The Life Insurance Framework (LIF) legislation has continued it passage through Federal Parliament and has passed unopposed through the House of Representatives, opening the way for its introduction into the Senate.
The Corporations Amendment (Life Insurance Remuneration Arrangements) Bill 2016 passed through the House on its third reading after having been introduced on 12 October with the second and third readings taking place late in the day on 28 and 29 November.
In a media statement the Minister for Revenue and Financial Services, Kelly O’Dwyer said high upfront life insurance commissions will be reduced with the passage of the Bill which would also significantly reduce the incentive for advisers to churn clients where there was no consumer benefit.
Addressing Parliament during the second reading O’Dwyer stated the Federal Government would monitor the effect of the legislation and would move to mandate level commissions if the ASIC review of 2021 did not identify significant improvement in these areas.
A number of Liberal and Labor members debated the Bill during its second reading with most making reference to ASIC Report 413 and the recommendations of the Financial Services Inquiry and adding their support to efforts to reduce conflicted remuneration and churn in life insurance.
Despite concerns being raised by a number of Opposition MPs, particularly around the lack of change required by claims handling departments within life insurance providers, the passage of the Bill seems assured with Dr Andrew Leigh, Member for Fenner, stating “Labor will help the government pass this bill”.
“Labor will help the government pass this bill”
Leigh stated that despite the Bill not addressing poor claims handling and concerns about conflicted remuneration for claims handlers “…Labor supported the life insurance framework bill when it was first introduced to parliament earlier this year, before the election, and that remains our position”.
His comments echo those of the Shadow Minister for Small Business and Financial Services, Senator Katy Gallagher (See: Opposition Restates Support for LIF) and add weight to those of Nationals Senator John Williams who has predicted the Bill will also proceed through the Senate without any opposition.
While agreeing to support the Bill, Liberal MP, Craig Kelly, Member for Hughes said the Government needed to monitor any unintended consequences and claimed “…the history of governments interfering in the market and setting prices has always been a disaster”.
Kelly questioned why the Federal Government was becoming involved in setting a price cap on what financial advisers can be paid and said there were no other areas of the economy where it has acted this way.
He stated the life insurance market had 28 large life insurance companies which should provide sufficient competition to drive change but instead these companies “…are now coming to the government, saying, ‘We think we’re overpaying our sales staff. We want you to cut their commissions.’”
“…the history of governments interfering in the market and setting prices has always been a disaster”
He also questioned why churn had not been dealt with at an industry level stating that life insurers could have negotiated outcomes to deal with incentives that led to inappropriate churn where it was carried out for large up-front commissions.
The passing of the LIF legislation is the second major movement of measures aimed at improving the financial advice sector with the introduction of legislation to life the professional standards of financial advisers having been introduced in Parliament last week.
At the time of the introduction of the Corporations Amendment (Professional Standards of Financial Advisers) Bill 2016 into Federal Parliament, O’Dwyer said current education requirements have allowed some financial advisers to become qualified to provide financial advice to retail consumers after only four days of training.
“There is also no specific requirement currently for advisers to undertake continuous professional development. The Government’s reforms will significantly increase the education, training and ethical standards of financial advisers, who will need to be qualified to a standard equivalent to a degree,” O’Dwyer said.
The introduction of the professional standards legislation was welcomed across the industry with the Association of Financial Advisers, Chief Executive Brad Fox stating “the future uptake of financial advice will be supported by this important industry reform.”
Financial Planning Association, Chief Executive, Dante De Gori said consumers will benefit from all financial planners requiring a higher minimum level of education, training and ethical standards and the passage of the Bill “…provides financial planners with more clarity and certainty about the future, and what may be expected of them”.
Nice to see those making decisions about the industry understand it. No wonder we have issues over professionalism. When a politician stands up saying we have no requirements for CPD, really shows how little they know about our industry and the legislation thy are passing.
“Vail” the Life Insurance industry and the “small business in that sector.
Killed off by a left leaning ignorant politician who chose to ignore the party’s grass roots, constituency and instead listened to “flawed” rhetoric from self interest groups.
If you think the last election was a “near death” experience, get ready to be buried at the next one.
When attended breakfast and sat next to Kelly O’Dwyer at the end of all the ‘discussion’ [at the table] over LIF, Ms O’Dwyer was open about the fundamental reason she had to push it through NOW. If she did not the alternatives going forward were clearly level or NO commissions. Better the devil you know! Let’s hope that the FSC is now put under the blow torch and we at least get until 2021 to get back to what the majority of us do best…protecting [insuring] Australians.
As Brad Fox has said from the beginning…this issue has political motivation.
Kelly Odwyer, Minister for the FSC and Banks.
Where do you begin with a political issue? It feels pretty much the same as when the media beat up a story about a few claimants (most of whom think their super is the holy grail of insurance cover) have a claim denied for obvious reasons…their quick to slam life companies handling of claims BUT they completely ignore all the claims that are paid…with all legitimate claims eventually being paid. Like with any story…there is always 2 sides. Now I’m not saying life companies are angels…my 15 year experience tells me they are far from it.
Mr Kelly makes a lot of reasonable comments…particularly about why the industry (FSC) is running too the government whinging about paying Advisers too much. Why WOULD the FSC AND ITS MEMBERS want advisers to educate the consumer about the way BIG Insuers act and all the things that go on behind the scenes…closing series, take-over terms, all the ancillary benefits that account for such a small % of claims…and the life companies behaviour particularly at claim-time…they’ll do and say anything to make it as hard as possible to accept a claim…which brings me to my last point about Mr Kelly asking why the industry hasn’t self regulated. Well my opinion is that they all like to see policies strategically replaced every 4 to 5 years because it is a way of managing their risk by resetting the 3 year non-disclosure period. You would think that all of us in the industry would know the ramifications of this insurance contract act of 1984 clause at claim time but saidly no sections of the industry wants anyone to know…why do you think the government hasn’t been told thoughout the countless inquiries and parliamentary joint committees when it is such a huge benefit at claim time??? When clients are educated about the potential disadvantages about resetting this period, then most if not all are very reluctant to switch providers.
It is a shame that craig Kelly doesn’t have more standing in his party.
Mind you speaking rationally tends to make you an outsider in a modern polictical party.
To me this is the end of service as we know it , the banks have won and the insurers. not the consumer Wait for the next step of fees for service in 2021 ,that is the next step and has always been Rome was not built in a day but the industry I have loved and been a part of for over 40 years has just had a few bricks removed from the foundation
Makes my idea of early retirement look far more likey and joining a bank for all you new advisers the only option No self employed risk advisers after 2021 you simply cannot run a business on fees or 20%
Ken Ryan
I was talking to a client who will probably lose his Business in the next 12 months due to the Government becoming involved in his Industry.
He is a fisherman and when we spoke, it was eerily similar to our Industry, where millions of dollars of Taxpayers money has been spent, based on small studies and investigating perceived issues, which were invented by theorists, self interest groups and university qualified people with little practical knowledge, without proper consultation with the Small Business fisherman who have an intimate knowledge of their industry and the environment.
Because they have been effectively ignored, most of them will be forced to leave the industry and their licenses will be sold off, probably to overseas companies, to pay back the Government for the millions of dollars Tax payers forked out, spent on useless studies and investigations.
The end result will be the same. Small Australian Businesses will suffer and close down and the big Companies will run roughshod over the Government and the public servants who have little understanding and less interest, of the real issues.
( Apart from how to generate sufficient work to keep them in their jobs )
So what we will end up with, is the destruction of thousands of Australians livelihoods, while big offshore entities will pillage our fish stocks and not have to comply with the red tape and costs that kills Australian small Businesses.
Look at the Gas Industry where the Government has been hoodwinked by the Big Companies and Australia will miss out on Billions of dollars of revenue each year, while third world countries had told these Companies to pay up or get out and guess what? they are paying Billions to those Countries.
Those Public servants who cause these and other issues that will negatively impact Australians, should be charged for gross negligence and come under the same rules and penalties that apply to us if we do not do our jobs properly.
Myself and another adviser in our practice met with Craig Kelly and he was amazed by what we told him. At least he had the decency to question why the Government was dragged into all this, though he is powerless when both Liberal and Labor agree for this tainted Bill to become legislation.
At least we here have till 31/12/2017 to continue and this will also allow some time for pressure to be mounted so hopefully sections of the legislation can be modified.
I am a financial adviser and i would really like to know how you can get qualified in 4 days?
So . . . why oh why has nobody in power in our industry (AFA. FSC, life companies, dealer group heads et al) championed the SEPERATE LICENCE FOR RISK ADVISERS that was mooted a while back. It is a waste of money and time for advisers who solely focus on risk to go and get further extraneous, unrelated and costly (time & money) qualifications that will NOT help service their risk client one iota better. I am all for financial advisers being highly qualified BUT it has to be relevant. the type of new qualifications they want dedicated risk-writers to partake in is unnecessary to properly servicing risk-only clients. If I’m missing something please tell me.
Well…. having weathered many storms over nearly 30 years of advising people how to protect themselves and their loved ones I’M OUT . Finally sat back and realised how sick and tired i am of reading garbage written by morons who control my industry who have never visited a client in hospital ( who wont come out ) or looked into the eyes of a ‘ terminally ill claimant’ as i assisted with the claim form ( which was paid at lightning speed ). I’m just one small blimp on the Risk Only Adviser radar that will vanish and effectively not one of the ‘ head office boffins’ will skip a ‘ skinny light latte ‘ over. Only regrets are for the clients i wont be here to assist and consequently i do feel bad over that BUT enough is enough I’M OUT . goodbye
Stephen, I DO know how you feel and can’t argue with your sentiment. I would urge you to put a month or so between now and pulling the plug. You may reach the same decision OR you may think of something you’ve missed in calling it a day. I am in the same boat as you currently. I had a trusted colleague speak to me, make me think re a few things and it gave cause for pause. I’m not saying don’t follow your heart and gut. Just put a small amount of time between now and such a big decision. If it feels the same in a month them go for it. I ‘might'(?) be right behind you. Cheers and best of fortune to you.
“He stated the life insurance market had 28 large life insurance companies which should provide sufficient competition to drive change but instead these companies “…are now coming to the government, saying, ‘We think we’re overpaying our sales staff. We want you to cut their commissions.’”
Yes that is exactly what the FSC and Kelly O’Dwyer have done and in the future risk advisers cannot afford to give risk advice without charging a fee. Clients won’t pay this and you have just made underinsurance much worse.
But the good news is the 28 insurance companies will be able to sell over-priced junk insurance directly the customers with lower risks of having to pay claims.
A great con job done by the FSC, government, the AFA and FPC. Profit before sense!!!
Are these idiots in government for real !
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