Synchron Director Don Trapnell said that while the amendments to the Life Insurance Framework (LIF) announced last Friday will not satisfy everyone, they do represent a significant improvement on the original and should be embraced by all parties.
“Now that the Government has spoken, all parties – the Association of Financial Advisers (AFA), the Financial Planning Association (FPA) and the Financial Services Council (FSC) – should embrace the changes and work towards meaningful outcomes for consumers,” he said.
Mr Trapnell said that Synchron advisers made it abundantly clear that the most serious challenge facing their businesses was the proposed three-year responsibility period on commissions. “We are delighted to see that the Assistant Treasurer, Kelly O’Dwyer, has acknowledged the unfair burden a three-year clawback policy would bring to bear and has conceded to a two-year clawback.”
In addressing the changes announced to maximum upfront commissions, Mr Trapnell said Synchron would be seeking clarification on behalf of its advisers as to which insurers will be passing on the full commission and which will be discounting earnings by not paying policy fees and frequency loadings.
“Some life companies currently pay new business commissions on auto increases and we don’t see any impediment to this practice continuing. In fact, Synchron believes there should be greater pressure brought to bear on life companies to pay them.”
Mr Trapnell reiterated the warning issued by Ms O’Dwyer that ASIC has been charged with the responsibility of conducting a review in 2018 which will see the introduction of a level commission only remuneration model, should this revised framework not produce significant improvements.
“The FSC has also said it expects all advisers to move towards a fee-for-service model over time,” Mr Trapnell said. “As underinsurance is likely to be an ongoing problem, we believe a fee-for-service model could only result in poorer outcomes for consumers and for advisers.”
Mr Trapnell said during a visit to the UK earlier this year, Synchron discovered that in 2007, the UK government released CP121, a consultation paper which looked at the industry as a whole and determined that commissions on life protection products should be banned. However, after analysing the impact this would have on life protection sales and taking into account the huge underinsurance gap (similar to Australia’s), the UK government decided against it.
“A fee-for-service model was also trialled by individual advisers in the UK and ultimately failed,” Mr Trapnell said.
Mr Trapnell acknowledged the efforts individual advisers in obtaining the latest concessions to the LIF.
“Certainly the AFA and FPA worked tirelessly to obtain these improvements but the pressure brought to bear on the Office of the Assistant Treasurer by the political action of individual advisers cannot be underestimated. We acknowledge the impact of the numerous advisers, both of Synchron and of other licensees, who contacted their local members and state senators, personally and via mail. We believe it is through the efforts of these individuals that Ms O’Dwyer gained enough information to really understand the issues affecting advisers, their businesses and their clients.”
Source: Synchron
