Life insurance and advice related issues are prominent in the FSC’s policy priorities ahead of the Federal Election, including support for retaining the Life Insurance Framework reforms.
The FSC’s policy priorities report includes proposals to:
- Increase access to life insurance by retaining the Life Insurance Framework and reforming how health services to consumers are provided
- Reduce the cost of advice by abolishing the safe harbour steps for complying with the Best Interests Duty and simplifying the documentation requirements of the advice process
- Finalise implementation of a product modernisation regime for life insurance and managed funds
- Maintain existing tax rules for superannuation, allow the Superannuation Guarantee to rise to 12 percent and reduce unnecessarily regulatory costs imposed on superannuation funds
- Reform funds management tax settings to promote Australia as a financial centre
Acting CEO of the FSC, Blake Briggs, says in a statement that its report presents opportunities that should be considered by both major parties in the lead up to the election.
“All sides of politics have an opportunity to use the upcoming election to think about how the financial services sector can support economic growth. Financial services is worth $161 billion annually to the national economy and meets the needs of millions of consumers.”
He says that recent years have been challenging for Australians and the national economy and to put these challenges in the past, “…governments should continue to focus on policies that promote growth, boost confidence and encourage business investment.”
The report itself explains that the Life Insurance Framework Reforms, which provide for (amongst other things) maximum commission caps and mandatory clawback within the first two years of a policy, commenced in 2018 and are currently being reviewed by Treasury as part of the Quality of Financial Advice review.
It says the FSC believes that these Life Insurance reforms have improved consumer outcomes by reducing the misaligned incentives and inappropriate policy replacement disclosed in an ASIC report and elsewhere.
…LIF allows upfront and ongoing commissions to be paid to advisers at a level that appropriately reimburses financial advisers for the significant amount of work undertaken…
“The FSC also believes that LIF allows upfront and ongoing commissions to be paid to advisers at a level that appropriately reimburses financial advisers for the significant amount of work undertaken at the commencement and throughout the life of the policy. This is especially important considering the current high cost of financial advice being a barrier to accessing quality advice,” the report says.
In discussing mental health the report says that despite the important role that life insurers can play in supporting people with mental health conditions,”… life insurers are generally prohibited by existing regulatory frameworks from providing funding for psychological or psychiatric counselling for our customers.
“The FSC has long advocated for the legislative constraints be reformed so that life insurers can fund the provision of health services to consumers, and facilitate consumers returning to wellness.”
…removal of the safe harbour steps should be the first priority of the Government
On the issue of reducing the cost of advice the report says removal of the safe harbour steps should be the first priority of the Government to enable a principles-based advice model under the existing regulatory framework.
“The steps impose specific obligations on the provision of personal advice that must be followed to meet the best interests of the consumer. In practice the safe harbour steps have resulted in a system where meeting the Best Interests requirement has become a ‘tick-box’ exercise.”
It says that compliance with these steps, introduced as a requirement for meeting the Best Interests Duty in 2013, is a key driver of cost and prohibitive to enabling limited advice to be provided to consumers.
It adds that onerous preparation and presentation of consumer-facing documentation, namely the Statement of Advice, is a key regulatory requirement driving up the cost of providing financial advice and diminishing its value.
The Statement of Advice should be abolished
“The Statement of Advice should be abolished replaced with a Letter of Advice with scalable obligations to enable less paperwork for consumers and less time taken to prepare it while ensuring advice is better understood and more specific to consumer needs,” the report states.
