Clockwise from top left Patrick Veyret, Don Trapnell, Phil Anderson and Sarah Abood

With pressure from consumer groups mounting to remove any exemption life insurance providers have for life insurance, industry leaders in the risk space have argued it could decimate the industry.

Earlier this month, Michelle Levy recommended that life insurance commissions stay in place at the current level, which are capped at 60 per cent upfront and 20 per cent ongoing.

Some in the industry like ClearView have called it appropriate, but Synchron director Don Trapnell tells Professional Planner the recommended 60/20 rate is not sufficient to provide advice on an “economically sound basis”.

“It’s a step in the right direction that Michelle Levy is recognising that commissions are a reasonable form of remuneration for advisers and one that consumers accept,” Trapnell says.

Association of Financial Advisers chief executive Phil Anderson says giving the clients the choice to pay via fee for service or commission is the right approach and he does not understand why consumer groups want to take choice away from clients.

“This is a really important debate and the consequences of a ban on commissions are so stark that going blindly calling for it without understanding or considering the consequences is a dangerous policy position to take,” Anderson says.

Additionally, the AFA issupportive of Levy’s proposals for life insurance but sought clarification from Levy over the fee consent requirement which he says will become part of law rather than practice.

“The confirmation we got that was it was only intended to be a once-off, it wasn’t annual [commitment], which was the source of anxiety for a lot of advisers,” Anderson says.

“Importantly part of the value proposition is the adviser will be there at the time of claim so there’s some fundamental differences.”

The Life Insurance Framework review, which had been incorporated into the advice review, found although the quality of risk advice improved between 2017 and 2021, it was difficult to conclude it was because of the LIF reforms.

“This improvement could also be attributed to a number of other factors, such as the implementation of the professional standards, which introduced education and training standards for financial advisers,” the review said.

Financial Planning Association CEO Sarah Abood says the consumer groups are not acknowledging findings that the quality of advice has improved substantially over the period of the LIF Review.

“We’ve seen that fewer Australians are covered,” she says noting there has still been unintended consequences of LIF. “New advised life insurance business has halved over that period.”

Abood says the critical element of LIF was the standardising of commissions.