The transition to the proposed Life Insurance Framework reforms will be delayed until 1 January 2018.
As reported in the weekend press (AFR Weekend), Minister for Revenue and Financial Services, Kelly O’Dwyer, has stated the Life Insurance Framework legislation she will introduce into Parliament this month will transition all advisers to the new remuneration structure from 1 January 2018.
…the legislation would allow no carve-outs for direct or general advice
Minister O’Dwyer was also reported as having reiterated earlier statements that the legislation would allow no carve-outs for direct or general advice (see: O’Dwyer Confirms LIF Will Cover Direct Channels).
She is reported as saying her government was worried that some companies would try to dodge the proposed remuneration caps outlined in the LIF reform proposals, citing as an example the potential use of mass customer databases to ‘pitch’ policies while claiming not to be providing direct advice.
The Minister said “These reforms cover all life insurance sales involving advice, regardless of whether it’s personal advice or general advice,”
In confirming the delay to the LIF timeline and also the lack of carve-outs for direct or general advice, AFA CEO, Brad Fox, told riskinfo his association has been continuing to lobby for greater transition time, and to ensure there are absolutely no carve-outs: “The confirmation from the Minister on both counts will give our members more time to prepare their businesses, and insurers more time to work out what they will need to do to support and be relevant to financial advisers that are calling for efficiencies,” he said.
Another change to the draft legislation introduced into Parliament prior to the Federal Election is that all employees on contracts and Enterprise Bargaining Agreements (EBAs) will be subject to the same rules as self employed advisers from the commencement of the transition. Fox said the initial legislation was drafted to allow existing EBAs to run their course. “That is now not the case…all advisers regardless of channel start at the same time. This was exceptionally important to the AFA,” he said.
Minister O’Dwyer is scheduled to deliver a video address at the commencement of this week’s 2016 AFA National Adviser Conference in Canberra, in which she is expected to confirm these changes to the updated LIF reform package to be introduced into Parliament later this month. She will also be attending the Conference on its final day.
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A one year responsibility period and an 80/20 (plus GST) remuneration model is where we must end up for our profession to remain viable and for us to provide ongoing professional advice to consumers. Under the proposed LIF (60/20) model the amount retained at the 12 month stage up to the 23rd month stage is only 21.82% of that retained now. With premium increases at historically high levels of between 11% and 33% per annum, this mean that there is more pressure than ever on clients to be able to retain their policies. An increase of 18% pa means the policy premium will double every 4 years. An increase of 24% pa means the policy premium will double every 3 years.
This announcement by the Minister is a move in the right direction but it only addresses peripheral issues not the “main game”. The “main game” is NOT that there is a misalignment of financial incentives to Advisers, it is that Life Offices MUST become more efficient and more accountable.
This is good news, but nowhere near enough. The hard work by the LICG and the AFA is being noticed , but we need the legislation halted until the JPC into Life Insurance is completed and there is a change to the legislation to focus on consumer benefit, not life company benefit.
Agreed This rescheduling is only delaying the inevitable demise of many risk advisers if the legislation is not reviewed and the commission structure and “clawback” period reviewed More than this is the uncertainty that commissions will even be available 3 years ( wherever that cutoff point is now) if ASIC have control to make that decision
To me this looks a little like a “Redherring”
O’Dwyer is unfortunately quite determined to introduce a policy that will only benefit the banks and insurance companies. She is totally naive in thinking that the banks simply won’t switch to paying higher salaries and bonuses to aligned advisers to get rid of the IFA competition and will be peddling more cheap junk insurance through them and directly.
The fact that O’Dwyer wont even wait until a parliamentary enquiry is completed before pushing this through simply shows how much she is in the pocket of the FSC as too are the AFA and FPA
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