Commission Concerns Overlook LIF and Best Interest Duty


The AFA has written to members informing them that large figures quoted at the Banking Royal Commission related to life insurance commissions overlooked legal obligations for advisers and equate to only $65,000 a year per adviser.

AFA Chief Executive, Phil Kewin

AFA Chief Executive, Phil Kewin provided the figure in a note to members in which he said the Commission’s questions about conflict of interest related to life insurance commission did not consider the Life Insurance Framework or Best Interest Duty obligations.

Kewin referenced the figure of $6 billion of commissions paid to financial advisers with respect to life insurance over a five-year period, which was presented to the Royal Commission during the hearings on 10 September by Counsel Assisting, Rowena Orr, QC.

Orr had already provided a list of commissions paid by separate life insurers and added, “That amounts to a total of more than $6 billion in commissions to financial advisers in connection with the sale of life cover issued by these 10 insurers in about five years”.

Kewin said this figure broke down to $1.2 billion a year “…and when divided by the number of advisers authorised to provide life insurance advice is $65,000 per year, per adviser”.

“…commission is not a driver that encourages a financial adviser to select one product over another…”

He also said these payments, which were fully disclosed in SoAs, went to advisers and licensees and covered all staff and business costs related to the provision of the insurance advice, and also required client agreement before any commission payments were made.

“The questions about a conflict of interest that this creates do not take into account that under the Life Insurance Framework (LIF), all insurers are paying initial commission at roughly the same rate and it is capped,” Kewin said.

“As such, commission is not a driver that encourages a financial adviser to select one product over another, it is a mechanism by which many clients gain access to valuable advice who would otherwise not have this opportunity,” he added.

Counsel Assisting the Royal Commission, Rowena Orr, QC

Kewin also noted that advisers were bound by Best Interest Duty obligations and any consideration of commission payments “…needs to consider the extensive work that goes into the provision of life insurance advice, including the needs analysis, strategy design, product consideration, SoA production and presentation, underwriting and implementation”.

Kewin also highlighted the AFA’s ongoing concerns around direct life insurance and that the hearings publicly reinforced those concerns.

“We were pleased to see a strong message on the fact that Direct life insurance products are more expensive than retail advised products, with worse terms and often very low claims payout ratios,” Kewin said.

“In the context of the failure of the Parliamentary Joint Committee on Corporations and Financial Services’ inquiry into Life Insurance to raise these concerns, it was important to see them raised publicly by the Royal Commission,” he added.


  1. The way it is portrayed in the media and at the Royal Commission, is that advisers are paid commission for effectively doing nothing.

    Phil has highlighted the reality. Let us hope the truth filters out.

    • Totally agree Jeremy. There is no conflict when all product providers pay the same rate of commission. In this day and age of rising disability premiums, how many clients can afford to pay a fee for service on top of their premium, especially at claim time when we “parasites” who take the commissions put in many, many hours of unbilled work, knowing that overall our pool of commissions cover this for those clients who need this service. Forty years ago when I joined this industry I was told that “your greatest responsibility is to be there for the client at claim time” and that if “you take the commission, you stand by your product and client and make sure the claim gets paid.” That hasn’t changed in four decades in my mind.

  2. Orr, best to understand the context of big numbers dear. Wonder how much in commissions were paid to real estate agents over the same 5 year period? Hmm, again no bearing on ANYTHING! And she is a QC……

  3. Well said, Phil.

    Also, this also shows the problem of focussing on one thing rather than the big picture. I’m not disagreeing that $6bn in commission was paid to advisers over a 5 year period. Phil has already outlined the average distribution of this.

    However, if we look at claims stats from just 1 year (2017)*, not even across all insurers, we can see that over $5bn in claims were paid in that year alone. Without having direct access to claims stats over that 5 year period, we can conservatively estimate $20bn in claims paid over that same time frame. How many of those claims would have been paid (or more to the point, how many of those policies would have even been in existence) if advisers hadn’t educated their clients on the value of insurance and how it works?

  4. Well said Phil. Wonder why the FSC wasn’t able to answer this question in the same way when they were on the stand? Was this complete ignorance or a good way to further doom the risk adviser for more direct sales in the future shown clearly by the Royal Commission to be a terrible result for customers.

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