Any future reviews of life insurance advice should be undertaken using an agreed industry definition for lapse and churn and should include a random sample of advisers, according to the AFA.
In a new, supplementary submission to the Parliamentary Joint Committee (PJC) Inquiry into Life Insurance, the AFA also stated the 2021 review of life insurance advice should include a detailed examination of why a product may have been replaced, whether an adviser is a risk specialist and the practices of life insurers that may lead to poor advice.
The submission was released to members as part of statement from the AFA outlining its concerns over conflicting messages from ASIC about churn and the quality of advice (see: AFA Seeks Clarity on ASIC Churn Comments).
In the statement, AFA Chief Executive Phil Kewin said the 2021 review was “…critical to financial advisers, as the government intends to assess the success of the LIF reforms based upon the level of improvement in life insurance advice revealed in this 2021 review”.
“…the government intends to assess the success of the LIF reforms based upon the level of improvement in life insurance advice revealed in this 2021 review”
Kewin said the AFA wanted to provide feedback on the design of the 2021 review and “…in the context of the concerns many members had about the original Report 413 review and the recent apparently conflicting statements from ASIC, the AFA is calling for transparency and certainty in the methodology for the 2021 review”.
To this end, Kewin said the AFA was seeking for the new survey to include a random sample of life insurance advice alongside any targeted sample “…so that we can be more confident in terms of the real message about the quality of life insurance advice”.
The submission stated that an industry definition of ‘lapse’ and ‘churn’ should be agreed upon before the 2021 review, adding that churn should only apply to inappropriate product replacement without a net benefit to a client and not to lapses that may be caused by factors unrelated to the quality of advice.
Greater depth also needs to be provided in assessing the quality of advice, according to the submission, which stated that factors such as the experience of an adviser, whether they were a risk specialist or generalist, the size of their approved list and their business model should all be considered when assessing the quality of advice.
The submission also recommended the 2021 review examines the actions of life insurers, and allow advisers to provide feedback on those actions that contribute to a ‘sub-optimal’ quality of financial advice or outcome for consumers.
The AFA also stated that moves could be taken, prior to the review, to ensure a positive result in 2021 and called for “life insurers …to publicly disclose the number of advisers who they refuse to do business with or have placed on level commission only terms and reporting the details to ASIC and licensees.”
This submission from the AFA is a very positive step forward.
The previous strategies from the AFA and FPA were too complicated and did not cut to the chase.
Turning the argument around by asking questions and asking for well articulated and accurate clarification from the Regulator and the Government as to “what” they are promoting and “why”, plus what they hope to achieve and why they believe their regulations and recommendations will improve the Industry for all Australians, helps cut through the long winded and false information that the likes of the FSC has hoisted upon us all and has since been proven to be misleading and puts the spotlight back onto these people, which is a must, in order to get a sensible outcome.
I have been a vocal voice against the previous AFA and FPA attempts to explain how the LIF was flawed from day one, though I am heartened to see a step in the right direction from the AFA and if this keeps up, I will become a loyal supporter.
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