Commission Clawback risk drives new procedure
Written on 05/02/2019

New process for selling term assurance on indemnity terms

Where your firm are taking indemnity commission and using RI  to do this, you will now need to state the following to your clients and get the clients to agree it on the phone or by signature or email:

“We are paid xxx commission on this policy, but this commission is paid in the expectation that all the premiums will be paid for a period of XXX months (“the initial period”).   If for any reason you stop the premiums during this “initial period”, the provider will claw back some or a proportion of this commission from us.  We notify you, and you hereby agree by receipt of this form, that we will reclaim that same debt from you as an unpaid commission fee within 30 days of the policy premiums becoming over-due.”

This simple letter above will enable recovery from RI, by linking the RI to the client, and is a key fraud prevention mitigation.

It is a known issue with the FCA that they do not consider this to be TCF, and, if enforced rigidly this statement it is clearly anti-TCF.  IFAC strongly recommend that it is only enforced where RIs are found to be actively churning policies AFTER leaving your firm.  To use this "client clawback" with a customer who has been recently made redundant would probably risk putting you on the front pages of the local newspaper, and would be unenforceable.  But ex-RIs do churn, and in circumstances where RI fraud is detected it is a key link between the RI and the client.  In fact, recent police investigations indicated that without this letter proving the link between the  clawback and the customer , the Crown Prosecution Service would not act to haul the former RI through the courts for fraud.  Defacto, the terms become virtually unenforceable..

Don't expect providers to help you in any way with this sort of activity.  They don't generally care, because you, the business owner, are liable to pay them back, often after guaranteeing the commission terms personally.  IFAs and MGI firms and should  implement this clawback letter and get clients to sign it without delay. 

IFAC provide compliance advice to member firms.  Want to find out more?  see here

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