Justifying risk commissions ‘bemuses me’: AFA’s Kewin

The Association of Financial Advisers CEO, Phil Kewin, is aware the risk advice community has no choice but to impress upon regulators and government the importance of commissions-based models leading up to ASIC’s scheduled review into life insurance remuneration.

“But I don’t have to like it,” he said at the Professional Planner Risk Advice Summit in Sydney on Tuesday.

Kewin took umbrage with comments made by Labor MP and Shadow Assistant Minister for Financial Services, Matt Thistlethwaite, in an earlier session urging advisers to make the case to retain commissions in the lead up to ASIC’s 2021 life insurance review.

“Matt’s a good guy, but for us to have to justify why we shouldn’t retain commissions, it just bemuses me,” Kewin said. “What other industry has to justify something that the general public isn’t complaining about?”

In his final royal commission report, Kenneth Hayne said ASIC should consider amending the existing Life Insurance Framework cap on commissions when it conducted its review. “Unless there is a clear justification for retaining those commissions, the cap should ultimately be reduced to zero,” he added.

Kewin said it was a “saviour’ that the LIF was already in motion during the royal commission, because we saw a “predetermined view” that they should be removed.

“On what basis I’m not sure, because we didn’t see too many examples through the royal commission where commissions were actually detrimental to the client,” he noted.

Kewin was joined on a panel by Financial Planning Australia CEO Dante De Gori and ASIC’s executive director of wealth management, Joanna Bird. The session, called ‘Towards a policy outcome’, was chaired by Financial Services Council CEO Sally Loane.

Loane called it Kewin’s “Greta Thunberg moment”, in reference to the 16-year old Swedish activist who recently railed against world leaders for inaction on climate change.

He received a measure of support from the FPA’s De Gori, who said the current model gives consumers choice about how they want to access advice. “If you remove that choice you restrict affordability and accessibility,” he said.

There are no business models that are completely conflict free, De Gori argued, and pretending that they are conflict free doesn’t help. The LIF reforms, he ventured, are achieving the required balance and capped commissions are working.

“I believe that the evidence will show the capping has dramatically reduced those incentives,” De Gori said, adding that the LIF had “done its job”.

The threat of moving from a primarily commissions-based remuneration model, whereby product providers pay advisers a percentage fee, to a fee-for-service model, whereby clients pay advisers upfront, has largely united the risk advice industry.

ASIC’s Bird said the 2021 review will be “much bigger” than its 2014 review of retail life insurance (REP 413), which will be used as the benchmark to gauge industry progress.

“The last review had a lot of granular data… but certainly it didn’t have the scope that we’re doing now,” Bird said.

Asked by Loane how risk advice quality would be measured in the review, and if it would involve “ticking the box” on documentation, Bird replied in the negative.

“It’s not just ticking the box documentation,” she said, explaining that the regulator was going through advice files to check that they complied with the law and were in the best interests of clients.

“I want to stress that the problems we’ve found before were not just problems of documentation, they were problems of the outcomes consumers got as a result of their insurance advice,” Bird said.