The Quality of Advice Review’s proposals on conflicted remuneration present a conflict of its own.  

The review’s proposals on life insurance remuneration explicitly acknowledge there is a potential conflict where an adviser receives “benefits which are reasonably likely to influence financial product advice” but goes on to argue that they should be retained subject to disclosure and consent by the client. 

However, Standard 3 of the industry code of ethics is also clear that an adviser must not act if he or she faces a conflict of interest. On the face of it, the advice review proposal on life insurance remuneration conflicts with an adviser’s ethical obligations. 

The paper’s author and lead of the review, Michelle Levy, notes that in the sale of life insurance there are “currently benefits which would otherwise be conflicted remuneration because they are reasonably likely to influence the financial product advice given to a retail client by an AFS licensee or its representative which are not prohibited”. 

Her consultation with the industry has convinced her that some of these conflicts ought to be retained, and that the mechanism to mitigate consumer detriment is disclosure and consent.  

The main proposals paper released in August suggests the Code of Ethics and other professional standards should do more of the heavy lifting in protecting consumers to ensure the delivery of “good” advice (whatever that is).  

I acknowledge that these benefits create a conflict for the adviser (or other recipient) and that this conflict creates a real risk that the quality of the advice provided by the adviser is not as good as it would be if they were paid a fee by the client for their advice,” Levy said in the life insurance proposals paper. 

It seems that advice not involving life insurance has a better chance of meeting Levy’s definition of “good” advice than does advice involving life insurance. That’s an odd outcome, to say the least. 

Here’s the conundrum – some forms of conflicted remuneration are to be regarded as OK, provided the consumer is apprised of the conflict and required to give consent. There will be greater reliance on the code to protect consumers – except that a key element of the code is that advisers cannot act if there is a conflict of interest of precisely the type Levy says should remain. 

One of these positions must prevail, which means either the proposal is dead on arrival, or Standard 3 of the code needs to be rewritten. Rewriting Standard 3 raises the potential risk of other forms of conflicted remuneration may find their way through. 

Either conflicted remuneration is bad and should be banned or it is not. Can it be bad (and banned) in some circumstances, but not bad (and not banned) in others? That’s what the QAR’s latest proposals seems to be suggesting.