Trowbridge – The Bigger Picture

Our latest poll is asking advisers to consider the bigger picture being painted by John Trowbridge.

We’ve witnessed the depths of concern felt, and expressed by, a significant portion of the adviser community following the release of the Trowbridge Final Report – especially by those advisers whose income is derived mostly or entirely via commissions. We will continue to report developments on this critical debate, and to seek your views.

At the same time, we’re keen to offer you an opportunity to have your say about the other policy recommendations contained within the Trowbridge Final Report, all of which will impact advisers and other stakeholders, to varying degrees. These recommendations have remained in the shadow of most industry conversations, due to the controversy surrounding Mr Trowbridge’s remuneration recommendations.

There appears to be almost universal support behind the call for the industry to implement a Life Insurance Code of Practice that embraces licensees, advisers and consumers. And there has been little-to-no adverse sentiment expressed regarding Policy Recommendation five, which calls for all licensees, in conjunction with their advisers, to re-examine their culture, behaviours and practices regarding the advice process, with the aim of raising consumer understanding of life insurance, ensuring informed consent from clients and reducing the administrative burden on advisers.

This brings us to note the bigger picture envisaged by Mr Trowbridge in the framing of his six main policy recommendations – a set of reforms that he says are designed to:

• Ensure there is trust and confidence in the retail life insurance market
• Encourage consumers to seek personal life insurance advice, being the best way to purchase insurance if the advice is professional and effective
• Achieve the aim of more Australians having appropriate levels of life insurance protection
• Remove misaligned financial incentives being offered to advisers and licensees
• Contribute to the sustainability of adviser businesses and a competitive life insurance industry
• Encourage the industry continually to adapt and to become more efficient and productive

The six policy recommendations contained in Mr Trowbridge’s Final Report are:

Policy Recommendation 1: That the Reform Model for adviser remuneration, being a system of level commissions supplemented by a client-based Initial Advice Payment available at a client’s first policy inception and then no more often than once every five years, be adopted by the life insurance industry with progressive application through a transition period.

Policy Recommendation 2: That there be a three year transition period where the five year rule is applied on a best endeavours basis immediately and, from a suitable date in 2016 for a period of 2 years, the industry operates according to the current hybrid commission arrangements with a cap on initial commissions.

Policy Recommendation 3: That licensees be prohibited from receiving benefits from insurers that might influence recommended product choices or the advice given by the licensees’ advisers

Policy Recommendation 4: Ensure competitive access and choice for all advisers and their clients to available life insurance products by means of every licensee including on its Approved Product List (APL) at least half of the authorised retail life insurance providers.

Policy Recommendation 5: That all licensees, in conjunction with their advisers, re-examine their culture, behaviours and practices regarding the advice process with the aim of raising consumer understanding of life insurance, ensuring informed consent from clients and reducing the administrative burden on advisers.

Policy Recommendation 6: That a Life Insurance Code of Practice be developed that is modelled on the General Insurance Code of Practice and aimed at setting standards of best practice for life insurers, licensees and advisers for the delivery of effective life insurance outcomes for consumers.

Click here to access a full copy of John Trowbridge’s Review of Retail Life Insurance Advice Final Report, noting a summary of all policy and implementation recommendations can be found on Report page 18.