thing. In my opinion, replacing policies, and I am only referring to risk policies, where the client is the direct beneficiary of the replacement, is not and cannot be regarded as a bad thing. I am of the opinion that, if the insurance companies are not prepared to pass on lower premiums to existing clients, then it is the financial adviser’s responsibility to consider replacement as a viable strategy in assisting the client to remain financially healthy and to ensure the client has the best value for money solution available in the market. What’s the alternative client action – cancellation!!

Obviously, in considering replacement one should ensure the client has the same or better terms and conditions and is not subject to any new exclusions etc, but replacement, with the possibility of premium savings, can make the difference between your client being able to keep their insurance policies or not – which would the industry prefer? And, if you earn commission or fees for having taken the time and trouble to assist your client in remaining financially healthy, you’ve been paid for doing your job – well done!

Right now your clients need you to give them a call to see what you can do to relieve the financial pressure they are all under.