April 10, 2018
The AFA has released its response to the Report of the PJC Inquiry into Life Insurance stating it was “surprised, perplexed and disappointed” by parts of the report, which it considers as having missed the terms of reference for the inquiry and having drawn conclusions without evidence.
In a statement released to members from AFA Chief Executive, Phil Kewin, the Association noted its initial feedback has been focused on the recommendations that directly impact financial advice and the retail advised insurance sector, including the recommendation for random audits of financial advisers (see: PJC Recommends Compliance Audits For Risk Advisers).
In regard to this suggestion, the AFA stated, “We are amazed at this recommendation given there is no new evidence or reporting referred to other than what was previously available that has led to the significant and sweeping reforms of the Life Insurance Framework and Professional Standards Legislation.”
“the suggestion that there is a vast range of hidden remuneration in the retail advised life sector is surprising…”
The Association declared its opposition to this recommendation, noting there was no basis for it and that it contradicts measures already put in place by the Government and would also duplicate audits currently performed by licensees while increasing the level of the ASIC Funding Levy each adviser will pay.
The AFA also suggested that instead of random audits, “…any such activity should focus upon those who are suspected of doing the wrong thing” and that ASIC would be able to ascertain who those people were from information that is currently available to the regulator.
Review of Remuneration
The AFA also questioned the PJC’s recommendation for a review of adviser and licensee remuneration stating the former “…has been significantly scrutinised and an unprecedented level of restrictions introduced via the Life Insurance Framework Legislation”.
The Association continued, “the suggestion that there is a vast range of hidden remuneration in the retail advised life sector is surprising and not substantiated anywhere in the report”.
It also added that advisers have been obliged to disclose remuneration for a number of years and non-monetary remuneration was banned under the Future of Financial Advice reforms from 1 July 2013.
Terms of Reference
The AFA was also critical of the failure of the Report to address Part B of its own Terms of Reference which required an assessment of the benefits and risks to consumers of the different elements of direct, group and retail advised insurance, claiming “…this report fundamentally fails to address this objective”.
“Instead, it merely rehashes reports and research in relation to retail advised insurance and advice that have previously been comprehensively addressed by the government through FoFA, the Life Insurance Framework and more recently Professional Standards Legislation,” the AFA stated.
“This scrutiny and increasing cost to provide advice is threatening the very existence of an advice profession…”
The Association added the Report made no attempt to investigate the merits of the three life insurance channels and also failed to compare the cost of insurance, quality of benefits, claims payment ratios, product features or underwriting issues across the three channels.
Continuing with its critical tone, the AFA noted “there is an abject failure and lost opportunity to highlight to the community the relative merits of appropriate types and levels of life insurance to protect individuals, their families, businesses and in doing so the broader community”.
At the end of the note to members, the AFA stated it would complete and release a more detailed analysis of the Report, as well as a formal response, and would be speaking to the Government and politicians about the Report, noting the Government had yet to respond to the recommendations made by the PJC.
The Association also made the following closing remarks, “Financial advice and financial advisers have been subject to unprecedented scrutiny, Legislation and Regulation particularly over the last 10 years”.
“This scrutiny and increasing cost to provide advice is threatening the very existence of an advice profession and the ability for small business advice practices to continue to provide cost effective tailored financial advice,” the AFA stated, adding:
“If the costs and burden to all is prohibitive as a result of a few, the Australian public will be deprived of a profession that provides an immeasurable benefit to people and the community in which they live”.