Advisers receiving commissions on risk advice will not be required to comply with the opt-in regulations outlined in this weeks’ draft Future of Financial Advice (FoFA) reform legislation.
Responding to a request by riskinfo for clarification as to whether the key opt-in requirements extended to advisers remunerated by renewal commissions on risk products, the office of Financial Services and Superannuation Minister, Bill Shorten, advised:
An ongoing fee to a retail client does not include a commission incorporated into an insurance premium. This means that the opt-in provisions in the Exposure Draft do not apply to the commissions contained within an insurance policy.
While some elements of the life insurance industry had already made this assumption, many stakeholders have been standing by for confirmation that personal risk advice, if remunerated via commissions, is effectively removed from the opt-in process.
Naturally, if the adviser also delivers investment/superannuation, retirement income or other advice to the same client, an opt-in process will need to be observed for that component of advice, as it will if the insurance advice relates to group insurance or to default or MySuper products.
But while this confirmation will be met with a positive response from many risk-focussed advisers in particular, the industry still awaits more details on how opt-in will operate. It also awaits the impending release of the second tranche of the draft FoFA legislation which includes language regarding:
- The ban on conflicted remuneration (covering commissions and volume payments)
- The ban on ‘soft dollar’ benefits
- The ban on asset-based fees (where there is gearing)
- The definition of intra-fund advice
See also our article: Draft FoFA Legislation – Concessions on Risk Commissions in Super.
