The chief executive of the Association of Financial Advisers (AFA) Brad Fox has sought to put further distance between the association and John Trowbridge’s recommendations around life insurance advice remuneration.
In a lengthy 750-word statement, Fox repeated claims voiced previously by both himself and fellow Life Insurance and Advice Working Group (LIAWG) committee member John de Zwart, managing director of Centrepoint Alliance. De Zwart claims the mandate of the working group changed in the week prior to the release of the final report.
Similarly, Fox says, “we believed in the LIAWG Terms of Reference, which were to find a unified solution that the whole industry could support”.
“It is a great disappointment that this was not achieved, and that the terms of reference were not delivered,” he says.
These claims were vigorously refuted by Trowbridge earlier this month, in an open letter published in the Australian Financial Review. Other points of Fox’s argument also seem to contradict earlier views and the overall aims of the LIAWG, which was jointly formed by the AFA and the Financial Services Council (FSC).
According to Fox’s statement: “The proposals put forward are based on unsupported assumptions and inadequate research. There has been no independent assessment of the potential implications on consumers, financial advisers and licensees.”
Both the AFA and FSC were strong advocates of the process being followed by the LIAWG in compiling the report. A joint statement issued in October lauded Trowbridge extensive knowledge of Australia’s regulatory system, “pivotal in assisting the group to develop sustainable and workable solutions for stakeholders.” Another statement issued after the interim report was handed down is similarly positive in its assessment.
Independence now under question
Given the independence of Trowbridge has been widely emphasised by all stakeholders since the working group was announced last October, it seems a little late to claim an independent assessment has not been conducted.
In the first pages of Trowbridge’s final report handed down last month, it states, “Both parties [the AFA and FSC] pledged at the outset that my role as chairman of the working group was to act independently”.
Another criticism Fox levels at the Trowbridge report is its failure to endorse a hybrid commission structure for risk advice remuneration. His latest statement cites figures from ASIC’s insurance review, saying hybrid remuneration models received “an acceptable pass rate of 93 per cent and could safely be adopted”.
Fox publicly questioned the veracity of this same report at the AFA Conference in October last year, arguing the regulator’s sample size was too small. “I think it’s a stretch to say that it’s representative of all risk advice,” he said at the time.
Crossover between FSC, PSC and Trowbridge report unnecessary
His latest statement also queries the final report’s emphasis on adviser remuneration, at the expense of other “very important levers [such as] training and education, codes of conduct, strategic life insurance advice, improved client engagement and advice documentation”.
It is true that these areas have been overshadowed by the response to Trowbridge’s recommendations on risk advice remuneration. However, these areas are all addressed in considerable detail by the Financal System Inquiry and the Parliamentary Joint Committee on Corporations and Financial Services. There was little need for Trowbridge to make detailed recommendations on these areas.
Fox’s statement says it is a disappointment that the terms of reference of the Trowbridge report were not delivered. Rather, the disappointment lies in the disjointed industry response. Instead of embracing the challenges the report sets down, a knee-jerk reaction has dominated.
Instead of engaging constructively, or finding ways some of the remuneration recommendations could work, many have dismissed them out of hand. Comparisons can be drawn with the early response to the Future of Financial Advice reforms, which resulted in the removal of all commission-based remuneration on investment.
Many advisers and stakeholder groups lamented the end of financial planning, arguing individuals would simply not seek financial advice. The disaster never eventuated.
We’re now hearing many of the same arguments from the risk adviser community. But perhaps Trowbridge – who has acknowledged the criticism and anticipated many of the concerns – sums it up best when he says this “may be the last chance for the industry to shape the future of retail life insurance through a genuinely ‘co-regulatory’ approach.’”
