The head of ASIC has claimed a recent speech in which he called for the removal of commissions to avoid conflicts of interest was not intended to include life insurance commissions and there was no plan to remove them.
The clarification was made by ASIC Chair, James Shipton before a hearing of the Senate Economic Legislation Committee last week in Canberra after Senator John Williams said the comments ran counter to ASIC’s role in enforcing the Life Insurance Framework.
Williams referred to Shipton’s speech of 17 May in which he stated “…the best way to deal with some conflicts was not to manage or disclose them, but to remove them altogether. This is an option that ASIC favours in relation to conflicted payments and advice” (see: Removal of Commissions Would End Conflicts of Interest).
Williams said the recent changes around life insurance commissions had started with ASIC Report 413 in 2014 and had ended with caps and clawbacks on commissions from 1 January 2018, administered under a legislative instrument overseen by ASIC.
“Given your speech and the context of your published statement, do you no longer support your own legislative instrument on life insurance commission caps?” Williams said.
“…there’s no plan for changing the process that was put in place for commissions for life insurance?”
In his reply, Shipton said his comments about conflicted payments and advice were related to financial advice but were not applicable to life insurance.
Shipton said, in his speech, he “…went on to also use that as an example or a benchmark to show that, when talking about the broader issue of conflicts of interest, particularly in remuneration, eradication of conflicted payments is one option”.
“I wouldn’t go on and then extrapolate that our policies in relation to other areas like life insurance are a direct consequence,” he added.
Seeking further clarification Williams said, “So there’s no plan for changing the process that was put in place for commissions for life insurance? The other commissions for advice have gone?”.
To this Shipton replied only with “Correct” and then concluded his statement by adding the speech called on the financial services sector to have a wholesale review of practices in relation to conflicts of interest, particularly those related to remuneration structures, to deal with conflicts of interest which ASIC considered were more prevalent than they should be.
That is great news and James should be commended for putting some sanity back into the conversation.
Maybe he has taken advice from people who actually understand the real issues and has started to ignore the noise from the likes of Choice and other vested interest groups who only care for their own agenda’s.
There is only one way to defeat these organisations who will negatively impact all Australians if their agenda;s are listened to and that is to Attack them and keep attacking them until they retreat back down the holes they emerged from.
Great work James, at least insurance advice will not be limited to the HNW clients.
Now you need to apply the Best Interests Duty to ALL insurance sales, including the retail policies sold by under General Advice by sales people with only the first unit of the Diploma of Financial Planning and the direct (Junk) policies sold by backpackers working for call centres with absolutely no care about the clients situation or outcome.
Level the playing field and have one set of rules for us all.
Here is another typical example of Life Insurance being carved out of the “Advice” Value Chain, which seems to be ignorantly backed up by Shipton’s reply where he said…”In his reply, Shipton said his comments about conflicted payments and
advice were related to financial advice but were not applicable to life
insurance.” I definitely support commissions to remain for Life & Disability Insurance BUT I also support the fact that Insurance is a PRODUCT, which we all hope is only providing peace-of-mind for clients and never ever needs to provide claimable benefits…Life Insurance is NOT client’s money like investments and is undoubtedly SOLD and NEVER EVER bought. Insurance is providing emotional intangible benefits for unplanned outcomes while Investments provide logical tangible benefits for planned outcomes. So the question is HOW is it possible, sustainable or workable that Insurance is captured under the exact same regulations as Investments? There needs to be some relaxation and sanity reintroduced which recognises this fact. While the compliance work load has tripled, LIF has created a reduction in income and claw back periods extended. If ASIC truly believed that Insurance is an important and critical aspect of the planning process, then they would have recognised this by supporting the value of Risk Advisers through eliminating claw-back altogether, there-by placing the burden on the Insurers who all know who the offenders were and still are. Someone made a comment to me which reflects the situation…ALL insurers are raising rates because they have know idea of the outcomes these changes may or may not produce.
Good points BKY. Life Insurance and Financial Planning are two separate animals and need to be treated that way. The issue with Shipton’s comments is that he should have made it clear up front that his desire to see the removal of commissions, related to investments only. if Life Insurance and Financial Planning were indeed separate, then he may have been forced to clarify which type of business his comments related to.
ASIC have always had a communication problem. They make statements and give speeches targeted to financial planners, ignoring the fact that there are risk advisers out there who’s situation is entirely different. It’s not new!
Their lack of accuracy causes concern to risk advisers particularly when ASIC starts rabbiting on about conflicts. On the other hand, ASIC have ignored the inherent conflict involved when the product manufacturer sells the product, for far too long. I’ve long believed that ASICs attitude to the banks is a byproduct of their long standing desire to have less smaller AFSLs, so that they’re more easily supervised
The facts are ASIC would eliminate risk commissions tomorrow if there was a political will. Mr Shipton, new in the job, has merely reflected the internal attitudes within ASIC, and his clarifying comments really provide no relief
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