The Financial Services Council (FSC) has hit back at critics of the government’s life insurance reforms, saying a campaign against the Life Insurance Framework (LIF) legislation is being driven by a “very small cohort of risk advisers”.
The Life Insurance Customer Group (LICG), which was formed by a group of risk professionals, has launched a campaign against the LIF, saying it will hurt both customers and advisers.
A key LICG member, Dunsford Financial Planning managing director Mark Dunsford, has also triggered a push for an extraordinary general meeting (EGM) of the Association of Financial Advisers (AFA) in a bid to overturn the AFA’s LIF’s support. The AFA said yesterday that more than 100 of the 230 forms it has received requisitioning an EGM are invalid, either because they are duplicates, have been submitted by individuals who are not members of the AFA, or because they incorrectly identify an AFA member.
FSC chief executive Sally Loane has told Professional Planner that life insurance and quality advice are both valuable and extremely important to the financial well-being of Australians.
“There are, however, some very clear factors that impact the quality of life insurance advice which need to be addressed,” Loane says.
The FSC represents Australia’s retail and wholesale funds management businesses, superannuation funds, life insurers, financial advisory networks, licensed trustee companies and public trustees.
LICG has slammed the FSC, accusing the industry group of putting the interests of its members above those of the consumer.
No evidence of ‘churn’
A number of reports have recommended lowering commissions. But the LICG says the reports from ASIC, John Trowbridge, and David Murray’s Financial Services Inquiry lacked independence and were tainted by FSC lobbying.
The LIF changes will see upfront commissions fall from around 120 per cent to 60 per cent by 2018. That is 40 per cent higher than level commissions of 20 per cent recommended by Murray’s FSI. Ongoing commissions will be capped at 20 per cent.
Loane says 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 says the FSC has not provided evidence to back up its claims that consumers will benefit from LIF changes. It also says there is no evidence of ‘churn’.
But Loane says the senate committee which reviewed the bill, and recommended that it pass, considered a significant amount of feedback across the 56 submissions and 209 similar form letters that were submitted, before recommending the bill be passed.
“Whilst the reforms, and the organisations supporting them, have been subject to criticism from a very small cohort of risk advisers, the focus has and continues to be on reducing misaligned incentives and better align the interests of consumers and those providing advice,” Loane says.
Horse may have bolted
Financial services legal specialist, Ian McDermott, of imac legal & compliance, 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.
He says he believes there is an inherent tension between LIF and underinsurance.
“There is express recognition Australians as group are underinsured,” he says.
“For all its ills, one thing commissions within a product does do is make the insurance more affordable. If one of the goals is to actually increase cover for the Australian population, I don’t know how a whole new regime – that is potentially going to make insurance more expensive for people – is supposed to solve the problem.”
There is also a risk that under the LIF regime Australians will be under-advised on insurance, McDermott says. He notes that could increase the numbers of Australians getting online insurance, which he says to the uninitiated looks like a good deal, but when you get into the nitty gritty it may not be.
McDermott says, however, he is uncertain whether a rear guard action against the LIF changes will work. “It does seem the horse has bolted.”
Amidst the LIF dispute and Dunsford’s EGM campaign against the AFA, the FSC’s Loane has backed the role of professional associations in the advice industry.
“We are at the juncture of increasing education and professional standards for financial advisers, which can only help deliver significant value and benefit for consumers,” she says.
“Professional associations play a very important role in setting standards and are a very important part of the professionalisation of advice.
“As with many things in life it is unlikely that everyone will agree on every policy, every time. Policy, however, should always aim to deliver the best results for consumers, and lifting standards in advice will help ensure that more consumers get more and better quality advice.”
“It would be a shame to see support for professional associations to diminish at a time where best endeavours are made to increase standards and to engender trust and confidence in the advice profession,” says Loane.