Time to shake up the protection market to reduce churn – Wilkinson

As the head of a brokerage with almost 300 advisers, where 60% of our income comes from protection, this is a very real issue. It’s time we made some real changes as an industry to prevent this churn from happening.

The practice of unscrupulous advisers regularly changing firms to make repeat money from the same clients threatens the survival of the firms they leave while also costing providers – and potentially customers if they had been given the correct advice the first time around.

One of the biggest challenges adviser firms face is a lack of visibility and oversight when a protection adviser joins.

Speaking personally, we carry out all the checks you would expect, as do most firms: we take references, speak to other firms and work closely with our protection network, Auxilium, to obtain as much information as we can before onboarding an adviser.

But the uncomfortable truth is, no matter how many checks we do, we don’t always get the full picture – or even an accurate one. I know we are not alone.

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References don’t always tell the whole story and the information available is often limited. That means many adviser firms are making potentially high-risk onboarding decisions without genuinely understanding how scrupulous or otherwise an adviser may be.

How do we resolve the problem?

As everyone involved in protection knows, commission is usually paid with four years upfront, an amount that is liable to be clawed back if a customer cancels a policy. So, firms take a risk every time they take on an adviser – especially if that adviser’s intentions are to leave a year later and churn their entire customer book. This leaves the clawback liability with the firm they’ve left, while the adviser receives repeat commission on the same customer base from providers and their new firm.

I feel it’s not feasible to change the commission structure. Many firms are funded through this model. Their survival is predicated on it. That leaves three options to resolve the challenges.

Option one is a centralised broker oversight system – something comparable to a credit referencing agency. Imagine a single portal where firms and providers can register and contribute data; advisers have a transparent, trackable history; and patterns of behaviour (good and bad) can actually be identified.

Much like a bank checking a customer’s credit file, firms could make properly informed decisions before taking on an adviser.

This could be completely transparent. Advisers could see it.

Like a credit score, it would, of course, have to be a record of facts, not opinions. Also, like a good credit score, there could be a form of kudos rewarding ethical behaviour. With a portal like that, firms could make a properly informed decision.

Option two is a provider-led database of a customer’s insurance history. I’m talking about stronger, more robust data sharing at provider level.

A centralised database would allow providers to cross-match customer data; see where a customer was previously insured; identify which adviser wrote the original policy and under which firm; track whether the business has been rewritten elsewhere and how frequently; and identify which adviser and firm now hold that business.

With even relatively basic identifiers (name, date of birth and postcode), providers could create a clear line of visibility – without exposing sensitive personal data. Once that visibility exists, risk patterns become obvious.

At that point, advisers could be objectively scored, not based on hearsay or opinion, but on real behavioural data. Firms would then have a transparent, central source of information to help decide whether they actually want to take someone on.

Another major problem we face is what happens after an adviser leaves. We’ve all seen it. An adviser joins with a clean record before leaving for another firm. Then clawbacks begin to increase, but there’s no clear evidence whether this is genuine customer behaviour or systematic churning. Without shared data, firms are left guessing. We’ve also seen scenarios where managers leave and take advisers with them, followed by significant increases in clawbacks. These patterns should be visible. Right now, they aren’t.

Bad behaviour needs removing, not recycling. Frankly, advisers engaging in bad or unethical practices shouldn’t be in the industry at all. The only way to stop the same individuals recycling themselves through different firms is open, shared information.

That transparency would also benefit providers, allowing them to identify not just high-risk advisers, but potentially higher-risk firms, based on repeated patterns.

Over the years, we’ve seen multiple protection-focused firms cease trading – and in many cases, this issue of churn has been a contributing factor. Unless something changes, it will continue.

A final option, and one that would be a particularly powerful deterrent, would be shared clawback offsetting.

If an adviser rewrites business at a new firm, the commission earned could be offset against the clawback incurred by the previous firm – automatically, via the shared database. That would remove the financial incentive for churning.

GDPR is a concern and it needs to be taken seriously. But with limited identifiers and appropriate permissions, I believe this can be solved in a way that protects consumers while also protecting firms, providers, and the long-term health of the industry.