A financial services lawyer has warned that the way the proposed life insurance remuneration legislation is drafted could mean that adviser fees for insurance advice could form part of the capped benefits.

While the proposed changes have been broadly welcomed by the industry, Ian McDermott, principal lawyer with imac legal & compliance, said that the drafting of the remuneration cap provisions appears to be an anomaly which ought to be rectified before the legislation is finalised.

“It was pretty clear that the proposed remuneration caps were only supposed to apply to commissions, which have been deemed to be conflicted remuneration. However, the wording of the exposure draft legislation (Corporations Amendment (Life Insurance Remuneration Arrangements) Bill 2015), in particular the proposed new s963B(1)(b) and s963BA, are drafted so that they could put a limit on any benefit given in relation to a life risk insurance product, not just commissions. This could potentially include any fee-for-service or hybrid commission/fee arrangements advisers put into place”, Mr McDermott said.

“Typically, fees-for-service do not come within the definition of conflicted remuneration. But the fear is that, because they may be charged in lieu of or in addition to insurance commissions, they will be deemed to have met the conflicted remuneration definition because the nature of the benefits or the circumstances in which they are given could reasonably be expected to influence the choice of financial product or the financial product advice itself. If that is the case, fees-for-service could come within the capped amount,” he said.

“This is an uncertainty in drafting that the industry could do without. It would be best that the new legislation makes it expressly clear that adviser fees-for-service, whether they be standalone or hybrid, are excluded from the calculation of the remuneration caps.

“I urge advisers, licensees and industry bodies to provide feedback to Treasury and ASIC as part of the consultation process to clarify and, if necessary, remove this anomaly,” Mr McDermott said.

Source: imaclegal

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