In a government release on Friday, Assistant Treasurer Kelly O’Dwyer said all reforms would apply both to personal and general advice.
As hoped for by the advice community, the government made an adjustment to the onerous three-year clawback policy, reducing it to two years.
In announcing the final details of the Life Insurance Framework, Ms O’Dwyer said, “The Government has responded to industry concerns about ongoing business viability by moving from a three to a two-year clawback period. However, through these reforms we are ensuring that there are strong incentives to prevent replacement of policies where there is no consumer benefit.”
The revised reform package stated that if a policy were to lapse in the first year, 100 per cent of the commission on the first year’s premium would be clawed back, while should a policy lapse within the second year, 60 per cent of the commission on the first year’s premium will be clawed back.
Commission rates, however, have remained unchanged and will be transitioned to a 60/20 hybrid model by 1 July 2018.
The premium on which commission caps are calculated can include the base premium, frequency loading and the policy fee, but cannot include stamp duty or GST.
Ms O’Dwyer also said she intends to strengthen remuneration disclosure as part of a broader review by ASIC of life insurance statements of advice, including “prominent upfront statements about commissions”.
“The ASIC review of Statements of Advice will commence in the second half of 2016, with a view to making disclosure simpler and more effective for consumers as well as assisting advisers to make better use of these documents,” she said.
Ms O’Dwyer added that the corporate regulator will undertake a review of the reforms in 2018, and if the review does not identify “significant improvement”, the government will move to mandate level commissions as recommended by the Murray Inquiry.
“We will ensure that the industry develops appropriate lapse reporting data to provide clear evidence for this review and that ASIC works with industry to ensure strong integrity around the data,” Ms O’Dwyer said.
“I will shortly write to ASIC requesting that they undertake this review.”
According to the revised reform package, the industry will have responsibility for widening approved product lists through the development of a new industry standard which is to be led by the FSC.
Wow – the ISA and unions must be laughing and celebrating in their beers atm. This will shake up and reduce the practicing numbers and profitability of planners, and allow the ISA to gain even greater market share and control of Australian wealth, as that is the logical outcome of this short sighted Gov intervention. Our firm for one will not be doing risk from next year onwards, with other firms doing the same in future years. How is that a win for consumers, the industry or eventually even the insane insurance companies?
Armageddon OR Doomsday – I’m not sure which one it is but I know one thing for sure “I’m a geddin sick to death of this”. Change after change. Negativity after Negativity, Disclosure, enhanced disclosure of commissions (how could it be any clearer as Craig Yates has pointed out). Increased education requirements in addition to ongoing training, TASA requirements. Life Offices jockeying for positions with NO increases in premiums during the 100% increased Clawback period. Now a limit on the level of commission per sale. When are we going to be told what we can eat for breakfast?
It will be very interesting as to exactly what Kelly O’Dwyer means by “prominent upfront statements about commissions”.Currently commission amounts are fully disclosed in both dollar and percentage terms for either Upfront, Hybrid or Level models for both initial and ongoing payments and accompanied by a substantial description of how the licensee will receive remuneration from the insurer and how that remuneration is then passed on to the adviser.
Does Kelly O’Dwyer want a large, prominent warning statement emblazoned on the cover page of the SOA, telling clients to be aware of the fact the adviser is to be receiving payment via commission and there are several other options available to them prior to committing to proceeding with recommendations ?
Is it going to be worded in order to manipulate the desired outcome by Kelly’s friends at the FSC?
This is also covered clearly and adequately in the Financial Services Guide provided to the client at the first meeting.
Interesting quote attributed to Scott Morrison on the govt using “facts” to make decisions on:-
Mr Morrison also welcomed the federal governments focus on a facts-based tax debate, focused on outcomes over process.
The Turnbull government has made clear that everything is back on the table for the tax debate, he said.
It is encouraging to see that this includes putting the facts forward as part of the policy work.
The only reason they have reduced the claw-back from 3 to 2 years is to appease and quiten everyone for now but it’s far from over. Eventually they will win their way and reinstate the 3-year clawback and level the commissions, probably with the next labor government, it’s now a matter of WHEN and not IF..
Government confirms it has acted on pure Institutional lobbying to the detriment of small business and advisers.
Government confirms it has not been presented with any factual data on “Churning” but has still implemented a farcical reform package to boost institutional profits.
Government confirms this whole exercise has been a hoax as it now request for “Churning” data over the next two years.
the Government will also require the development of appropriate lapse reporting data to provide clear evidence for this review and that ASIC works with industry to ensure strong integrity around the data.
Surely the government should have actually been presented factual “Churning” data BEFORE making these wide sweeping pro Institutional changes.
Frydenberg and O’Dwyer confirm they have been completely unfair and influenced by their ex NAB instructional jobs and are still working for the Institutions.
O’Deyer = Minister for Financial Institutions.
The government has totally confirmed this whole reform based on the problem of CHURNING is a completely constructed problem developed by the FSC and the Institutions.
This is an acknowledgement by the Assistant Treasurer that the original proposal was flawed but does not go far enough to solve the problem.
Only a one year responsibility period is acceptable. A 50% reduction in “upfront” income is excessive but “reluctantly acceptable”. To have an ongoing vibrant Risk Advice Industry the 2 year clawback period DOES NOT WORK. Those who say “but we used to have a 2 year responsibility period” have forgotten that this applied to a different product type which included an Investment Component.
Nothing short of corrupt and unethical to a group of IFA advisers that have done nothing but look after consumers and mop up the deceitfulness of the banks and now the govt decides to join the big end of town with the ongoing corrupt world. Well done O’Dwyer, you have just demolished my 20 year business with 4 staff, 2 of age over 60 to ruins. You are a disgrace and showed no idea to every day Australians that work hard. We have been self sufficient small business advisers doing the good of consumers and how the hell do you think this is going to help consumers now!!!! ASIC report was flawed and even made public by Kell that they got it wrong, boy, so have you. You are not what the Liberal party stands for, ie: encouraging small business. Hope you can sleep well at night knowing you have decimated small business owners…I sleep well at night knowing I’ve facilitated over $16 million in claims to consumers. So wrong, so Un-Australian, you are a follower, not a leader.
Well that’s a shock. I was told 6 months ago that industry wanted to lock in 2 years and therefore asked for 3 years. Months of lobbying and insto dollars and what do we get? 2 years. So we should expect everything else will also be the insto way?
Not one comment about there actually not being a wide spread problem but rather a very narrow group of risk writers and underwriters collaborating to the detriment of everyone else.