Speaking to ifa, the founder and director of Forte Asset Solutions, Steve Prendeville, said the most likely scenario is that current LIF conditions will be maintained.
Current levels are 60 per cent for upfront commissions and 20 per cent for trailing commissions, with a two-year clawback.
Among the 22 recommendations handed down by the lead of the Quality of Advice Review (QAR), Michelle Levy, one concerned the provision of life insurance.
Under this recommendation, Ms Levy advised the government to retain the exception to the ban on conflicted remuneration for benefits given in connection with the issue or sale of a life risk insurance product.
“Commission and clawback rates should be maintained at the current levels,” Ms Levy said.
“The LIF reforms also mean all life insurers pay the same rate of commission and so there is less incentive for an adviser to recommend a policy issued by one insurer over another. This is helpful,” she added.
Answering calls for an increase in commissions, Ms Levy opined that this would only increase the cost to the life company and therefore would have the effect of increasing premiums.
In its response to the QAR in June, the government said it accepts Ms Levy’s LIF-related recommendations.
“Standardised consumer consent requirements will be introduced for life, general and consumer credit insurance commissions,” the government’s Delivering Better Financial Outcomes document reads.
However, the government didn’t provide any further details at the time, including the structure of commissions it plans to endorse.
Mr Prendeville stressed that “all the industry really needs is just legislated certainty”.
“You can build or engineer models that can be profitable if you’ve got the certainty that that’s going to be somewhat of a constant,” he explained.
Earlier this year, the Association of Independently Owned Financial Professionals (AIOFP) argued that LIF had been “outrageously inefficient” for consumers and the industry since its inception.
While slamming the QAR’s recommendation, the group advocated that commission levels need to be lifted to “at least” 80/15 per cent and that consumers should be given a “clear choice” between a commission or a fee-for-service formula.
“Emphatically, LIF has NOT been beneficial to consumers and the QAR recommendation only serves to maintain that detriment,” the group said at the time.
AIOFP executive director Peter Johnston also branded LIF “arguably the most destructive consumer legislation ever passed”.
“We believe it was not a case of unintelligent politicians making mistakes but the first stage of a deliberate strategy to remove financial advisers from the consumer relationship. It has worked exceedingly well with around 50 per cent of the advice community leaving but unfortunately, 30 advisers have committed suicide over the cruel impositions,” Mr Johnston said at the time.
“The AIOFP has contended from the outset that the LIF, FASEA and a ban on grandfathered revenue legislation was designed to starve, embarrass and intimidate advisers out of the industry, few now disagree with this position.”
Condition on LIF commissions
While the QAR has recommended retaining the current LIF levels for commission and clawbacks, this recommendation comes with one condition.
“The condition to this is that the provider of personal advice to a retail client about a life risk insurance product must explain to their client that they will be paid a commission if the client decides to buy the product recommended by the adviser and they must ask for the client’s consent to accept the commission,” Ms Levy said earlier this year.
She clarified that if a client does not consent, an adviser can agree to provide the advice for a fee paid by the client or they can decline to give the client advice.
Noting that consent in all circumstances is desirable, including when advice is provided by an insurer intermediary as opposed to a consumer intermediary, Ms Levy said: “The prospect of receiving a commission creates a conflict for the adviser and under the general law they must have the client’s consent before they can accept the commission”.
Ms Levy also underlined that consent is not intended to be an onerous obligation. Instead, she said, it is intended to foster an open conversation between the adviser and their client.
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Can anyone answer these questions for Michelle Levy please?
1. “Does an insurance only customer need to sign an Authority to Proceed?”
2. “Are full upfront and ongoing commission disclosures required in a Statement of Advice for an insurance customer?”
Full disclosure of commissions has been a legal requirement for some time. However informed, written, consent has not. Requiring an “Authority to Proceed” for SoA implementation has become a well entrenched convention, but it was driven by licensee risk management, not strict legal requirements.
Hence all the confusion about the Code of Ethics (and latterly QAR) potentially requiring advisers to go back to clients for written consent to receive commissions. If advisers exceeded their then legal obligation at the time the policy was written by obtaining an SoA Authority to Proceed, there is no need to obtain consent again.
Written consent from existing commission clients may be required if there was no SoA ATP at the time the policy was recommended, or potentially for advisers who purchased commission based clients from another adviser, and have never received client written consent themselves.
Yes to both.
Such a shame you have a “pilot” certified to fly a Cessna giving advice to government about how to fly an A380…
They are asleep at the wheel and the car is heading into the ditch.
That they even need to suggest client consent betrays a total lack of understanding of how advice operates at even the surface level. The real problem though is there are not many people left who care, of an even diminished pool of advice professionals.
Since the LIF was introduced, the level of new business inflows of individual risk business has plummeted, insurance premiums have skyrocketed resulting in clients either significantly reducing or completely cancelling their protection altogether, the number of experienced, professional Risk advisers has decreased to nothing more than a trickle, the significant under insurance problem that existed previously is now significantly worse and the ability to advise and place new Risk Insurance on a profitable and sustainable basis is next to obliterated.
How anyone, including Ms Levy can stand there and espouse that nothing should change because it has been good for the consumer is a successful model is either completely uninformed or simply does not adequately understand what is required in order to rectify the mess the LIF has created.
Prior to LIF, the Life Insurance business was vibrant and profitable with professional advisers specializing in the provision of high quality, personalised and strategic risk insurance advice on behalf of their clients and the Australian consumer.
Now, it is almost destroyed in terms of adviser numbers and access by the consumer.
LIF was a mistake of immense proportions and it needs someone with courage and conviction to stand up and say that the previous Govt got it entirely wrong and to fix it immediately.
If Stephen Jones now really understands what mess the Liberal’s left behind, then he has a golden opportunity to fix this “hot mess” also.
If you think Stephen Jones is going to fix the hot mess of insurance advice, then watch the recent ifa interview with him. He is fixated on retirement advice, and thinks the only financial advice younger accumulators need is how to get a good home loan.
Just like O’Dwyer, FSC, APRA, ABC/Fairfax, and so called “consumer associations”, Jones thinks that insurance advice is unnecessary, and dodgy direct products are good enough.
I think we just have to accept that high quality insurance products and associated professional insurance advice, are dead.
Levy gave 0 indication of the basis of her statements, the levels should be restored to prior to LIF, just as in the UK. Maintaining at an uncommercial rate will mean keeping the current discincentive to work in the space. Anything other than a reinstatement will continue to kill risk advice.
So if I accept a commission it comes with a 2 year clawback and is built into the clients premium. If I charge them an upfront fee for service there is no clawback but the client has to have funds available to pay me and sometimes that can be a problem especially with young families. Either way we have to be paid fairly for our service…
Compare that with how the exact same client can elect to pay me both an initial fee for FP advice on their investments and super and then ongoing FP fees for advice all deducted from their investment and super accounts? Maybe the government should stop listening to people (like Michele Levy and groups like Choice) who have never sold life insurance to any client and start taking advice from the people that actively work in this space…
If the government acknowledges an under insurance problem in Australia then the way forward is to incentivise advisers once again to advise on life insurance which should help to fix this problem. My solution would be to increase upfronts to 100% ex GST with ongoing at 10% ex GST and reduce clawback to 12 months.
And/or the ability to take an advice fee from the clients super account if the policy uses super money to fund the premiums, even if the insurance is external to the actual super fund. ATM I think trustees won’t release funds if the insurance is paid via partial rollover to an external retail insurer. At least then the client can pay some sort of fee for insurance advice.
Insurance companies do not deserve any consideration. They, like a gang of thieves, punished us advisers by increasing premiums and increasing responsibility periods. Now, they’re squealing like pigs because the trough is running dry (37% down in new business).
The smart advisers still standing have already re-positioned themselves to protect against insurers, backpackers, AFSLs, ASIC, Ministers, Representative Bodies, et al. I used to write substantial insurance premiums and it’s no longer justified.
Ms Levy, the problem is, insurance has to be S.O.L.D. We’re not talking about junk-insurance, we’re talking about real protection. This takes considerable skills and resources which ought to be reflected in remuneration.
Reducing commissions did NOT reduce premiums.
So, why would increasing commissions increase premiums?
totally agree with the AIOFP. When commissions reduced why did premiums go up and by such an excessive proportion. We are either reducing cover or dropping them, not writing new policies. Clearly the insurance providers are complicit in that fee grab for their P&L but this is short term only not sustainable. At the end of day consumers interests are most important and life insurance companies still not being held to account. Regulators have clearly not understood or dealt with this issue sufficiently.
Does Ms Levy intentionally neglect the fact that when Advisers present SoA’s for Life Insurance that ALL Upfront and Ongoing Commissions are both Disclosed and Signed off by clients.
How does Ms Levy not already understand this ?????
Yet again Policy / Govt looking to double up on existing disclosure and acceptance.
As for LIF, remember it was sold by O’Dwyer, Frydenberg, FSC and Life Companies to reduce premiums. And that has seen premiums increase 100% in 4 to 5 years. What a total and utter disaster is LIF.
In order to provide compliant Risk Advice there would be well over 25 variables to be considered (stepped/level, super non super etc etc). Each of those variables would need to be documented, file noted, what the client said, when you discussed a 2 year wait v 5 year v till age 65 etc etc. One of those variables missed and your advice is not in the best interest of the client. Why are we still talking about Risk Advice in 2023.. Until that bad legislation is modified risk advice is dead.