The two organisations behind establishing the Life Insurance and Advice Working Group, the Association of Financial Advisers (AFA) and the Financial Services Council (FSC) have adopted divergent views on the final report presented by John Trowbridge (pictured).
The FSC says it welcomes the report, referring to the process as an initiative of both the AFA and the FSC. Conversely, AFA chief executive Brad Fox appears to be distancing the organisation from Trowbridge.
“They’re his views alone, they’re neither necessarily supported by the FSC or the AFA,” Fox says in an online video address emailed to AFA members soon after Trowbridge officially released the report yesterday morning.
“Please read the recommendations, form your view and be considered in how you respond. We have some concerns,” he says.
The Trowbridge report drew 137 submissions and generated more than 1000 pages of content. In responding to this, Fox says: “We think it’s important that a deep research be undertaken before any steps are taken to implement these recommendations, we think the effects will be that profound. It does concern us.”
AFA member and principal of life insurance advice business Specialised Risk Management, Ian Satill, agrees with these concerns.
“I was incredulous…it appears as if [Trowbridge] has not considered the submissions from the people at the coalface…because it’s gone so much further than anyone would have anticipated at the outset, and if implemented it would be disastrous for our industry, potentially ruinous,” he says.
In a worst-case scenario, Satill believes if the report recommendations were implemented in their current form, “the vast majority of advisers will be out of business, which in turn will lead to further underinsurance, further direct dealing and a lack of advice.”
“It’s clear that something needs to be done but not something as draconian as this…we can only hope that common sense will prevail at a legislative level.
“I don’t believe that this is going to get rid of rogue advisers…it’s going to get rid of most advisers…the good ones are going to go,” Satill says, also suggesting it would predominantly be non-aligned advisers who would be negatively impacted. “Banks are only interested in distribution, pretty much promoting their own product only, so this is no skin off their nose at all.”
Tim Mackay, principal of independent practice Quantum Financial, expresses surprise at the AFA’s reaction: “The insurance industry asked an independent, eminently qualified professional to recommend reforms. If they ignore or fight his recommendations, this says a lot about their motives.”
He reiterates that the recommendations are driven by the poor advice, conflicts and mis-selling identified in the regulator’s report into risk advice. “As Trowbridge rightly points out, this is the industry’s last chance to have control over our own professional destiny. If the industry baulks at implementing these reforms then the Government will have no option but to step in and legislate.”
“Trowbridge’s reforms are a step in the right direction. He went further on reforms than I had expected and he is to be congratulated on that. My understanding is that the nil commission model wasn’t considered by the working group, so it’s hardly surprising it didn’t recommend such a solution,” Mackay says.