There was significant reader interest this week in the news that the architect of the report serving as the foundation for the Life Insurance Framework legislation is calling for a review of the structure of the life insurance commission caps…
The architect of the report on which the Life Insurance Framework legislation is largely based has called for a review of the structure of life insurance commission caps.
John Trowbridge, author of the Independent Chairperson’s Report stemming from the work of the Life Insurance and Advice Working Group following the release of ASIC’s contentious Report 413 in October 2014, spoke with Riskinfo recently in the lead-up to the tenth anniversary of the announcement of the LIF reforms.
The recent Order of Australia recipient is calling for a change to the LIF commission caps structure with a view to:
- Providing greater access to critical life insurance advice for lower and middle income earners
- Delivering a more viable commercial proposition for advisers to serve this group
According to Trowbridge, the adjustment needed to satisfy both these conditions is for advisers to have access to commission payments which are the higher of 60% and a fixed dollar amount.
For example, if the fixed minimum commission amount were set at $2,400, premiums above $4,000 would attract the 60% maximum commission currently allowed, while annual premiums below $4,000 would still allow the adviser to be paid up to $2,400.
The following chart presents the simplicity of Trowbridge’s recommendation, where a minimum $2,400 commission amount is payable on all annual premiums of $4,000 or less:
The Whole Package
Trowbridge asserts this modification to the existing LIF commission arrangement is a reflection and a consequence of the fact that the economic and regulatory conditions he projected in his Independent Chairman’s Report ten years ago have not been met.
In 2015 when initially releasing his recommendations, then in 2020 (see: Call for Re-Think on Risk Commissions) and again in 2025, Trowbridge has been at pains to point out to the lawmakers and to his critics that his initial capped commission proposal took into account regulatory and other measures intended at the time to reduce the cost of advice. A reduction in the cost of life insurance advice, argued Trowbridge in 2015, would allow a commercially-viable set of conditions for advisers operating on capped commissions.
In the absence of the reduction in the cost to serve, however, and where the opposite has in fact occurred over the last ten years, Trowbridge has now called for this change.
Submission to QoA Review
Trowbridge also made this recommendation in a paper he submitted to Michelle Levy’s Quality of Advice Review – a paper he was requested to submit in 2022.
In the Final Report of her Review recommendations, however, Levy elected not to adopt this suggested modification from Trowbridge.
With our sincere thanks to its author, advisers can take this link to review a copy of Trowbridge’s submission to the Quality of Advice Review, noting his remit also extended to additional issues:
Life insurance advice for super fund members and the middle market
Trowbridge’s call for the structure of the LIF commission caps to be reviewed coincides with FAAA GM Policy, Advocacy and Standards, Phil Anderson’s personal call for the caps to be increased from 60/20 to 80/20 (see: Anderson Calls for 80/20).
These two suggested solutions will serve to generate further debate over the future of existing risk commission caps and Riskinfo will report future developments as they unfold.
I have to declare I have a bias against the ideas of John Trowbridge. I believe he was a contributing architect of what became LIF, not so much in an accurate sense, but in a sense of contributing to the environment already created by Report 415 in which ASIC alleged "churning" to a marked degree.
The pain of a 50% cut to remuneration after LIF was further exacerbated when subsequently ASIC was forced to confiess to Bert van Manem at a PJC hearing that they had no evidence of massive churning, let alone a definition of "churning."
I was also very annoyed at the time that the egos at the then ALA/AFA thought it was a good idea to get into bed with Mr Trowbridge to see if they could influence what they thought might come out of his enquiry. Something about being in the tent and not standing on the outside.That so-called "adviser" involvement was a total failure and risk advisers suffered when ASIC and their mates at the banks forced LIF on self-employed advisers.
What distresses me NOW is that reading the 2022 Trowbridge submission to the Levy Enquiry (why was his submission a secret) is that there is no mention of the current two year clawback. Apart from putting a check on risk advisers selections of clients, the two-year clawback has created its own distortions in the market because it warned advisers that dealing with clients who had a demonstrated need, but possibly also had affordability issues, was not a safe option to develop a business.
I believe it was in 2017 that the Morrison government then changed the the rules surrounding "supported " employees being open suddenly to be able to claim a tax deduction for retail insurance written in a superannuation environment.Now advisers could find some security in having the premium paid from a source not accessible by the client in tough times
This need for advisers to protect revenue then led to what I regard as a severe distortion the direct result of the capacity of advisers to recommend that premiums for risk insurance held in superannuation could be paid by rollover out of an existing superannuation fund.
Despite ASICs requirements of advisers to provide projections of the impact of such a rollover on future accumulations, I don't believe we will be able to ascertain the actual impact of that reduction of capacity to accumulate for their retirement for at least two decades after the decision.Advisers are required to recommend that the client undertake additional contributions to this server to offset the premiums being paid by rollover, but everyone knows that that's very unlikely to occur in the type of environment we currently live.
One insurer in particular has up to 85% of its Retail life risk business paid by rollovers. Surely that of itself is a distortion
The two year clawback is a severe imposition on advisers acting in what Mr Trowbridge refers to as the lower and middle market. These are folks who in our current economic environment are always living from payday to payday in situations where they could lose their jobs, merely on a change of economic conditions or a lifted eyebrow from Donald Trump, thus impacting on their continued capacity to keep paying for their life insurance from cash flow.
Advisers should not be expected to be Nostradamus and be required to predict what might happen to the economic circumstances of that client for the two years after the policy inception. The continued existence of the two year clawback is a severe commercial imposition on advisers in our market and Mr Trowbridge has not addressed it as far as I can ascertain
Perhaps Mr editor you can ask him to provide us with an additional opinion on the clawback
Thanks Oldie, Educational and very thought provoking. Cheers.
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