The AFA also said no work had been done on the consumer impact stating \u201cwe are also not aware of any research by Treasury that has been undertaken in regard to the likely impact on underinsurance and the consequential cost impost on the Federal Budget with regard to social security\u201d.<\/p>\n
“We are also not aware of any research by Treasury that has been undertaken in regard to the likely impact on underinsurance and the consequential cost impost..”<\/h6>\n
While a Regulatory Impact Statement (RIS) has been included in the draft legislation the AFA called it inadequate and based on incomplete data stating it had \u201cbeen drawn from previous enquiries (ASIC Report 413, Trowbridge and FSI) where assessments were not made with regard to the consumer costs and benefits of the recommendations\u201d.<\/p>\n
The AFA also claimed that no research had been able to validate the view that removing high upfront commissions would improve advice outcomes or produce consumer benefits and \u201cit would add significant comfort to advisers if this work was completed as part of an appropriately prepared Regulatory Impact Statement (RIS)\u201d.<\/p>\n
Life Insurer Behaviour<\/strong><\/p>\n According to the AFA the absence of accurate information in the RIS and around consumer outcomes had meant that few advisers were in agreement with Treasury on the shape and intent of the draft legislation.<\/p>\n \u201cAchieving a consensus outcome on the Life Insurance Framework (LIF) has been extremely challenging with our members questioning how the LIF improves consumer outcomes,\u201d the AFA stated.<\/p>\n \u201cIndeed we hold concerns that any gains to consumers may be minimal at best unless the Code of Conduct to apply to Life Insurers enforces an alignment of their activity with the best interest obligation owed by financial advisers to their clients.\u201d<\/p>\n These comments follow concerns voiced in the submission that the proposed Life Insurance Code of Practice being created by the Financial Services Council (FSC) would not address the sales culture of life insurers and behaviours that seek to incentivise advisers to act outside their legal obligations.<\/p>\n The AFA stated it would support the consumer aspects of any code with regard to underwriting and claims management but had not received support from insurers or the FSC for a code that addressed this issue.<\/p>\n As such, the AFA recommended the FSC be required to consult with consumer group and advice associations as well as dispute resolution schemes and Treasury in developing the Life Insurance Code of Practice.<\/p>\n Limiting ASIC involvement<\/strong><\/p>\n The AFA expressed concern that while the Australian Securities and Investments Commission (ASIC) would be given the power to enforce particular commission arrangements it would also be able to determine their quantum in the present and the future and exceeded the intent of the LIF agreement.<\/p>\n As a result, the AFA recommended that ASIC\u2019s powers to unilaterally make changes to commission caps should require both stakeholder consultation and Ministerial approval, and this power explicitly exclude fee for service and level commission arrangements.<\/p>\n The same restrictions would apply to ASIC\u2019s power to make future determinations on changes to clawback arrangements, which the AFA also called to be clarified around non-adviser related lapses.<\/p>\n“…any gains to consumers may be minimal at best unless the Code of Conduct to apply to Life Insurers enforces an alignment of their activity with the best interest obligation owed by financial advisers to their clients…”<\/h6>\n
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