Many risk advisers may be caught unaware when the ban on conflicted remuneration takes effect next month, as some individual policies inside superannuation may actually be issued under group insurance arrangements.
CommInsure’s Head of Technical, Jeff Scott, warned advisers to be very aware of the type of insurance arrangement they were recommending, because some may appear to be individual policies, but in fact are part of a group arrangement. Under the Future of Financial Advice (FoFA) reforms, advisers are not permitted to receive conflicted remuneration, including commissions, for advice on:
- A group life risk policy inside superannuation whether it is for a default or another type of superannuation fund; and
- An individual life insurance policy for the benefit of a member of a default fund
Mr Scott explained that while advisers were aware of the ban on commissions for group insurance arrangements, it was not always apparent when these arrangements were actually in place.
“I think that there are many advisers who have not cottoned-on to the fact that the same prohibition (on conflicted remuneration) that applies to investments and superannuation applies to certain forms of insurance inside super as well.
“Where that will probably affect a lot of advisers is when they’re providing advice on a risk product inside super which requires the client to go through full underwriting. This may look and feel like an individual insurance policy, but in many cases it’s actually a policy structured under a group insurance arrangement,” he said.
… the same prohibition that applies to investments and superannuation applies to certain forms of insurance inside super
According to Mr Scott, this area of the reforms was one of the primary causes of concern for risk advisers ahead of the 1 July 2013 commencement date. This is despite the fact that the legislation that enacts this reform has been known for some time.
“The actual legislation around this has been in place from day one, about 18 months ago. But when you look at the implications of the legislation, most advisers would think it only applies to industry super funds or corporate super funds. But it also applies to masterfund arrangements where there is a group policy in place,” he said.
He said advisers should read the Product Disclosure Statements (PDS) of the products they were recommending closely, to determine whether the risk advice they provide to a client can be paid for via a commission.
“Don’t be afraid to talk to your BDM from your preferred product providers, and ask them for assistance and guidance,” he added. “Many of the product providers have had to go through extensive changes to make sure they’re compliant, and they’ll want to make sure the advisers that are doing business with them are compliant as well.”
CommInsure has launched a new website to help its advisers navigate the FoFA and Stronger Super reforms. Called Regulatory Reform 101, the website is designed to educate and inform advisers of the changing regulatory environment, and includes practical information on how the reforms impact CommInsure products.
The website will feature in-depth news and analysis which will be regularly updated by CommInsure’s InsuranceTech Team. Click here to visit the site.
Much appreciated clarity from Jeff – as always technically spot on.
It will be hard to survive if we think that we can just do things the way we have always done them – we will either find that we are not getting (or cannot get paid) or we have failed to recognise our obligations.
Unfortunately once an industry comes under the microscope regulators will stop at nothing until they have squeezed the life out of it – all in the interests of the ‘consumer’ yet as a result small to medium sized business struggles to survive – which ultimately leads to a lack of competition & leaves consumers worse off – go figure.
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