Principal lawyer for imac legal & compliance, Ian McDermott, explores in a LinkedIn post the proposed removal of the licensee exemption from the ban on conflicted remuneration.
The explanatory memorandum of the bill states that the intended effect of the exemption removal is that “all benefits paid in relation to life insurance, whether offered inside or outside superannuation, are subject to be ban [sic] on conflicted remuneration”.
Mr McDermott said the memorandum “isn’t strictly true”, since benefits paid within the prescribed benefit ratio and clawback requirements will still be exempt under section 963B of the Corporations Act 2001.
“Pre-existing policies will effectively be grandfathered, although it must be said that this creates its own conflict as advisers would have an incentive to write policies to existing clients so they can earn an upfront commission as well as higher ongoing commissions from the new product,” he said.
“This is a strange outcome for legislation that is supposed to do away with such conflicts.”
Mr McDermott said the initial intention behind the changes was so all insurance providers, advised or non-advised, would be subject to the conflicted remuneration rules.
However, he said the current drafting of the draft regulations is legally “more than a little concerning”.
“Most troubling of all is the fact that the conflicted remuneration rules which, up until now, have applied only where advice has been provided to a retail client will also now apply even if there has been no advice provided,” Mr McDermott said.
“Under the proposed laws, benefits paid could be conflicted remuneration if they are paid in relation to life insurance advice, providing information in relation to life insurance or dealing ‘in relation to’ life insurance.
“No guidance is given on what ‘in relation to’ means in this context and the wording of the draft regulations doesn’t provide many clues.”
Wow, legislation with unintended consequences. After voting for the last 40 years I thought legislation was written this way to ensure the life blood of bureaucrats, lawyers, and politicians. The headline should read “Lawyer discovers life is conflicted’. Better get on to Kelly O’Dwyer, treasury, ASIC & FSC. We need more legislation. Yahoo!!!
Comments from Lawyers when it comes to insurance are laughable. How many clients have they screwed for 30-40% of a claim paid when the customer would have had this as a free service by risk advisers.
Just like the dodgy FSC the dodgy lawyers would love to see IFA’s out of the way to cash in on the clients at claim time. The LIF would see less IFA’s being able to offer risk advice and both the FSC and lawyers will encourage this.
Lets just wait and see what ends up in Parliament before getting all carried away. This lawyer sounds like one of those disappointed democrats in the US where the focus on control and regulation and imposing rules that are considered fair – simply ends up being counterproductive – with the example being the car plants being relocated to Mexico.
People in the Life Insurance industry need to be careful what they wish for