Questions have been raised about the presence of potential loopholes around commissions and clawbacks for employed financial advisers contained within the draft regulations for the Life Insurance Framework (LIF).
The potential loopholes have caused concern among advisers who have contacted riskinfo, which in turn made contact with the Association of Financial Advisers (AFA). The AFA stated it has already raised the issue with Treasury and the Assistant Treasurer and Minister for Small Business, Kelly O’Dwyer.
The specific areas of concern relate to Section 7.7A.16H of the Corporations Amendment (Life Insurance Remuneration Arrangements) Regulation 2016 (see below) which AFA Chief Executive, Brad Fox said appears to offer carve-outs for employed financial advisers of an Australian Financial Services Licensee (AFSL) but not for self-employed advisers.
Fox said the AFA’s assessment of Section 7.7A.16H was that it could create a carve-out for employed advisers of an AFSL to receive pre-reform commissions for at least a year, or even longer, under current workplace agreements or employment contracts.
“In the consensus reached with the Minister it was clear that direct sales channels were to be included in the application of the reforms.”
At the same time the draft regulations would also appear to exclude employees of an AFSL from the two-year clawback provisions that would apply to self-employed advisers.
Fox said the outcome of the loopholes could mean that banks and insurers with employees or adviser sales forces in direct and retail insurance are exempt from the reforms for the term of their existing employment and collective bargaining agreements.
“In the consensus reached with the Minister it was clear that direct sales channels were to be included in the application of the reforms. On this basis the draft regulations can be relatively easily corrected and we are working this through with Treasury,” Fox said.
“The AFA is committed to ensuring that the final regulations do not support carve-outs that disadvantage self-employed financial advisers and small business practices,” he said, adding that the AFA is continuing to scrutinise the regulations during the consultation period provided by Treasury until to 28 April.
Corporations Amendment (Life Insurance Remuneration Arrangements) Regulation 2016
Section 7.7A.16H – Employee arrangements
(1) This regulation is made for subsection 1549B(3) of the Act.
Benefits paid under an enterprise agreement
(2) The amendments made by Schedule 1 to the Corporations Amendment (Life Insurance Remuneration Arrangements) Act 2016 do not apply to a benefit paid to a financial services licensee, or a representative of a financial services licensee, in relation to a life risk insurance product, or life risk insurance products, if:
(a) the benefit is paid under a remuneration arrangement between an employer and an employee; and
(b) the benefit is paid in accordance with an enterprise agreement (including its associated documents), or a collective agreement-based transitional instrument (including its associated documents), that was entered into before the commencement day; and
(c) the agreement or instrument was in force immediately before the commencement day; and
(d) either:
(i) if the nominal expiry date of the agreement or instrument has not passed before the commencement day—the benefit is paid within 6 months after the nominal expiry date for the agreement; or
(ii) if the nominal expiry date of the agreement or instrument passes before the commencement day—the benefit is paid before the transition day.
Benefits paid under another form of remuneration arrangement
(3) The amendments made by Schedule 1 to the Corporations Amendment (Life Insurance Remuneration Arrangements) Act 2016 do not apply to a benefit paid to a financial services licensee, or a representative of a financial services licensee, in relation to a life risk insurance product, or life risk insurance products, if:
(a) the benefit is paid under a remuneration arrangement between an employer and an employee; and
(b) the remuneration arrangement was in existence immediately before the commencement day; and
(c) the benefit is not paid in accordance with an enterprise agreement (including its associated documents), or a collective agreement-based transitional instrument (including its associated documents); and
(d) the benefit is payable in relation to a period that ends before the transition day.
(4) In this regulation:
nominal expiry date in relation to a collective agreement-based transitional instrument means:
(a) if there is a nominal expiry date for the instrument—that date; and
(b) if there is no nominal expiry date for the instrument—the last day of the period of the agreement.
Simple solution! Find the date of the employment agreement which has the furthest date in the future. Adopt this date as the date of the implementation of the new reforms or more appropriately SCRAP the new unworkable reforms entirely and let the Life Offices get their houses in order to improve efficiencies. The problem is now solved.
The simple solutions are usually the best; unfortunately the ‘experts’ detest simple solutions as they can’t create complex scenarios to show just how smart they are in providing solutions, that over time prove to be totally worthless. By the way, the ‘experts’ always seem to collect hefty pay cheques along the way. All this current drama can easily be worked through via current legislation, a common sense approach by life companies, and the goodwill of all stakeholders. Utopia, I know.
Agreed
How many more “skeletons ” in the closet exist in this legislation
Since the governments proposed double dissolution and its effect on legislation before it we have not seen one insurer bank or for that matter association come out and explain the possible effect
“Shock ” is probably the word at the moment as their plans to increase their profits and corner the advice market could be on hold
And if labour form government they want to increase the clawback period and take it further or so I have read !
And as already mentioned not one “sceric”
Of this legislation will assist consumers
Correct Ken. If Labor were to get in, not only is the issue of the responsibility period more of a concern but the introduction of level commissions would almost be a certainty. I just don’t get it. Every L/O I have spoken too tells me that level commissions cost them more than upfront, so how can anyone apply any logic to what is going on. The interesting thing with the CommInsure claims situation is that any worthwhile Adviser would have had any Trauma policies moved away from CommInsure (if appropriate / possible to do so) to ensure that their client wasn’t caught up in that mess OR would that be ‘Churning” rather than an appropriate replacement of a policy in “the clients best interests”
No wonder the banks are pushing the legislation, it only applies to their competition, not to them.
The Direct Insurers have been carved out of the legislation also I believe.
So tell me again how LIF benefits consumers in ANY way?
#noconsumerbenefit #whodoesbenefit?
Melinda, the practices of our financial institutions and the lobbying of government ministers brings about this nonsense…So please, can anyone answer Melinda’s question of how LIF benefits consumers…..it doesn;t Melinda and our nimble politicians do not give a damn. The protected species are of cours the ISN and Banks…..funny that…..
What is the point of having a set of laws for us as IFA’s while
“employed advisers” get to continue without issue again condoning bad
practices which the industry wants to see stamped out. Oh but
wait….if the “salaried” planners have bad practices after all they
work for and within a “sales” culture and mess up with a client….we
all get tarnished. Brilliant ehh….what a damn joke.
When will the
brains trust that is our nimble ministers understand. One rule for ALL
with no carve outs….unless of course either political party chooses
to take the side of the folk that should be looked at carefully. That’s
not us as IFA’s.
Our industry according to the FPA’s own CED Dante
De Gori, highlights over 54 enquiries, consultation papers, reviews,
regulation and all since 2009…even in Labor years. Along with 5
further enquiries since 1997 from Wallis, Cooper, Rippoll, Pwc and
Murray. And yet our ministers design regulation with carve outs for
special interests and blame us all when their ideas fail or let down the
public. Maybe, just maybe there should be no carve outs…
Me
thinks, these ministers do not care about our industry much less small
business and if they do, they have a hell of a way of demonstrating
common sense and logic without having an attempt at destroying our
businesses.
Its our RSTC.
Disgraceful.
So the banks who are the bottom of the worst of advice have once again got away with this scam they started. So no consumer benefit, no small business benefit, improved bank profits….just as they intended, thanks Kelly, thanks for nothing
Perhaps the employees of the banks will be able to afford to employ some of the employees of the IFA’s who lose their jobs when small business owners are forced to cut back on costs or close their doors. Is this one of the Governments “once in a generation” reform ideas? What can one say other than it doesn’t make any sense to me and as Melinda quite rightly continues to ask “how does the LIF benefits consumers in ANY way”.
Well that takes the biscuit, the bank planners have salaries so at least they will still have an income when this legislation hits, unlike the independents who depend on insurance commission for their pay. Now they will keep their commissions as well and continue to flog their own bank’s products, some best interest duty. A (very ignorant) Industry fund Chief on the TV blamed high commissions paid to advisers as the reason that Comm insure couldn’t pay it’s claims, ha! The vast majority of those people were in Hesta and not advised, which is probably why their claims failed. They had no one to fight for them and were probably too ill to do it themselves. As you have said, there is no benefit to the client/public from all of this. They will have to pay more if they are interested in getting quality insurance advice, assuming they can still find an adviser to consult. If Labour get it, I hear they are looking at going in with a 60/20 commission and a 3 year claw back. Imagine if you sold your house and then a few years later sold it again and asked the Real Estate agent to refund your commission! Laughable, but its OK for us despite the very time consuming work of research, SOA preparation, underwriting and implementation, claims assistance, etc!
And let’s not forget the level of service we have provided during the responsibility period to end up with WHAT?
What is the point of having a set of laws for us as IFA’s while “employed advisers” get to continue without issue again condoning bad practices which the industry wants to see stamped out. Oh but wait….if the “salaried” planners have bad practices after all they work for and within a “sales” culture and mess up with a client….we all get tarnished. Brilliant ehh….what a damn joke.
When will the brains trust that is our nimble ministers understand. One rule for ALL with no carve outs….unless of course either political party chooses to take the side of the folk that should be looked at carefully. That’s not us as IFA’s.
Our industry according to the FPA’s own CED Dante De Gori, highlights over 54 enquiries, consultation papers, reviews, regulation and all since 2009…even in Labor years. Along with 5 further enquiries since 1997 from Wallis, Cooper, Rippoll, Pwc and Murray. And yet our ministers design regulation with carve outs for special interests and blame us all when their ideas fail or let down the public. Maybe, just maybe there should be no carve outs…
Me thinks, these ministers do not care about our industry much less small business and if they do, they have a hell of a way of demonstrating common sense and logic without having an attempt at destroying our businesses.
Brad. the LIF bill has now lapsed. The bill can be reintroduced in the future but it has to go through the process again.
Can you state if you are going to use this opportunity to re-question the benefits to customers and independent advisers.
It is obvious that none of the risk advisers are in agreement with the LIF in its current format and it has no consumer benefits. It only benefits the profits of the banks and insurers.
Can you state if you are going to conduct a proper poll of your members on their disagreements or agreements to the LIF and publish these results specifically?
Can you confirm if you will be using this opportunity to improve what is a catastrophic position that your risk advice members have been put into by the collusion between the FSC, AFA and FPA without the adequate backing of AFA and FPA members?
Very very good and worthy of a reply Good luck though things are. Very quite on the western front !! Are the Indians re grouping ???
And not a peep from “AFA for advisers” bank lapdogs
Thoughts for a new Association or existing Association for non-aligned advisers? I won’t be renewing my AFA.
This whole thing was stitch up from day one however if this latest news is true then professional organisations have overseen probably the worst advocacy effort in sometime.
Comments are closed.