A revised package of life insurance reforms endorsed yesterday by the Assistant Treasurer Josh Frydenberg has been described by key industry players as a practical and workable compromise to satisfy the interests of competing groups.
“This is a sensible outcome to what are quite complex reforms,” says Mark Rantall, chief executive officer of the FPA.
“We didn’t get everything we wanted in line with our insurance blueprint, but the compromise situation is workable, we got the vast majority of things.”
AFA national president Deborah Kent, national president of the AFA, echoed these comments, albeit tempered slightly: “We clearly thought that an 80/20 hybrid [80 per cent upfront and 20 per cent ongoing] was where we wanted to land, but certainly there were other areas that we did have a better outcome on.”
As examples she pointed to the claw back provision, the requirement for life insurers to offer fee-for-advice services and for retention requirements to be on a per policy basis rather than Trowbridge’s proposed per client basis. These were among the 14 suggestions noted in the FPA’s Life Insurance Blueprint.
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However, she reiterated the need for a sufficiently comprehensive outcome in order to avoid more overt – and potentially disruptive –government intervention.
“If we didn’t come up with something that was reasonably workable…we would have gone down a pathway where the [ Finance Minister Mathias Cormann] would have addressed the Financial System Inquiry recommendations.
“I don’t know that a lot of the advisers out there understand it was level [commissions that were suggested] in the FSI. There are other stakeholders out there that think commissions should be zero…we may have ended up with something a lot worse,” Kent says.
Similarly, Rantall says: “At the end of the day, you’ve got to have a system that’s workable, and doesn’t add unnecessary costs to a sector that’s already under cost pressures.
“From the point of view of all the industry participants – the AFA, FSC and FPA – it’s a far better outcome than people putting in solutions that may be [less workable].”
While FSC CEO Sally Loane declined to comment directly, an issued statement suggests the organisation unreservedly supported Assistant Treasurer Frydenberg’s announcement.
“[It] is a welcome approach that will provide certainty for consumers and clarity for the industry,” it said.
Implementation
Both Rantall and Kent note that a number of advisers will struggle to meet the six-month deadline to switch from the existing 120 per cent upfront commission arrangement to the proposed 80 per cent upfront and 20 per cent ongoing model.
“We know there are some advisers that are going to have problems with this,” Kent says, while Rantall says he “understands it will mean a great deal of change for some financial advisers”.
“We need to move more quickly than we would normally have liked, and again, it’s part of the compromise to pushing out the 60 per cent end cap for a three year period,” Rantall says.
If the proposals are taken up, the two associations will run update sessions, webinars and other communications to assist their members in meeting the initial 1 January deadline.
The future
The FSC statement suggests a belief that fee-for-service life insurance advice is almost inevitability for the sector, “we expect most advisers will naturally move to a level commission or fee-for-service model.”
This differs from the views of Rantall and Kent, who are less certain. “I don’t know whether it will head down a fee for advice model. Is it right for the wider network? I think time will tell,” Kent says, though stresses the need for the proposed reforms to be sustainable, “or after three years, we’ll be back at the drawing board.”
This is the first part of some reforms, let’s re-measure these and see how we’re going.
“What’s important is that the business model of a financial planner will reflect the market they’re dealing with. It is more easy to transition to either a level or fee-for-service if you’re dealing with the mass affluent or high net worth client, or have a holistic relationship with the client,” Rantall says.
“If you’re a specialist risk writer, for lower income earners, that is more difficult because lower income earners don’t have the capacity or willingness to write a cheque on fee-for-service.”
