A pattern is starting to develop as attempts at a self-regulatory response to conflicts within the life insurance advice sector roll on.
The Association of Financial Advisers (AFA) took an early role in efforts to address the concerns raised publicly by the Australian Securities and Investments Commission (ASIC), which ultimately led to the latest proposed reforms. For this, the AFA and the Financial Services Council (FSC) should be applauded.
However, when the AFA didn’t like the outcome of the Life Insurance Advice Working Group (LIAWG), it effectively attempted to shoot the messenger, John Trowbridge. This was the first backflip, making it appear as though it lost control of the process.
Wagging the dog
It has backflipped again in resiling from the second industry response, one which this time had the involvement of a third professional body, the Financial Planning Association. After the Life Insurance Framework (LIF) was endorsed by Assistant Treasurer Josh Frydenberg, the AFA caved in again. As an association, perhaps it wasn’t entirely clear on its positioning from the very start, trying to be everything to everyone in appeasing member interests rather than standing firm on reaching an outcome and sticking to it. This compounds the sense of a loss of control.
The events that have led the life risk sector to its current situation roughly follow this timeline:
- July 2014: Financial System Inquiry (FSI) interim report release, identifies problems in life insurance advice remuneration.
- October 2014: Australian securities and Investments Commission (ASIC) calls for higher standards from the life insurance industry.
- October 2014: Financial Services Council (FSC) and Assocaition of Financial Advisers (AFA) join forces to form the Life Insurance Advice Working Group (LIWAG), under leadership of John Trowbridge.
- March 2015: Trowbridge hands down his controversial report. AFA distances itself from the findings.
- June 2015: AFA, FSC and the Fianncial Planning Assocaition (FPA) propose the Life Insurance Framework (LIF), which was then endorsed by Assistant Treasurer Josh Frydenberg towards the end of the month.
- July 2015: AFA announces it is working to improve specific areas of the LIF.
Looking back through the Professional Planner website archive to assemble these key milestones, the AFA standpoint seems to have bounced around like a child on a trampoline.
On June 25 the AFA said it was “generally supportive” of the LIF. However, by July 20, it had headed back to the drawing board as it worked to “improve specific areas” of the framework.
In October last year the AFA put its hand up to participate in reform of the life insurance sector, and joined with the FSC to form the the LIAWG, headed by respected industry figure John Trowbridge. The AFA extolled the virtues of the independent process. Alongside the FSC, it set the terms of reference for the working group.
When Trowbridge handed down his report in March this year, the AFA backed away as quickly as possible – presumably in anticipation of a fast and firm member backlash.
In the aftermath, the AFA went away, huddling down with the FSC to come up with a set of alternative recommendations. This time the FPA also took part – and so the Life Insurance Framework was created, against a deadline of “weeks not months” set by Frydenberg.
But again, the AFA has backpedaled. This time, instead of zeroing in on the commissions framework, it has taken exception to the three-year commission clawback provisions.
This repetitive process of enthusiastic lobbying and regulatory cooperation, followed by rapid recalcitrance, seems to mirror the AFA members’ outrage – if online comments are any indication. Risk advisers have made no secret of their extreme dissatisfaction with the suggestions outlined by Trowbridge, the LIAWG and now the LIF.
The AFA appears keen to reach a resolution that appeases its members, amid growing dissatisfaction from some quarters. However, this flip-flopping is doing more harm than good, both from a member perspective and from the viewpoint of external stakeholders such as government. They may not give the industry many more bites of the cherry in reaching a unified self-regulatory response.
