The current Life Insurance Framework (LIF) legislation is unlikely to become law before this year’s Federal election but the agenda behind LIF will see some form of commission limiting legislation pass through Parliament.
The LIF legislation lapsed on 17 April when the Senate was prorogued after the proposed legislation reached the stage of being moved for a second reading, following a short delay in which a bipartisan Senate Committee recommended the legislation be passed.
According to Parliamentary procedures, the LIF legislation would recommence its movement through the Senate only after a request from the House of Representatives for the Senate to make it an order of the day at its next sitting.
However, while the Senate was recalled on 18 April it has only sat for a handful of days, and in that time has not been asked by the House of Representatives to make further progress with the legislation.
“An election does not mean LIF has gone, it will just be delayed.”
Published agendas for the coming week for both Houses do not list any action on the legislation with the Parliamentary webpage for the legislation stating it was “Not Proceeding”.
Financial Planning Association, Chief Executive, Dante De Gori said it was unlikely now that the LIF legislation would get through the Senate even though 13 sitting days remain in May and June, as riskinfo went to press.
Commenting on general speculation, De Gori stated it would appear the Prime Minister would wait until after the 3 May Budget and 5 May Budget Response from the Opposition before calling an election.
He stated this may take place over the coming weekend, with May 11 being the latest day to call an election for a June 2 polling date.
This latter date would reduce the sitting days for the Senate to a maximum of four before the current parliament is dissolved, at which time the legislation would need to be reintroduced into the next parliament, and passed by both houses again, before becoming law.
De Gori said while it was unlikely the LIF legislation would pass the Senate, financial advisers should not believe this would be the last of the LIF legislation or the agenda which created it.
“An election does not mean LIF has gone, it will just be delayed. If the Government is returned the legislation can be reintroduced and the Opposition has indicated it will support the bill as it stands,” De Gori said.
“If Labor wins, the legislation is likely to be scrapped but the agenda behind it will not.”
“If Labor wins, the legislation is likely to be scrapped but the agenda behind it will not. The likelihood of 20% commissions or even less is greater, given that an agenda to ban commissions has been part of Labor’s policies since the introduction of the Future of Financial Advice reforms.”
De Gori’s comments echo those of Shadow Minister for Financial Services and Superannuation, Jim Chalmers who stated recently that while the Opposition supported the LIF legislation it preferred a longer clawback period and would re-examine commissions at a later date.
“The 1 July start date is now unlikely but the LIF framework will endure and it will not return to the status quo,” De Gori said.
The FPA have made a statement that the LIF framework will endure and it will “not” return to the Status Quo, however, if Labor wins, the legislation is likely to be scrapped and the likelihood of 20% commissions or less, is back on the table and a preferred longer clawback period could be thrown into the mix.
In the real world that small business advisers live in, this is an indication that there is room for the FPA and AFA to go back to both parties and start telling them the truth about the disgraceful behaviour and false assumptions perpetrated by the FSC and to demand that the truth be told, which destroys the ridiculous lies around retail adviser churn and the supposed vast commissions advisers get, for little effort.
Complying with a lopsided playing field that allows Direct Product Floggers to do nil
Fact Finding, nil analysis, nil preparation or presentation of a SOA and nil responsibility, for a total of 5 minutes work, while still getting the same commission as retail advisers who must comply and perform all the best interest duties which takes 10 to 30 hours.
A 20% commission on a $3,000 premium is $600. The cost to provide basic advice is a
minimum $2,000 which equates to a loss of a minimum $1,400 per client advice and implementation.
Bearing in mind that it is also in the client’s best interest if their adviser who does
everything for them, does not go broke, 20% commission will “ensure” every adviser goes broke.
As for the clawback, I have no issue with a 2 year responsibility for the adviser who
wrote the original policy, as this is a true churn scenario. So for simplicity and fairness, if the Adviser churns, within 2 years they get nil upfront commission on the replacement Business.
This solves the much heralded Churn issue, stops it in its tracks and is a simpler, cost effective IT solution for Life Companies, while maintaining a viable advice system that benefits all Australians.
Now is the time the AFA and FPA to get back up on the horse and do what they are paid to do, which is represent their members while keeping it fair for all involved.
Reading this article and the absolute quietness from the insurance companies and Associations around the effect the dissolution has had on this legislation only makes me more concerned that they intend to push this for their own benefit.
As Jeremy rightly says what a great opportunity to go back to the drawing board and get this done right.
Labour is only pandering to the Union dominated industry funds in speaking out for Nil commissions any one with half a brain can see how that would decimate the industry for all not just advisers. With no adviser force who would do the work in the insurance companies that most advisers now do for nothing. Who will be a member of AFA or FPA if there is no one left to join.
Not being politically “offay” I fail to see how in this statement made by The FPA { Some form of commission limiting will pass through parliament} that any part of the LIF legislation can proceed as an individual item ? Is it not the whole LIF PRESENTATION THAT NEEDS TO BE ACCEPTED How can you take bits and pieces out for individual assessment.
It also to me, at least comes across as a “scare tactic” To the FPA we are better off with this convoluted mess they have created than going “fresh” to the newly elected government whoever may win.
@ Jeremy Wright,
Your intentions are honorable but in reality what would you have done when you wrote a client for Life cover in their superannuation and approximately 4 months later without much notice the group underwriter increased their premiums by 85.0% with immediate effect for premiums paid on a monthly basis.
The answer is, you couldn’t afford to leave the client in that product if you wanted to retain them!
What would you have done if a particular life company increased their premiums by 12.5% plus a rate for age increase within a few short weeks effectively increasing your clients premiums by 20.0% overall.
You may have decided to keep them there until the next major increase which could be any time in the next 2 years…. and then what ?
What would you do if the relevant insurance company took their current best of breed product off the market and you could not increase cover for existing clients ?
What if they offered you an inferior product as alternative to your existing product.
How does that all serve the client” best interest” test ?
I suspect that with the best of intentions, the life insurance industry under the FSC is going to cannibalise and destroy the external advice market and I don’t think either the FPA or the AFA are prepared to fight tooth and nail for their members on this issue.
I wouldn’t be holding my breath expecting them to be standing in the trenches when most needed.
I agree with the comments below. The AFA and FPA have been a disgrace in not acting for the best interests of customers and independent advisers especially those who wish to specialise in risk.
What this should be is an opportunity to go back to the drawing board and for the AFA and FPA to admit that they should have fought harder to get the right outcome.
As a starting point this mess was initially instigated by ASIC who reviewed only 202 files of advisers who they admit were large risk writers and had higher than average lapse rates – or in other words they targeted a small number of known churners. Could we be cynical and state that ASIC’s agenda was to pick on an easy target and fudge the outcome to get more funding? (well they got it!).
Could we be cynical and state that the insurers used the mess to increase customer premiums and create an outcome that only increased their profits at the expense of customers and independent advisers who compete with them (well they did!).
Could we be cynical and state that the AFA and FPA sided more with the FSC who heavily fund them and did not adequately poll or support their members wishes? (well they did!!)
The simple fact is that the small sample did not reflect the vast majority of advisers and the FPA and AFA should have been screaming for adequate research into the current picture vs. the worsening outcome for customers and independent risk advisers from the LIF.
You have a second chance – use it
Well said Reality Check. RiskInfo included an article on or around the 20 April and in my comments I challenged both the FPA and AFA to step up and represent their members. Can anyone suggest what can be done to help the FPA and AFA actually understand how serious this issue is and the devastating effect the LIF in its current format will have on the retail life insurance industry in Australia?
I’ve said this in a past Riskinfo issue and it’s worth repeating – the specialist risk advisers are the soldiers fighting in the front lines of a battle. We are pleading for support from headquarters (AFA, FPA) but they are not listening. Why? Because the battle hasn’t reached there yet and as such they don’t understand how serious things are at the front. By the time the battle reaches headquarters, it will be too late!
I also challenged Brad Fox to poll AFA members specifically on the LIF to state if the members support the changes or not and the expected outcomes and whether they believe the AFA have acted in their members wishes and best interests and then to publish the results of this poll publicly. I would challenge the FPA to do the same.
This was not surprisingly ignored by Brad Fox.
The AFA and FPA state they have not let down their members but are unwilling to poll and publish the results because they know what these results would be. They are too heavily funded by the members of the FSC which in itself is a conflict of interest.
If they think they have their members support then do the poll and publish the results.
Well AFA and FPA – it’s now up to you!
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