The urgency surrounding the search for a solution to the issues facing the life insurance advice sector is unfortunate but necessary, the Association of Financial Advisers has told its members.
In a message from AFA President, Deborah Kent, the Association acknowledged adviser concerns over the apparent ‘sudden-ness’ of the push for life insurance reform, and called on advisers to get involved and make their voices heard.
Ms Kent highlighted that the time frame for reform was being driven in part by the Government’s need to respond in June to the Financial System Inquiry, including recommendation 24 which called for a level commission model for life insurance advice. “We do not see that working in the Australian market as it stands today or any time soon,” Ms Kent said in her communication.
We are encouraging advisers and licensees to endorse hybrid and level commission remuneration
“It is also relevant to acknowledge that although the former government ruled retail life insurance out of the ban on commissions in FoFA, they also made it clear that the industry needed to address life insurance issues themselves or expect that the government would need to make changes in the future. It was in August 2011 when that message was given by the then Minister, but no material change has yet taken place,” Ms Kent said.
“With all of the other changes advisers and licensees have had to focus on it is completely understandable that life insurance change has remained off the radar for most industry participants. The challenge now is to focus on the solution.”
She reaffirmed that the AFA was seeking an industry-wide solution, which incorporated not just adviser remuneration changes but also insurer behavioural change:
“…we must also ensure that insurers do not encourage and incentivise behaviour that conflicts with the adviser meeting their best interest duty to the client.
“We also think there has to be a consumer ‘win’ from the changes adopted. This could be price reductions, service experience improvements or innovation around new product developments.”
Ms Kent said despite the tight timeframe, the AFA was ‘at the table’ and advocating heavily for outcomes that would:
- Grow the market for advised life insurance
- Improve advice quality
- Ensure sustainability for advisers
She called on advisers to formulate their own position on the issues raised in the Australian Investments and Securities Commission report on retail life insurance advice, and to discuss this with their own licensees.
“Does your licensee leadership know what you want as an outcome? Have they raised the issues with you and explained what is on the table at present and the material impact these changes will have on you? We encourage you to be heard – to be a voice in the debate,” Ms Kent said.
“We are encouraging advisers and licensees to endorse hybrid and level commission remuneration and remove high-upfront commissions from use and also to take actions to enforce strong adherence to the best interest duty, thus removing churn. We encourage you to make your voice heard with your licensee – don’t leave it to chance – know where they stand.”
