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Ethics Misconduct Consumer Protection
Over two years a representative moves 30 clients from their existing policies to a new insurer's near-identical policies, earning new commission each time. Which feature is what makes this 'churning' rather than legitimate replacement advice?
RE5 practice question with a worked answer. This is one of hundreds of FSCA RE5 questions in the RegulatoryExams question bank.
- a) The replacements were made less than five years after the original policies were sold.
- b) The replacements earned him commission, which may never be paid on a replacement policy.
- c) The replacements serve his interest in new commission, with no benefit to the clients.Correct
- d) The replacements moved the clients to a different insurer from the original one.
Why this is the answer
Replacing a product is not improper in itself, and commission may be earned on a replacement. It becomes churning when the replacement is driven by the adviser's interest in fresh commission rather than the client's interest. That is why the Code demands full disclosure of the costs and consequences of a replacement and a record of why it is more suitable. There is no fixed period or same-insurer rule.
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