Financial strain is not the only reason policyholders have been cashing in and terminating their policies - some of the industry's historical practices have undermined rather than entrenched the trust and commitment vital to building customer loyalty.
A sales-centric distribution and rewards model has produced sales-centric behaviour among consultants – almost certainly to the detriment of service, customer relationships and trust.
Destructive churning
Industry stakeholders need to realise just how destructive practices such as invalid policy replacement -or 'churning' - really have been. In this context, churning refers to any policy substitution that is not motivated entirely by the client's best interests.
Churn erodes embedded value in a policy. Repeated churn destroys it. Inevitably, policyholders and shareholders are disappointed, and when the problem becomes chronic, the entire industry and all its stakeholders suffer –including advisers.
Decimating trust
More insidiously, practices like churn can kill trust – between advisers and life companies, and between advisers and their clients - as well as the public's trust in the industry. The Code of Conduct on Replacements may have established standards and sanctions governing ethical behaviours and conduct in the replacement of policies, but it didn't win the hearts and minds of many financial advisers – and it hasn't stopped churn.
Exact numbers of invalid replacements are unsurprisingly impossible to ascertain, but churn is probably endemic, and certainly more widespread than most of us would prefer to believe.
The buck stops where?
The industry needs to accept collective responsibility for churn. If an adviser moves from one FSP to another, and the new employer applies any pressure or incentive at all to switch the adviser's current book, what kind of message does that send about putting clients' interests first?
Clients can hardly be expected to trust an industry where the 'quality financial advice' they receive is to change, with alarming regularity, to a supposedly better new product. Rubbishing of the previous 'quality financial advice' they received from an earlier adviser hardly instills confidence.
Rebuilding the foundations
To rebuild consumer trust, life companies, their tied representatives and independent advisers all need to do far more than pay lip-service to client-centricity. As long as we keep seeing a spike in supposedly legitimate replacements in Month 25 of in-force risk policies, we will know there is still a churn problem.
Our industry's entire existence is based on the principles of utmost good faith – of keeping promises, and being trustworthy beyond reproach. Our practices and our behaviours must reinforce the trust of clients - otherwise our collective future is likely to take a "low road".
Research has demonstrated that South Africans still have a huge need for expert financial planning services. Enormous opportunities remain for FSPs and advisers who are prepared to invest in engaging their clients, in building relationships and in earning their trust; so that they can truly help clients to own their lives.
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