Rather unsurprisingly, our report on the Quality of Advice Review’s recommendation to retain life insurance commissions – but at their current capped levels – is the Riskinfo Story of the Week…
The Quality of Advice Review has recommended that life insurance commissions should be retained, but at their current levels.
This proposal is contained in a 12-page snapshot document released by the Treasury, comprising a summary of the data the Review has considered in relation to conflicted remuneration in both general and life insurance and the proposals stemming from its consideration of that data, which includes ASIC’s review of life insurance advice files.
The proposal
The proposal recommends retention of the existing conflicted remuneration exemption for benefits given in respect to life risk insurance products. While not explicitly stating the existing 60/20 commission caps under the Life Insurance Framework reforms should be retained, the current caps are referenced by Review leader, Michelle Levy, as being a part of existing requirements and – by implication – her recommendation appears to be that the 60/20 caps should continue.
While Levy proposes to retain risk commissions, her recommendation requires advisers to obtain their client’s informed consent, in writing, to receive a commission. She proposes that, in order for the consumer to be able to make an informed decision, the adviser must disclose details of:
- The commission the adviser will receive for the duration of the policy (eg any upfront and trailing benefits)
- The nature of the ongoing service that the adviser will provide to the client in relation to the life risk insurance product (eg assisting the client pursue and settle claims)
Outlining her reason for requiring client consent, Levy notes that if an adviser will receive a benefit for the sale of a life risk insurance product they recommend to their client, “…they should have an obligation to tell the client about the benefit and the client should have the opportunity to consent (or not) to the provision of that benefit.”
Levy acknowledges that disclosure and consent are not always – and perhaps not even often – effective consumer protection tools. Nevertheless, she states “…a client should be put in a position to understand and consent (should they choose) to their adviser receiving a benefit from the product issuer.”
The data – ASIC life insurance advice file review
The snapshot document outlines the data informing the Review’s recommendations, including the outcome of ASIC’s review of life insurance advice files, in which it compared 521 files from 2017 (before the LIF reforms were introduced) with 522 files from 2021 (after the full implementation of the LIF reforms).
In noting these advice files were assessed for compliance with the best interest duty and related obligations under the Corporations Act 2001 to determine whether there were significant concerns about client detriment/harm arising from non-compliant advice, ASIC’s file reviews found:
- Compliance with the best interests duty and related obligations had improved, with the pass rate increasing from 37 per cent of assessed files in 2017 to 58 per cent in 2021
- There was a reduction in the number of files for which there was a significant concern about client detriment/harm from 12 per cent in 2017 to 7 per cent in 2021
- The proportion of advice files with indicators of churn reduced between 2017 and 2021
- The sample of advice files assessed were dominated by commission-based advice, with more than 90 per cent of the assessed files in both 2017 and 2021 involving the payment of a commission in connection with the sale of a life insurance product (as compared to clients being charged an advice fee)
While the data shows that the quality of advice has improved between 2017 and 2021, the report states it is difficult to conclude that the improvement was because of the LIF reforms. It says “This improvement could also be attributed to a number of other factors, such as the implementation of the professional standards, which introduced education and training standards for financial advisers.”
It added that the data also indicated an increase in the age and wealth of clients that received life insurance advice, and that this might indicate that lower commissions have encouraged advisers to prefer to provide advice to those with higher sums insured and higher premiums.
In an initial response, AFA CEO, Phil Anderson, said the association welcomes the recommendations and is broadly supportive. Anderson stated, however, the AFA and the joint association working group will continue to meet with law makers to clarify elements associated with the recommendations, including:
- What the recommendations might mean for existing life insurance advice clients
- Whether an adviser purchasing a book of clients would be required to ensure written consent from the acquired book of clients in relation to written consent
Click here to access the Treasury’s key findings on general and life insurance as part of the Quality of Advice Review, which contains additional data and subsequent rationale that underpins the recommendations it has released.
I’m guessing 99.99% of all clients will provide consent for the adviser receiving commissions, given the other option is an advice fee from their own pockets! A no-brainer for the client. I still think we need to move to 80/20 if the industry wants more insurance written.
um what if they refuse both what do you think will happen the insurer will take it on and yu loose the client….thing about it, the insurer will just pocket the commissions
Well since that commission disclosure / consent process takes place before the applications are written and lodged with the insurer if you’re doing it properly, you would walk away and charge the client your standard SOA fee Les.
What about opt in for ongoing commissions?
I am with TG here – unless 80/20 is reinstated NOW, you can sit on the wharf and watch the good ship SS “Life Insurance Industry ” disappear over the horizon, listing to port with smoke bellowing, with the wreck ultimately discovered by accident in 100 years time .
Clearly Ms Levy has been listening to ASIC. ASIC hate commissions, always have, always will!.
Will the insurers include in their premium quotations off their software a figure which will estimate the renewal commission (deferred commission) to be paid for say five years, 10 years et cetera. The insurers may even have to predict a little more accurately future premium increases.
If not, once again it’s another compliance load on life risk advisers, with advisers being hung, drawn and quartered for the miscalculation of future renewal commissions.
I see this as just another backhanded attempt by the lawyers at ASIC to move life risk advice to fee-based only. ASIC are so out of touch with mum and their clients that the mind boggles – those clients do not, AND WILL NOT, pay fees which allow life risk advisers to recover their costs and make a profit.
And at the same time, if Ms Levy is to be believed, every cowboy in the business can flog rubbish products without restraint of even the flawed General Advice regime. Did we not learn anything from the recent news where a mortgage broker flogged a “white labelled” CBA product which didn’t pay a benefit for five years because it lacked underwriting of any type
Then again as an ex-ASIC employee once said to me “ASIC are not commercial, mate”
Anyone for a boat trip?
Oldie, I have to go even further than 80/20 – as I have stated many times before – 100/20 AND a 1 year responsibility period is the ONLY way the life industry will have ANY chance of being repopulated with specialist risk advisers. Pollies need the industry to PUSH them on this as they’re not brave enough to reinstate that level on their own – just not.
It has been decimated to such an extent no new entrants from uni are even considering it after looking at the financial prospects in relation to other professions. The whole thing is on the nose to them. The remuneration not only has to look reasonable (which is 80/20 – not good enough, only “reasonable”) but it must look enticing, which is the 100/20 number I keep coming back to. Tax, GST, compliance time all take chunks out of 80/20 which becomes untenable. 100/20 it HAS to be or we lose the industry completely.
I’m gone now as you know so little difference to me but I feel for those left and would love to see the industry prosper to its previous levels and have newbies flooding in. Aussie families NEED what our industry provides, we all know that. 80/20 won’t revive it or get it there unfortunately.
oh great! so consent meansd what new Fee consent forms ? More admin….Michelle Levey commission are included inn the quotes and Statement of Advice given to each client before advice is provided.
so what happens when the client says i don’t want to pay that commission, where does the policy go ? What if they demand a refund for 10 years of a policy commissions? where will the difference go ?…Right back to the provider who will NOT reduce client premiums of course, and will then just take the commissions as profit ….the adviser looses the client, the client doesn’t get any ongoing service because logically they think that paying no commissions will mean lower premiums in thids day and age of inflation, …which we know isnt true….insurers will make high profits and risk advisers go out of business…and the consumer AGAIN will be left without any support (especially at claim time ) ringing an Insurers customer service line….another great Idea form people who have no idea about what and how we do what we do. I’m so sick of these people with no practical advice experience from outside our industry determining out fate and the fate of our clients
When I read the above, the first thing that occurred to me is that you’d simply need to add a couple of lines to your SOA to the effect of…’by signing this Authority to Proceed, I consent to XYZ receiving commission for the policies recommended’. Your SOA already has a commission disclosure that can be amended to reflect whatever needs to be reflected IF the recommendations outlined in this article are actually adopted, and you add a couple of lines at the bottom of the commission disclosure stating that in exchange for receiving commission your practice agrees to assist the client with claims and administration queries etc etc. It’s not that difficult. Really, have you ever had a client demand a refund of 10 years policy commissions? Come on.
….and before you suggest that SOA’s are going to be abolished anyway, I’d put it to you that anyone giving advice without some sort of advice document to accompany it is placing a LOT of faith in AFCA, their PI, and ASIC.
It is nice that Commissions should be retained, though anyone with any logic could see the total chaos that the last lot of “Improvements” caused, with massive reductions in risk specialists, holistic Planners moving away from risk advice and a plethora of red tape / restriction of trade barriers that made the provision of risk advice untenable and Life / Disability premiums rising up to the point of becoming too expensive. The last thing we need is more red tape. The current commission rate is not attractive enough for Advisers to jump back in, as it is currently too hard to make sufficient income to cover costs in the regulatory maze of doom that Australia is now caught in. For the retail Advised Life Insurance sector to grow, it MUST be made easier to do Business. Going down the same path of fee disclosure that the Investment Planners have had to endure, is not conducive to making it easier. It just adds another layer of red tape. It is a simple question that should require a simple answer. Does the Government want Australians to be able to get their Wealth Protection needs provided, which will give them future security while building their future wealth? If the answer is YES, then stand back and let Industry come up with the solution. Government intervention does not work, as Government Employees can NEVER understand what the private sector go through each day to survive and even if they did, there are insufficient numbers of decision makers who can make positive changes. The Industry is collapsing and the last thing we need, as I said before, is more red tape.
Jeremy, you claim that government intervention does not work yet it is government intervention that makes payment of a large portion of advised insurance possible: superannuation.
Comments are closed.