The future of risk commissions and the nature of its disclosure continue to be of primary importance for many advisers, at a critical juncture during which its future – and therefore the future of many advice practises – will be determined…
The AFA’s Phil Anderson issued a statement late last week that seeks to clarify elements of Michelle Levy’s requirement for client consent as part of her Quality of Advice Review recommendation to retain risk commissions (see: Retain Risk Commissions…).
In seeking to allay some adviser concerns over what may constitute ‘client consent’ for life insurance commissions, Anderson said the AFA had an opportunity to meet with Levy and the Treasury team last week, where he noted the following clarifications were made:
- The consent requirement would be a once off. This is not an annual requirement.
- Where consent has previously been obtained from the client, it would not be required again. Anderson cites an example where, if the upfront and ongoing commissions were previously disclosed in an SoA and the client signed the Authority to Proceed, then this is consent and nothing more would be required.
- Disclosure of ongoing commissions could be as simple as the commission rate and the dollar amount on the basis of the first year’s premium. This is consistent with current practice, and not an additional obligation. There is no expectation of predicting commissions payable over multiple years.
- The adviser needs to keep evidence of client consent. There would be no requirement to provide this to the life insurer.
Anderson says in his statement the bottom line is that this intended consent requirement is nothing like annual renewal and client consent in the super/investment space:
“Clients providing informed consent is not unreasonable,” says Anderson. “This already happens. In a future world where SoAs are not mandated, we will need to have other ways to ensure disclosure of commissions and confirm consent. That is not difficult to resolve, particularly where it is principles based, rather than prescriptive.”
Anderson added advisers should not fear this Quality of Advice Review proposal, advocating that the industry needs to “…continue to support the QAR for the work that they are doing to deliver fundamental change to the advice process and to reduce the cost and complexity of advice. Let’s all get behind what they are doing.”
Thanks Phil for getting clarification and it is indeed good news.
I agree that we are finally heading in the right direction and of course there are many things to fix, though at least we are being listened to now, albeit after 10 thousand Advisers exited and the Industry was hurtling towards a cliff.
There should be some good news next year for Advisers who dabble in risk, which will help bring about positive change for everyone.
I still think there’s a problem here for advisers taking over the books of other advisers driven out of the industry for various reasons. Not only will their AFSL’s require the purchasing adviser to effectively produce an SOA when meeting those purchased client’s for the first time, even though there will be no change to the advice, they will now have to seek approval for the continuation of the renewal commission. Which of course means disclosure, based on the information provided by an insurer. A bit of experience in presentation skills and relationship building might be necessary and regrettably some advisers will be found lacking
On the subject of the QAR, what intrigues me is that the discussion has been about the ELIMINATION of SOA/ROA rather than the elimination of the huge amount of unimportant information and even repetition that is to be found in any risk SOA. A 38 page SOA to replace a very expensive term life policy, such as the old five-year banded Westpac term policies, is totally outrageous and over the top. Bring back the four-page CAR please .
I don’t want to see SOAs disappear: I just want them to be drastically trimmed down, devoid of repetition, and avoid the statements about whether or not an AFSL receives direct or indirect benefits from investment products, that no-one reads.
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