Quality of Advice Review lead Michelle Levy has recommended to keep life insurance commission alive, but with the caveat advisers must receive informed written consent to receive a commission.
The interim proposals were released in late August, but life insurance commissions was excluded as she awaited further data before making a recommendation.
In a separate proposal paper released this week, Levy noted the potential conflicts of interest commission have, but added that several recent changes to law, particularly from the Red October changes last year like anti-hawking, deferred sales of add-on insurance and design and distribution obligations will help mitigate consumer risk, along with her “good advice” proposals.
“These proposals will limit the opportunity for insurance products to be distributed using general advice and they will impose an obligation for a person who gives personal advice to give ‘good’ advice,” she said.
Levy said that monitoring from ASIC and enforcement “where appropriate” will be important and the proposals will also promote alternative sources of advice, notably digital advice.
“By reducing the cost of advice the proposals may also encourage more advisers to charge advice fees and more clients to turn to advisers who charge advice fees,” she said.
“In these circumstances, requiring a client to give their consent to the provision of a commission or other benefit should have more work to do: they will have alternatives.”
Additionally, Levy proposed no changes to commissions for time-sharing schemes which is exempt from the Corporations Act. However, she noted it is outside her terms of reference and that the government should undertake a separate review.
Issue of choice
The current commission rate was viewed as “appropriate” by ClearView who believes retaining commissions is an issue of choice for consumers.
The sentiment was shared by other life insurance advisers and product producers who spoke to Professional Planner earlier this year.
In a media statement released Wednesday afternoon, MLC Life chief retail insurance officer Michael Rogers welcomed Levy’s proposal.
“Consumers should have choice as to how they pay for financial advice,” Rogers said. “A sustainable advice sector supports everyday Australians having access to much-needed financial advice during key life moments. Otherwise, financial advice risks becoming the domain of the few who can afford it.”
Rogers added the proposal must be viewed in the context of enhanced consumer protections and offered no opposition to for the commission disclosure requirement.
Over to the minister
Financial services minister Stephen Jones was fiercely opposed to retaining life insurance commissions but changed his view earlier this year.
“In the last four years I’ve addressed a problem from a point of view of principle or theory, and by deep engagement with the sector I can see that, actually, there’s more sides to this story than I originally thought,” Jones said in April.
It was after further consultation with the industry that Jones saw the nuance in the issue.
“I was starting from a position that espoused their banning and I can honestly say after deep engagement with the industry I can see it’s not as simple as that,” Jones said.
Levy’s proposal will be the ultimate factor in testing whether Jones will follow through on his change of heart.
Memo to Treasury. Existing legislation requires authorisation and written consent to receive commissions now when the Statement of Advice regarding risk recommendations is agreed to. When will these people go & visit a real-life practice & see how the current laws work now?
Michelle Levy and Stephen Jones should be congratulated on making the time to listen to clearly articulated arguments for the retention of Commissions around the provision of Life Insurance Advice.
It was made difficult for them by having to wade through numerous submissions from self-interest and vested interest groups who were only looking at it from “THEIR” perspective, with little concern for the bigger picture implications.
Then there were idealists who live in a “Utopian world” based on their opinions, backed up by little, or zero real world experience and less care for the impacts of their inane and foolish ideology, which were also put in front of Michelle and Stephen, who then had to try and fathom if what was purported to be, was fact or rant.
For years there has been some great information provided from experienced Advisers and Practice Owners, who spent the time talking to and consulting with clients as to what THEY wanted, though unfortunately that data was lost in amongst the plethora of rubbish that diverted the attention and distracted the decision makers as to what made sense and would work, compared to the disaster we ended up with for the Advised Life Insurance sector that has caused untold damage and multi-billions of dollars gone to waste on enforcing unworkable red tape and Regulatory restrictions of trade that did the opposite of their stated grand plans for more affordable and easier access to advice for more Australians.
The Investment Advisers will continue to do well as Australians who can afford to pay for Investment advice, will do so.
Where it all comes unstuck is around the Wealth Protection advice model, which we repeatedly told over many years and were ignored, that Australians will not pay a fee that covers even a fraction of what the Advice costs to provide for their Life and disability needs and Advice without the Insurance policies to back it up, is worth very little.
We are facing a disaster in the Life Insurance space and the only way this can be reversed, is to make it economically feasible and attractive enough for people to want to be a Wealth Protection Adviser.
Even with Michelle’s acknowledgement that commissions are a valid form of remuneration for what has ALWAYS been a grudge purchase, there is much to do, to make the appropriate changes needed to bring this crucial Industry back to being profitable and fairly priced for the long term so all participants can benefit.
What I hope will be learned from the calamity Australia faced, is that more red tape and unworkable regulatory enforcement, NEVER HAS and NEVER WILL FIX ISSUES.
What is needed are clear, concise, common-sense requirements that every-one understands and can work with.
In other words, the exact opposite of what we have endured for years.
Every time Stephen Jones is quoted, it shows what an amateur we have making crucial legislative decisions about the sector. I wonder if he will encounter “deep engagement” with advisers and conclude that maybe having the the safe harbour steps in the Act isn’t the bee’s knees?
The industry has to really embrace the concept of the exercise of professional judgement and stop waiting for others to provide guidance etc. Practising advisers know the business of providing financial advice better than outsiders and yet we don’t seem prepared to completely take the reins? The discussion on commissions for risk advice should never have been necessary. In its purest form, it is the best way to have the product delivered, given that it is sold rather than bought. It is however, poor behaviour that has led to this debate and as always, the actions of a minority sully it for all.
Fintech could help with smart tools to allow the capturing of key data to support the needs analysis (the most time consuming of due diligence) so the adviser is freed up to ensure they have the best line of sight to the products available and the pros and cons of each in order to match the need with the solution.
Maybe churning could be de-incentivised by including key criteria for a product switch within the first XX years.
There are potential solutions, but the industry has to present/demonstrate the capability or sadly, they will be imposed by those that “have your best interests at heart”.