The federal government has vowed to forge ahead with its controversial Life Insurance Framework (LIF) legislation with the bill to be reintroduced to parliament imminently.
The move comes as Dunsford Financial Planning managing director, Mark Dunsford, succeeded in his push for an extraordinary general meeting (EGM) of the Association of Financial Advisers (AFA) in a bid to overturn the AFA’s support for the LIF.
The Minister for Revenue and Financial Services, Kelly O’Dwyer, told Professional Planner the government will reintroduce the Corporations Amendment (Life Insurance Remuneration Arrangements) Bill 2016 in the current spring sittings.
The spring sittings, which began yesterday, spill into October and November. The AFA said yesterday it is required to hold the EGM by October 31, raising the prospect that the LIF legislation may be passed before the meeting is held.
The LIF legislation been slammed by a group of advisers who have formed the Life Insurance Customer Group (LICG). The LICG claims the LIF changes will not only damage advisers but consumers as well. It has labelled the bill “ill-formed, illogical and untested.”
O’Dwyer backed the legislation and says the government undertook extensive consultation with a broad range of industry and consumer stakeholders and “formed legislation following industry agreement.”
“The reforms follow a series of reports and are specifically designed to restrict the remuneration incentives that may lead to poor life insurance advice and the replacement of policies where there is no consumer benefit,” she said.
Poll: If eligible to vote at the AFA EGM, will you support the LICG proposals?
LIF, the universe and everything
O’Dwyer said the legislation applies to personal and general advice, which includes direct sales channels. “Under the reforms, upfront advisers’ commissions will remain but will be scaled down, while level commissions and adviser fees remain uncapped.”
The LIF Bill will see upfront commissions phased down from around 120 per cent to 60 per cent by July 1, 2018. Ongoing commissions will be capped at 20 per cent. Professional Planner has sought to confirm the original LIF legislation will be unchanged.
The legislation follows a number of reports including David Murray’s Financial System Inquiry (FSI), the Trowbridge Report (which was commissioned by the AFA and Financial Services Council) and ASIC. A Senate Economics Committee recommended the Senate pass the bill.
As part of the anti-LIF campaign, LICG member Dunsford launched a move to requisition an EGM of the AFA to put a resolution calling for the AFA to reverse its LIF support.
Dunsford required the support of 100 voting members of the AFA for an EGM to be held. On Tuesday, the AFA confirmed Dunsford had been successful. It said the minimum number of member forms required under the Corporations Act for an EGM had been received.
The resolution, which seeks to change the AFA constitution, requires 75 per cent majority support in order to be successful. The EGM must be held by October 30 this year.
The LICG’s and Dunsford’s anti-LIF campaign centres on the impact of the legislation on consumers. It says the government, and the Financial Services Council (FSC) which supports the changes, have failed to produce evidence the changes will benefit consumers.
Commission and churn
Professional Planner has sent a series of questions to the FSC seeking its views on how the legislation will benefit consumers. No response had been received at the time of publication.
Last week, the FSC’s chief executive, Sally Loane, defended LIF changes. She told Professional Planner the industry “came together to consider the issues and identified measures to address them.
“The life insurance reforms seek to address the issues and enhance consumer outcomes,” she says.
The LICG is also calling for an evidence-based review of the whole insurance industry.
Their stance has won the support of some independent commentators, including financial services legal specialist, Ian McDermott, of imac legal & compliance, who says there are valid concerns with the LIF legislation which he says doesn’t address the two main problems of commissions and churn.
“My main concern is that there is very, very little evidence that government has thought through what it’s going to mean for consumers,” McDermott says.
