The Association of Financial Advisers (AFA) has called for more work to be done in examining the total overall impact of the Exposure Draft legislation for Life Insurance Remuneration Arrangements.
In its submission to Treasury on the draft legislation the AFA stated it was not aware of any work by the department “to assess the impact of the LIF recommendations on the sustainability of advice businesses that need to adjust to significantly less upfront commission as well as carrying a contingent liability for two years under the clawback requirements”.
RIS lacks research
The AFA also said no work had been done on the consumer impact stating “we are also not aware of any research by Treasury that has been undertaken in regard to the likely impact on underinsurance and the consequential cost impost on the Federal Budget with regard to social security”.
“We are also not aware of any research by Treasury that has been undertaken in regard to the likely impact on underinsurance and the consequential cost impost..”
While a Regulatory Impact Statement (RIS) has been included in the draft legislation the AFA called it inadequate and based on incomplete data stating it had “been drawn from previous enquiries (ASIC Report 413, Trowbridge and FSI) where assessments were not made with regard to the consumer costs and benefits of the recommendations”.
The AFA also claimed that no research had been able to validate the view that removing high upfront commissions would improve advice outcomes or produce consumer benefits and “it would add significant comfort to advisers if this work was completed as part of an appropriately prepared Regulatory Impact Statement (RIS)”.
Life Insurer Behaviour
According to the AFA the absence of accurate information in the RIS and around consumer outcomes had meant that few advisers were in agreement with Treasury on the shape and intent of the draft legislation.
“Achieving a consensus outcome on the Life Insurance Framework (LIF) has been extremely challenging with our members questioning how the LIF improves consumer outcomes,” the AFA stated.
“Indeed we hold concerns that any gains to consumers may be minimal at best unless the Code of Conduct to apply to Life Insurers enforces an alignment of their activity with the best interest obligation owed by financial advisers to their clients.”
“…any gains to consumers may be minimal at best unless the Code of Conduct to apply to Life Insurers enforces an alignment of their activity with the best interest obligation owed by financial advisers to their clients…”
These comments follow concerns voiced in the submission that the proposed Life Insurance Code of Practice being created by the Financial Services Council (FSC) would not address the sales culture of life insurers and behaviours that seek to incentivise advisers to act outside their legal obligations.
The AFA stated it would support the consumer aspects of any code with regard to underwriting and claims management but had not received support from insurers or the FSC for a code that addressed this issue.
As such, the AFA recommended the FSC be required to consult with consumer group and advice associations as well as dispute resolution schemes and Treasury in developing the Life Insurance Code of Practice.
Limiting ASIC involvement
The AFA expressed concern that while the Australian Securities and Investments Commission (ASIC) would be given the power to enforce particular commission arrangements it would also be able to determine their quantum in the present and the future and exceeded the intent of the LIF agreement.
As a result, the AFA recommended that ASIC’s powers to unilaterally make changes to commission caps should require both stakeholder consultation and Ministerial approval, and this power explicitly exclude fee for service and level commission arrangements.
The same restrictions would apply to ASIC’s power to make future determinations on changes to clawback arrangements, which the AFA also called to be clarified around non-adviser related lapses.
Adviser impact is negative
“It is difficult to see how consumers will benefit from the Reforms, which are likely to significantly increase costs to Australians seeking life insurance advice,” AFA chief executive Brad Fox said.
“Adjusting to a reduction in remuneration from 1 July 2016, combined with a two-year clawback period, will create business uncertainty and reduced viability for small business advisers. We expect to see many advisers exit the industry as a result and that is an extremely poor outcome for consumers.”
Mr Fox said the loss of experienced professionals is likely to come at great cost to Australia in the form of reduced access to affordable, personal financial advice and a consequential increase in underinsurance and reliance on government benefits like the Disability Support Pension.
Transition Periods
The Financial Planning Association (FPA) also made a submission, shorter than that of the AFA, but raised the question of appropriate transition periods for policies written close to the 1 July 2016 start date for the legislation.
The FPA stated that while a consumer may sign a policy there was often a delay before it was issued by the insurer and a three-month grace period should be included in the legislation to avoid policies being submitted to an insurer prior to 1 July 2016 and being unintentionally affected by the commission framework contrary to what might have been agreed and entered into with the customer.
Sale of Business
The FPA also flagged a possible unintended consequence stating that current regulations around sale of a business were broadly tied to the pre 1 July 2014 definition of conflicted remuneration on financial products. As such these may need to be amended to allow the transfer of pre 1 July 2016 life insurance benefits on the sale of business or the transfer of a representative between licensees.
However, citing the short time frames required to lodge a submission the FPA stated “due to time constraints we have been unable to confirm whether this is an issue that needs to be corrected or not”.
Four simple facts:
1. LIF benefits the insurers and their relative bank masters only, to the absolute detriment to small advice businesses
2. there is no benefit for consumers anywhere
3. The minister for small business has been easily manipulated by lobbyists and the sham that is FSC
4. This is a deliberate ploy by certain insurers to get rid of the competition of unaligned advisers. The obvious consequence will be advice through owned distribution channels
Please do not believe for one moment that the proposed changes will in any way improve outcomes for consumers. They will not.
There is no mandate to force Life Companies to improve their processes or inefficiencies. They have already started increasing premiums and have no mandate to decrease premiums.
The Financial Services Council (FSC) have acted disgracefully and would not stand
up to even a cursory investigation into their behaviour and they are nothing but a spokesperson for the Big Banks and Life Companies who want to promote their own agenda.
Anyone with experience dealing with a Bank, will know that their service is
shareholder focused and the service they provide, is fragmented, disjointed and
tangled with systems and processes that belong in the past.
They are spending dollars, though it is to shore up their fortresses, with insufficient regard to the full implications and outcome for consumers, or themselves.
The part of the Life Insurance Industry that truly represents all Australians and will
fight hard for their clients, are the independent Life Insurance specialists and it is ironic that many of the supposed improvements, are actually an attack on these advisers, with nil comeback against the real perpetrators of all these fabricated lies, who have allowed, built or encouraged an uncontrolled explosion of policy peddlers to destroy the fabric of a vital part of our economy, with little explanation of their actions and an arrogance that must be held to account, before many Billions of Taxpayers money will be wasted, propping up an inefficient industry that seems to be on a self destruct, collision course.
And still nothing from ASIC as to how they will make the provision of advice (SOA’s etc) easier and more consumer friendly….
Most of the comments on this post are fairly spot on.
Don’t expect to hear from the Assistant Treasurer, she doesn’t even respond to pragmatic, rational correspondence sent to her.
It would seem that she doesn’t give a “rat’s” about the consumer, small business or much of anyone for that matter.
This Liberal government has moved so far to the “Left” with Malcolm in the Middle” now in charge, they are almost indistinguishable from the Labour Party.
What a sad day for all Australians that a government from any side of the political divide is so out of touch with small business, free enterprise and the average Australian, that they think they can ignore the will of the people.
The consequences of these changes are that most Life companies have now moved to increase their premiums between 10.0% to 20.0% across the Board with one particular Life company now pulling the plug on their previous decent Income Protection policy and now offering an “Inferior” wording one to replace it.
Adviser’s moving clients out of the old contract to the new one face the risk of being “sued under their PI for doing so.
Such is the lack of morality by Life companies and the dishonesty of the FSC that Kelly O’Dwyer has supported their lust for more profits at the expense of the consumer and the independent adviser.
What a bleeding disgrace from any Government !!!
Obviously this is correct but why is the AFA only saying this now and not when this whole corrupt process started with ASIC and the FSC? Unbelievable!
Whats going on at the AFA. AFA members have been saying this for months if not years. We got no response, just management jargon. Whats changed to cause this about face. Is there an AFA election soon, or are there some positions about to be advertised. Or is there a possibility of large scale resignations of risk advisers from the AFA, to join a body which might just truly represent risk writers, is causing concern. If the AFA was a racehorse, there would be a serious stewards enquiry !!
Trouble is its to late. We were un-prepared for the arrogance of Frydenberg, the bias of ASIC and the effectiveness of the big banks in lobbying despite all their advice fiascos.
Now even the FPA have picked up on the problem with ” close off dates” around 1 July, and also the issues when a business changes hand
Finally the AFA seems to have found the boxing gloves, even if its just some old inners.
And I still do not have an answer to the question – did insurer “sponsorship “of the AFA have any impact on our desire to fight hard from Trowbridge onwards
Comments are closed.