Errors, Misunderstandings, Bias in Royal Commission Recommendations on Risk Commissions – AFA

The Association of Financial Advisers has released a scathing analysis of the Banking Royal Commission’s recommendations on the future of life insurance commissions, arguing that Commissioner Hayne’s risk commission recommendations contain errors, misunderstandings and are based on an ideological bias.

AFA GM Policy and Professionalism, Phil Anderson …critical commentary on Royal Commission’s risk commissions recommendations.

In addition to detailing what he identifies as errors and misunderstandings in the Banking Royal Commission’s final report (and also in its Interim Report), the AFA’s General Manager Policy and Professionalism, Phil Anderson, also asserts in a statement released this week that the ideological determination of the Royal Commission to eliminate all conflicted remuneration has contributed to statements made in the final report that appear to be without justification or evidential support.

Reflecting on the detail of Commissioner Hayne’s risk commissions recommendations, Anderson made a range of observations:


Anderson notes Commissioner Hayne’s discussion on life insurance commissions was brief – just four pages – but that the Commissioner fills one of those four pages with a table of the commissions paid over a period of five years for life insurance advice: “$6.1 Billion is a large number, although this is $1.2 Billion per year and when looked at in terms of the average amount per adviser authorised to provide life insurance advice is only around $65,000 per year,” says Anderson.

He added that the use of the $6.1 Billion figure is deliberate and repeats the opening statement to the Insurance round of the Royal Commission in September 2018.  “The AFA challenged this back in our Insurance round submission,” says Anderson. “It is a bit like saying that the total Medicare benefit payments to doctors and medical service providers was $23 Billion in 2017/18.  On its own, this total Medicare benefit number has limited relevance to what happens at the individual level.”


Anderson asserts Commissioner Hayne’s final report incorrectly interprets the Life Insurance Framework model, citing language on pages  186 and 187 of the Final Report that includes the following:

“From 1 January 2018, conflicted remuneration includes volume-based benefits given to a licensee or representative in relation to information given on, or dealing in, a life risk insurance product. A monetary benefit relating to a life risk product will not be conflicted remuneration if it is a level commission within the applicable cap and provides a ‘clawback’ arrangement if the policy is cancelled, not continued, or the policy cost is reduced in the first two years of the policy.”

The clear error is in the suggestion that the cap and clawback arrangement applies to level commission business

“The clear error is in the suggestion that the cap and clawback arrangement applies to level commission business.  It does not,” says Anderson, who clarifies that the Life Insurance Framework model applies to upfront commission arrangements only.

“We were certainly surprised to see this error, particularly given that the AFA had pointed out the exact same error in our response to the interim report…  Unfortunately, this was just one of a number of errors in the interim report that were repeated in the final report.”


Anderson questions Commissioner Hayne’s interpretation of the quantum of life insurance held inside Australia’s superannuation system.

Within the context of underinsurance being used as an argument to retain life insurance commissions, Anderson reflects that Commissioner Hayne is clearly not ‘sold’ on this argument: “His counter argument is that the overwhelming majority of life insurance policies are held through superannuation,” notes Anderson, adding, “He is clearly referring to Group Superannuation arrangements in this section, not appreciating that they only represent a very small number of policies (as individual members do not have their own policy), even if they do represent a large number of members.”

In disputing the proportion of life insurance held inside group super, Anderson notes Commissioner Hayne “…also fails to state that the retail advised product is a much better product (i.e. own occupation, terms and conditions, guaranteed renewable etc. etc.),” and that the Commissioner’s argument “…also fails to take into account the likely consequences of the Government’s Protecting Your Future Package, which KPMG estimated would reduce the level of group super cover by 50%.”

Anderson also argues that Commissioner Hayne’s focus on underinsurance should not be the only measure of importance, that “…surely the amount paid out in claims is even more important in delivering the right outcome for consumers.  This should be measured in terms of money in the hands of clients and take into account the leakage that goes to lawyers assisting with insurance claims.”

Questioning the degree of thoroughness undertaken by the Royal Commission in its consideration of the appropriate amounts of life insurance cover held by Australians, Anderson commented:

“The Commissioner accepts that members of group super funds do not have the same level of cover as advised clients, however then he goes on to strangely suggest that he is not convinced that this would leave large numbers of Australians without an appropriate level of life insurance.  Clearly the Royal Commission needed to do more work in this space, however we cannot expect them to be experts on everything.”

More Errors and Misunderstandings

Anderson then turns to Commissioner Hayne’s recommendation that if ASIC’s 2021 review of the Life Insurance Framework reforms indicates commission caps do not contribute, or at least not significantly contribute, to addressing underinsurance then ASIC should continue reducing the caps – ultimately to zero:

ASIC …do not have any power to alter the level commission arrangements

“This highlights further errors and misunderstandings,” says Anderson, who outlined:

  • Firstly, ASIC only has powers to reduce the commissions on upfront (LIF) business.  They do not have any power to alter the level commission arrangements.
  • Secondly, a quick check with a few life insurers would no doubt clarify the impact that LIF had in 2018, with a material reduction in new business.

Probably the most alarming issue, according to Anderson, though, is the implication of Commissioner Hayne’s statement that if moving to 60% upfront commission will not have much impact on underinsurance, then going to zero will have a similar impact: “Many financial advisers will find it challenging with a 60% upfront commission rate.  If it went to zero, they will simply leave, and leave in droves.  We can only imagine what a devastating impact that this would have on the state of underinsurance,” warns Anderson.

Ideological Bias

Anderson notes Commissioner Hayne concludes that any decision on the future of risk commissions should be based on clear evidence that the harm that would flow from abolishing commissions would outweigh the harm that already flows from allowing this form of conflicted remuneration to continue.

…this ideological determination to eliminate all conflicted remuneration is contributing to statements without justification or evidential support

His response: “We can only wonder what he bases this judgement on.  We could easily respond by saying that ASIC Report 413 revealed a 93% pass result for hybrid commissions, which was a higher commission rate than we have now.  It seems that this ideological determination to eliminate all conflicted remuneration is contributing to statements without justification or evidential support.  There is a much stronger basis to say that there is little harm done to clients as a result of life insurance commissions and that the Royal Commission provided nothing to prove otherwise.”

In a call to advisers and the life insurance sector in general, Anderson concludes his statement by stressing how important it will be for the industry to prepare well in advance of ASIC’s 2021 review of the impact of the Life Insurance Framework reforms “…and that we must clearly articulate the value of retail advised life insurance and the importance of commissions in making quality life insurance available to all Australians.”

Click here to read the full statement released this week by AFA GM Policy and Professionalism, Phil Anderson. Anderson will be outlining his position direct to advisers over the coming fortnight as the AFA conducts its national Connect Tour 2019 Roadshow, which will be visiting all state capitals.

Anderson’s statement this week follows an initial, higher-level AFA release immediately following the publication of Commissioner Hayne’s recommendations (see: AFA Stands Firm on Risk Commissions).

  • Squeaky_1

    Thank God someone is speaking up for us in a detailed and structured manner. This gives some hope to risk specialists that this misguided and myopic laywer Hayne, in league with the banks, might have his impact softened on our industry somewhat. Here’s hoping common sense prevails – for all Australians.

  • Risky

    Let’s all of the financial advisors, their staffs and families go to Canberra and launch a protest.
    I believe now it’s the time to hit the street!!
    Professional bodies should organise a date for it.

  • Ben

    Hayne clearly has no idea or understanding of the under-insurance problem here in Australia. It might be fine for him who earns a truck load but there are Mums and Dads out there who don’t and who need cover but don’t have it and will no longer be able to afford to get advice around it. How often do you see or hear about someone who has had something happen to them or their loved one and they need to go out and raise money to assist the family. It happens all too often and that is a classic example of the under-insurance problem. If Hayne gets his way these scenarios will become more and more frequent. But hey that’s ‘in the client’s best interest’ isn’t it!

  • Jeremy Wright

    Phil, congratulations on your approach.

    It is refreshing to see a change in the way the AFA is pushing against the idealist propaganda that has been allowed to go unchecked.

    If you want to win a fight, you do not dance around your opponent, you work out their strategy, then move in and attack.

    Once you have put your opponent on the back foot, you grab them by the jugular and don’t let go.

    The mistake so many people make, is they think that because they won a skirmish, then the war is over and they back off.

    Always assume, your opponent is going to regroup and come back at you.

    Then when they do, tighten your squeeze on their jugular until they have no fight left and they surrender.

    Once they give way, you press home your demands and as per the above, do not let go of their jugular.

    I have never lost a fight using this approach and so long as your cause is right, you have no fear, you understand your opponent, learn their weaknesses and most importantly, NEVER GIVE IN, then you will always win.

    Phil and the AFA, I hope you continue with the approach you are now showing and if you do, you will have a surge of advisers joining the AFA and deserting the FPA, who are flying the white flag and should be ashamed of themselves.

  • IndyJonesJnr

    As a current member of the FPA, I am in awe of this response. The FPA has been deathly quiet in publishing a response such as this that supports the views of it’s members. I will be transferring to the AFA and thank Phil for this considered response representing exactly what we as a profession need.

  • Christoph Schnelle

    I agree that I found it curious that Commissioner Haynes considered it appropriate to make sweeping recommendations on life insurance when life insurance very clearly was not a focus of his investigation. Is this overreach an indication of the reliability of his other recommendations? Many of those other recommendations seem very appropriate but I wonder if other examples of unsubstantiated judgments are elsewhere as well.

  • Concerned

    Anderson says we “must clearly articulate the value of retail advised life
    insurance and the importance of commissions in making quality life
    insurance available to all Australians.” So true! But how? As I have said in previous editions of Risk Info – there needs to be a collective representation from the likes of the AFA, FPA (if they will get their act together) and the life insurers (now they are seeing a reduction in new business inflows). Individual representation doesn’t seem to be working, but if they all go to the govt as one, then we may have a chance. The longer they leave it, the longer the recovery period.

  • Gen X Planner

    Finally a strong and logical response supporting advisers. Over to you now FPA, Insurers and other stakeholders that have been asleep in supporting their own.

  • Gen X Planner

    FInally a logial and strong response. Over to you now FPA, insurers who have been deathly silent in supporting their people.

  • Ronald Tyler

    I would also point out that to write a piece of insurance business is expensive in an Advice Sense. So if commissions for insurance is banned, how are the clients going to pay for advice around their needs, using the correct product for their particular circumstances? I can guarantee that if an insurance adviser was charging the average mum and dad client (which is who really needs this advice) will not pay. They will then rely on the inferior group policy which will take at around 2 years to payout for a TPD benefit and find they still lose their family home.

  • Risk specialist QLD

    Congratulations Phil, very well articulated. Enough is enough, after over 30 years in this profession, I consistently see the awesome work done by the advice network to help many people when they need it most! The challenge is to better articulate, commission are not paid for nothing, we are here to help our client/real people get claims paid and get the financial support they so desperately need, yes commissions effectively cross subsidised work across our portfolio. Just the last week a TPD claim was finally paid after a significant amount pro-bono work for a family (referral no income received or needed) being able to help, when they had no one else and in despair, their special heartfelt thank you was priceless and all that was needed.

  • C.

    The completely misguided assumption that the lower the commission payment results in a better the advice outcome for the consumer, has no basis at all.
    The reference from Phil Anderson to the findings of ASIC Report 413 clearly acknowledging that the then assessed Hybrid 80/20 commission option produced an advice success rate of 93% was appropriate.
    The ASIC Report 413 did not find any evidence at all that any reduction in commission level beyond the 80/20 combination increased the advice success rate to the consumer.
    It is unconscionable that Kenneth Hayne has recommended a reduction in commission to zero based on nothing but a personal abhorrence to any form of remuneration via commission on any product or service at all.
    It is unconscionable that ASIC have stated they will pursue that recommendation and implement it, even before the recommendations have been considered and 2 years prior to the review.
    This clearly indicates that ASIC have a pre-determined and pre-meditated outcome as to the results of a review that has not even been determined or completed.
    How on earth can we have a regulator that is so blatantly biased to openly state that no matter what the outcome of a forthcoming review produces, they will be implementing the recommendation to reduce commissions to zero anyway.
    The audacity of this organisation and the power trip mentality beyond enacted legislation
    is now at a point of such concern that ASIC believe they are the legislator and the regulator combined.
    To enforce legislation without a basis of evidence supporting the outcomes of that legislation is nothing but fraudulent and conspired.
    In other words, recommending change knowingly based on unfounded or deliberately constructed evidence is simply deceitful and dishonest.
    This is the most biased and conspired attack on an industry in a free market economy and the intention is to dismantle and destroy the fabric of an industry that in the vast majority of cases delivers high quality and valuable advice and service to the Australian public.
    The lack of understanding of how best the delivery of risk insurance advice and service in this country works by Kenneth Hayne and ASIC is negligent.
    This is nothing more than a conspiracy.

  • B.

    At this point there has not been one single Life Insurance company come out and announce they do not agree with and do not support the recommendations to reduce commissions any further than the current LIF reductions and state they fully support the advisers position……NOT A SINGLE ONE !
    What we hear is white noise behind closed doors and privately placating advisers with statements from insurers saying they fully support the advised market and do not agree with the recommendations from a consumer benefit perspective or adviser .
    From a public perspective there has been total silence from every one of the Life Insurance companies….they have not promoted the benefit of advice in the wake of the RC recommendations.
    So, it is ok to accept high quality advised business from advisers who place their trust in those company’s products to financially protect their clients when needed, but it is not ok to announce they fully support the advisers and do not agree with the proposed recommendations and the damage to the advisers and the public’s access to advice at an affordable cost that would ensue.
    If there is only silence, then it must be assumed there is little or no support from the Life Insurance companies and the relationship is one of convenience only.
    It also must be assumed that a possibility exists the insurers want to maximise profit by paying no commission and until such time announcements reflect an alternative position,
    the level of doubt will continue.