Large sections of the risk advice community appear to have accepted the Life Insurance Framework (LIF) as almost a fait accompli, including the Financial Planning Association (FPA) and the Association of Financial Advisers (AFA).
The latter organisation held a series of roadshows throughout August and September to clarify the proposed changes and help its members adapt their businesses appropriately.
However, Australian Risk Advisers, a group of around 3300 individuals formed via social media platform LinkedIn, is pushing for greater consultation and amendments to the proposed LIF.
With Prime Minister Malcolm Turnbull sworn in just before the October edition of Professional Planner went to print, uncertainties around key ministerial appointments added further hope for some of these individuals.
“It’s particularly difficult at the moment, with a lot of agenda items for government…but with the new Prime Minister, maybe everyone will take a deep breath; they may realise they’re trying to rush, and it might be a chance to have a broader discussion,” says Wayne Handley, managing director, Bombora Advice.
“We’re in constant contact with government and the professional and industry bodies on this…particularly the clawback issue.”
Key issues addressed
This was one of the key issues addressed at an Australian Risk Advisers (ARA) forum held on September 3 in Caulfield, Melbourne.
The event attracted around 150 attendees, including Louise Macaulay, senior executive leader – financial advisers, at the Australian Securities and Investments Commission (ASIC), along with a representative from the Consumer Action Law Centre.
Life insurance companies TAL, AIA and Asteron Life were also involved, according to Aaron Zelman, principal of Bombora-licensed risk advice practice MediBroker and an organiser of the event.
Zelman says attendees were vocal in a positive way.
“I invited them to share their world views, and how they might wish to partner with independent financial advisers,” he says. “They had a platform for that, and I think they were pretty well received.”
He says that ARA “doesn’t have a policy as such. It’s made up of advisers who are participants”.
“But it’s fair to say that many of the group’s members are unhappy about the proposed changes [of the LIF],” he says.
The head of Zelman’s Australian financial services licensee Bombora Advice, Wayne Handley, is particularly opposed to the three-year responsibility period.
He says the clawback issue “does not pass the sniff test” for a number of reasons.
“There is no universal definition of a lapse rate in the industry,” he says.
“How can we proceed down a path when there’s no universal definition?
“And no one has identified or articulated what churn is…there’s no data on this. What is churn? That’s not answered by anybody.”
Advisers financially penalised
Handley also believes that under the proposed changes, advisers can potentially find themselves financially penalised for complying with the best interests duty.
“How can that possibly work; how can you be penalised? It’s inappropriate,” he says.
“[The LIF] needs to be reconfigured. We support some of the proposed changes, but this is clearly wrong.”
Handley is hopeful the change of Prime Minister and potential knock-on effects on the ministerial cabinet may bring a chance for further negotiations.
“What we’ve been puzzled by is why is there such a rush? Everything seems to be terribly rushed around this issue,” he says.
“We’re not sure whether there will be ministerial changes, but we’d like to consult on some of the proposed changes…We’re hoping that this will
lead to a broader consultation, a chance to sit down with government and talk through these issues.”
That being said, Handley says the Bombora business model would not need any adjustments should the LIF proposals be implemented.
“From day one, the Bombora business has been about building a corporatised model…we haven’t had to change it at all. All we are doing is trying
to ensure the impact on the businesses within our network aren’t inappropriately impacted,” he says.
“Life insurance pulled nearly $5 billion from the private sector – money that doesn’t have to come from the public purse…this has got the potential
to cruel small business. A businessperson can’t
wait three years to know the security of their income – there’s no justification for that.”
David Bourke, principal of risk-focused financial planning practice Bourke Financial Services, feels the same way.
“I think [the LIF] has to be placed on hold.
I can’t see any other way…it has to be [open for more] industry consultation; the industry must dictate where it falls,” he says.
Bourke believes some key government representatives involved in the process haven’t even been consulted directly by the AFA or the FPA, “not even a phone call or a piece of correspondence”.
He says it is incorrect to assume the proposed LIF in its current form is closed to any further changes. “Personally, I think we’ve been snowed by the industry, [into believing] that this is the
way it’s going to stay,” he says.