LIF Start Date Pushed Back to Mid 2016

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The start date for the Life Insurance Framework (LIF) has been pushed back to mid-2016 with Assistant Treasurer Kelly O’Dwyer stating the new proposals would commence from July next year.

In making the announcement O’Dwyer also stated the Federal Government had accepted the LIF proposals as part of its response to the Financial System Inquiry Final Report.

At a joint press conference at Parliament House with the Prime Minister Malcolm Turnbull and Treasurer Scott Morisson, O’Dwyer said the “Government has been working very hard with industry to improve remuneration in particular in the life insurance sector and I’d like to congratulate the former Assistant Treasurer (Josh Frydenberg) in this regard.”

Today we are announcing the adoption of that industry proposal…will commence from July 2016.

“On 25 June 2015, earlier this year, he announced an industry reform proposal with the Association of Financial Advisers, the Financial Planning Association of Australia and the Financial Services Council. Today we are announcing the adoption of that industry proposal in response to the inquiry and that will commence from July 2016.”

“There are changes to the up-front commissions that will be applied and also the trailing commissions. There will also be a claw back period that also applies for remuneration.”

The announcement was made as part of the Federal Government’s response to the Financial System Inquiry Final Report in which it stated that level commissions may be introduced if LIF failed to change ‘misalignment in adviser incentives’.

It also follows recent discussions between O’Dwyer and Association of Financial Advisers (AFA), Financial Planning Association (FPA) and the Financial Service Council which met with the Assistant Treasurer individually last week.

 

 



24 COMMENTS

  1. It’s now official the deal is finished, the only change being the date of introduction of the Life Insurance Framework has been put back to July 1 2016. O’Dwyer said the “Government has been working very hard with industry to improve remuneration in particular in the life insurance sector and I’d like to congratulate the former Assistant Treasurer (Josh Frydenberg) in this regard.” One thing is clear you would not want anyone from the AFA or FPA negotiating in respect to anything. Both organisations and the FSC should be ashamed of the manner in which they have conducted themselves during these discussions. Tell me how the AFA could read the signs so badly at their meeting with O’Dwyer last week – nothing short of disgraceful. Our Industry is set to implode after 1 July 2016, clients will also pay a very high price for poor advice moving forward. RIP.

    • An additional 6 months is a long time in politics I would as I assume many others would like to know, what was discussed by the AFA and the assistant Treasurer?
      Was anything actually thrown up as being unworkable I.E 3 year clawback or was it “tea and scones” and we cannot do anything were out of here???
      This issue is far from dead ! Did ANYONE really expect that Ms O’ Dwyer would come out and “rubbish” her predecessors policies ? Maybe if it was the opposition but not the same government.!
      Now is the time to voice ourselves louder than ever lobby our members of parliament and have this restructured correctly. We all agree that change has to happen but not like this !!
      If AFA and the FPA ever had a time to redeem themselves its NOW OR NEVER !Brad Please let us know what your intentions are! do not let this “drag” on like it has for the last 4 months. Parliament will rise shortly for Xmas and more time will have been wasted.
      Show us your worthy of the fees we pay you and put some to work for our future and a bit less on road shows and Awards nights.

      • Ken it was only yesterday when we were being told that things were “not set in stone” and that “there was a lot of room for them to change”. These statements were made AFTER the meeting with Assistant Treasurer and Minister for Small Business Kelly O’Dwyer and Liberal MP Bert van Manen.
        How is it possible that the AFA misjudged the meeting outcome so badly. To use an analogy it’s a bit like a new adviser going out on his / her first few appointments and thinking that they had “closed” every one. One can excuse this with an inexperienced person BUT in the case of the AFA we supposedly have experienced paid professionals charged with the responsibility of looking after their members best interests – there cannot be any excuses for such a poor outcome.

        • Yes Roger I agree there was no effort put in at all by the AFA FPA But I for one do not want to give up on this issue my lively hood like many others relies on the need for change.
          If AFA and FPA cannot get it right WHATS THE NEXT OPTION ?
          The power of numbers in addressing this issue via our own members of parliament surely we cannot be consistently ignored ?? “The squeaky wheel gets the oil” I am still waiting on Brad Fox to explain what happened and if they intend to fight this further. You are probably correct it all seems too hard. Anyone interested in forming a new Association ??

  2. Spot On Roger Smith!

    When Trowbridge released his proposals some months ago, an adviser congratulated him for destroying the retail life insurance industry. How many risk specialists have commented in RiskInfo on this issue since that time, yet the message just did not get through!

    To the FPA, AFA and all other industry heads, WATCH THIS SPACE! Watch and see just how many risk specialists will now comment on what has happened! Read the comments that will follow and realise that not enough was done to protect the retail life insurance industry in this country!

  3. Insurance companies have to be prepared for the fact that Financial Advisers will simply stop making product recommendations as advisers (even long term established ones) wont be able to afford to implement them. If you take all of the emotion out of this convoluted debate its simply no longer a viable option for advisers to implement insurance recommendations. Its a real blow for Australian consumers and for the industry as a whole. I don’t think that Life Companies have considered the impact it will have on their premium inflows. Life companies have sent a very clear message to Australian Financial Advisers that they simply don’t want our business.

  4. May we ask the Government under what basis have they accepted the LIF proposals, considering much of the information provided was based on half truths and hidden agenda’s.

    The Government is digging a hole for itself if it passes the draconian restriction of trade, as laid down by the FSC recommendations and other vested interest groups and if tested in court, will be shown to be accepting a contemptible and totally biased attack on retail life advisers, which will take little effort to bring to light, as the proponents of these attacks on advisers, have made fatal errors in their efforts to attack our credibility and in putting forward their case.

    It will also mean the loss of thousands of jobs in the retail Life area and Billions of Tax payers dollars being sucked away from vital infrastructure and services, to now fund long term sickness and social security benefits that have been successfully funded to date, by the private sector.

    We need clarification on clawbacks and a detailed report from the Government on how and why they came up with their decision.

    One last thing. What was the basis of the discussions between Kelly O’Dwyer, who is the small Business Minister and who is responsible for the well being and future of small Business and the AFA, FPA and FSC last week?

  5. I don’t know what you guys expected !!
    We have “geldings” pretending to represent the industry but in reality they don’t represent much of anything,…… except self interest.
    No doubt we can all demonstrate how we feel at the next elections, be that at the AFA, the FPA or the ones who would like to be in government. !
    Putin’s Russia doesn’t seem that bad an option by comparison.

  6. It has always been about increased profits for insurance companies and to hell with the advisers who helped build the insurance company client bases!

    This is a sad day for the risk industry and most of all for the consumer. Insurance advice will be harder to access and the cost of accessing that advice will be higher from 1st July 2016. It just shows that the government has no idea of how this industry operates or the excellent advice and service we provide our clients.

    Insurance companies will get to flog their direct policies with little competition and the consumer will lose out when they pay more in premiums and then possibly have their claims denied.

    I pity advisers who have just started in this industry and any that were thinking of becoming an adviser. For established advisers like myself business will continue to run smoothly but the same cannot be said for new entrants. A three year claw back for the majority of advisers will make this business way too hard for the reward.

  7. So basically another few months of lobbying by the ‘adviser’ associations has resulted in no changes to the LIF – only a 6 months stay of execution?! I could have saved my $720 this year for my AFA fees and got the same result!

    But of course, the AFA & FPA have weaseled their way in the FOFA issue by advisers having to join a ‘professional association’. Nice work people, that helps me no end (sarcastica font applied).

    It beggars belief that it hasn’t been identified and clearly articulated to the Government that the 3 year responsibility period, without a corresponding requirement on insurers to freeze premiums through that time, can place advisers in a no-win situation of either failing in their Best Interest Duty or risk not getting paid when recommending a policy change within the first 3 years due to premium increases.

    Unfortunately for clients I, like many others, will include clauses in their Authority to Proceed agreements that will require the clients to pay me direct for any claw back in commissions from cancelled or lapsed policies during the responsibility period.

    How does that help consumers again? Choice, hello, are you still there??

    • Nice work by AFA and FPA indeed.

      They managed to save their own jobs by securing their future by being rentiers through compulsory membership. However, the members they were representing have been left high and dry.

      • The FPA holds CFP members to ransom – if you want to retain your CFP designation, you must be a member of the FPA and pay the fees (including the ridiculous ‘Advertising Levy’). Our representative bodies are a bunch of spineless wonders who do nothing for the members they are paid so handsomely to represent.

  8. Everyone needs to read page 20, recommendation 24 of today’s Government response.
    ” The Government agrees more can be done to better align the interests of financial firms and consumers”……. Unless I am blind, I can see no mention of ‘advisers/risk writers’. It seems obvious to me we are an expendable group, if we don’t get a mention as people, then how can we hope to get a hearing, let alone a fair one. Perhaps as our ranks plummet history will record us an an ‘unintentional consequence’ of a much bigger fight between the big boys. I, for one, have put in another call to my local member ( a cabinet minister ) today and have no intention of giving up. I simply can’t believe the “small business minister” thinks so little of us she could’nt even be bothered to acknowledge our existence. 80/20 commission, 1 year clawback is still worth fighting for. Time is on our side.

  9. So groups of advisers were lobbying and probably getting somewhere and then the AFA jump on the bandwagon and yesterday announce “positive talks with Kelly O’Dwyer”. Today the LIF is agreed only pushed back a few months!!!
    What a total embarrassment the AFA have been.
    I will not be continuing with my membership in the future and nor should anyone.
    The senior members of the AFA involved should resign. Taking a salary from members who have been completely sold out is a disgrace.

    • Is it not a conflict of interest that my licensee tells me membership to a industry body is compulsory…. Bascially the AFA is the easiest to join. Their words were if you dont join, then we can cancel your authority. So now im forced to join the AFA, by the very organisation that “sponsors” them…. then the AFA come out with this, in support of the FSC. Its like the AFA was promised extra “memberships” in return for support of the FSC & LIF proposals.

      • Hi Claude, yes I think it is. Could you imagine the outcry if workers were forced to join a union just to keep their job knowing full well that that union was working against them and not for them.
        If you are in a position were you have to keep your membership then I think there are lots of alternatives. None of us should be attending AFA functions or conferences. An empty room of members is a pretty clear message as to what we think of the AFA or FPA in this scandal.

  10. I am pretty new to the financial advising sector and would ask a query in respect to the claw-back provision. Why would it not be an option to follow the path of accountants in respect to this. What I mean is, with all the registers that ASIC’s have our names on, why can’t it be that if a person is being represented by a financial advisor, a form must be lodged with ASIC to identify clients of advisors. Subsequently, should a new advisor wish to do any work for a client, they must first lodge a change of advisor form with the ASIC. Therefore should a new product be recommended, the claw-back would be placed against the new advisor and not against the previous serving. This would provide certainty as to income for the previous advisor and the new advisor would have the option of either accepting the claw-back (which they would be able to find out) or charging the client. This would also be the case when replacement products are needed.

    I may be looking at this simplistically but I would think this option would remove the “churn” discussion as well as elevating the need to change the way advisors are being paid.

    Finally as a passing shot at the AFA and FPA – Negotiation 101 – “The moment you start justifying your position is the moment you start loosing the argument.”

    • Hi Dave, a great question. But unlike accountants we have a legislated Best Interest Duty to abide by. Assuming my advice met the Best Interest Duty at the time the advice was provided, why should I receive a clawback if someone else rewrites a policy later? If both pieces of advice meet the best interest duty to the client it is the adviser who is carrying the can. Any reference to a definition of clawback must include a reference to BID. If either advice does not meet BID, not only should no remuneration be payable, they should be sanctioned by the rules and regulator that already exist. Is it my fault if an insurer ups their premiums by 85% (this happened this year) ? Is it my fault if the client lost their job? Is it my fault if they changed jobs and their new employer now offers a fully paid IP benefit? If I am going to carry the can, it will need to be on commercial terms and as it stands with an average on cost of $1-3k (more if replacing business) it is just not commercially viable to provide advice to those that need it most.

  11. BREAKING NEWS
    In light of recent events we now understand that “best interest duty” only applies to the interests of banks and life offices.

  12. It has always been about increased profits for insurance companies and to hell with the advisers who helped build the insurance company client bases!

    This is a sad day for the risk industry and most of all for the consumer. Insurance advice will be harder to access and the cost of accessing that advice will be higher from 1st July 2016.

    It just shows that the government has no idea of how this industry operates or the excellent advice and service we provide our clients.

    Insurance companies will get to flog their direct policies with little competition and the consumer will lose out when they pay more in premiums and then possibly have their claims denied.

    I pity advisers who have just started in this industry and any that were thinking of becoming an adviser. For established advisers like myself business will continue to run
    smoothly but the same cannot be said for new entrants. A three year claw back for the majority of advisers will make this business way too hard for the reward.

  13. @AdvAus & Dan K,
    Under the proposed amendments down the track after 2016, if you write the business and another adviser whether under the BID or not rewrites the client, YOU will pick up the “clawback” not the new risk writer.
    Further, in the interim, if you’ve left the industry or changed AFSL’s, the Licensee you originally wrote the business under will pick up the “clawback”.

    @AdvAus, if you think your ex-client is going to pay you should they terminate the contract to replace the commission you have to repay, you’re going to waste a lot of dough chasing them in court.
    It’s a bit like that other fallacious argument that if you charge a “fee for service ” and the client decides not to pay you, how many will you pursue through the courts to recover your fees and how much are you willing to spend to do it.
    If you think this won’t happened to you, I know of Accounting practices chasing debtors that owe up to $180,000.
    I don’t of many risk practices that can survive under that situation.

  14. We can still write new business on current terms until 30/6/16 and now have just over eight months to continue lobbying the government to make changes to the three year clawback period proposed from 1/7/16.
    Leaving the clawback period at one year as it is now is really the only outcome for the majority of risk writers so if nothing changes advisers can then simply opt out of writing new risk business from 1/7/16 which would be a known (not unintended) consequence…

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