Michelle Levy has published a snapshot of the data the Quality of Advice Review (QAR) has considered on general insurance and life insurance, and a set of proposals.
Currently, the Corporations Act provides an exemption to the ban on conflicted remuneration for life risk insurance products (other than group life policies in superannuation or policies issued in respect of default superannuation members), which allows commissions to be paid for the sale of life risk insurance products.
As such, Ms Levy said that having considered qualitative and quantitative data from a range of sources, she identified a number of benefits that would otherwise be conflicted remuneration, because they are reasonably likely to influence the financial product advice given to a retail client, but which are not prohibited.
“The terms of reference for the review requires me to consider whether these benefits should continue to be able to be given. I have been persuaded that there are some benefits and some circumstances in which benefits which are reasonably likely to influence financial product advice should be retained, or [retained but] subject to an additional requirement that the client provides their consent to the benefit,” Ms Levy said.
“Where the benefits relate to general insurance and life risk insurance products, financial advisers and insurance brokers continue to play an important role in giving consumers access to financial product advice about what can and should be valuable financial products.
“In forming this view, I acknowledge that these benefits create a conflict for the adviser (or other recipient) and that this conflict creates a real risk that the quality of the advice provided by the adviser is not as good as it would be, if they were paid a fee by the client for their advice,” the QAR reviewer continued.
While noting that this risk is diminished by several recent changes to the law — anti-hawking, deferred sales of add-on insurance, design and distribution obligations, and the caps on commissions payable in respect of consumer credit insurance and life risk insurance products — she said, “the risk should be further diminished by the proposals outlined in the proposals paper”.
These proposals include retaining the existing exemption for benefits given in relation to life risk insurance products but requiring financial advisers (relevant providers) who provide personal advice to retail clients in relation to life risk insurance products to obtain their client’s informed consent, in writing, to receive a commission in connection with the issue of a life risk insurance product.
Moreover, Ms Levy said that for the consumer to be able to make an informed decision, “the adviser must” disclose details of the commission they will receive for the duration of the policy (e.g. any upfront and trailing benefits); and the nature of the ongoing service that the adviser will provide to the client in relation to the life risk insurance product (e.g. assisting the client to pursue and settle claims).
“A financial adviser is an intermediary who has undertaken to provide advice in the best interests of their client. If an adviser will receive a benefit for the sale of a life risk insurance product they recommend to their client, they should have an obligation to tell the client about the benefit and the client should have the opportunity to consent (or not) to the provision of that benefit,” Ms Levy said.
“Again, I acknowledge that disclosure and consent are not always (and perhaps not even often) effective consumer protection tools. Nevertheless, a client should be put in a position to understand and consent (should they choose) to their adviser receiving a benefit from the product issuer.”
According to Ms Levy, her proposals should limit the opportunity for insurance products to be distributed using general advice, while also imposing an obligation for a person who gives personal advice to give ‘good’ advice.
I’m assuming the same rules will apply to general insurance, mortgage broking and real estate agents?
Has the Consumer Association that thinks that consumers want to pay fees for insurance advice actually asked consumers what they want?
Frank is Spot on. Insurance clients do not pay advisers commission. Manufacturers pay commission.
There are tens of thousands of manufacturers in Australia who use a network of resellers to distribute their goods and provide backup service and compensate them by commission. I can’t think of a fairer way. When I ran a manufacturing business I stopped doing business with resellers that did not do the right thing by my customers or that damaged my brand. Simple.
Frankly, I’d like her to get my informed consent before she gets paid too.
The more you remove or dial down commissions the less insurance advise is given, less people are covered and the increased burden on the tax pay . New insurance business has gone from $1.2 Billion a year to less than $300M a year. Small premium clients are too expensive to advise under the current structure for many advisers and are not receiving advice.
Did I just see a lawyer in WA before the courts with questions about his $800,000 in bills ($11k per day) based on his “hourly rate” and a description of “getting up” to describe/justify the fee, but god help Advisers earning a $2k commission that is based on a successful outcome for the clients insurance and disclosed 45 times. Hourly rates create conflicts of interest too!
disclosures are completely transparent and the fact of working in clients best interest above and beyond our own , working as a true professional .
I find clients are receptive to knowing that the insurance company pays a commission
for our work.
I don’t understand asking permission as clients are informed and made aware what remuneration we receive and they are asked to sign off prior to proceeding ,
have I missed something along the way ?
Ultimately should client not agree to do so , whom will pay for the work for the client ?
I do not believe clients want to pay for Life insurance advise ! and are more than happy since insurance companies pay our remuneration.
should this change , clients will not be receptive to paying additional charge !
Make ‘no win no fee’ mandatory for the legal industry. If you lose your case in court, you wouldn’t have to pay your lawyer their fees. Too bad if they did a lot of work – ultimately, as a consumer, you are no better off. So why should you pay anything?
Also, if you win your case, but then the other side appeals, you can claw back whatever fees you paid your lawyer, as you are back to square one.
This is the only way that lawyers will finally get the message – when it hurts their hip pocket.
I am so tired of the continuous rules that have been enforced, about to be, or recommended to justify our income or existence. I’ve never put my name to any critical responses, but Ms Levy should understand that we should need to justify ongoing commissions as we have already done so at the point of engagement. It will not make any difference to insurance premiums as they change due to changing conditions. Why are mortgage brokers able retain ongoing commissions without having to justify them. This no ongoing service. Ongoing commissions provide cashflow to assist in ongoing expenses. The same should be considered for risk insurances
Would be helpful off we could actually discuss these problems with Miss Levey
If this thought bubble gets up it may cause more problems than what it is trying to fix especially for those looking after risk customers with ongoing trails of 20-30% p.a. Being forced into having to seek their customers consent each year to keep may well see the underinsured train gathering pace again so look out! Toot Toot.
And why stop at life insurance Michelle? How about including general insurance and loans also just for good measure bet the people at Choice would be happy with that! Can hear the mortgage brokers association warming up again…Meanwhile back at the soon to merge AFA and FPA the only sounds are crickets chirping…
If they did not consent, advisers would remove their attachment to policy, pushing responsibility and obligation to insurer – further profitability issues for insurer! Not to mention the insurance provider having “zero” conflicts administering their own clients policies and giving zero advice??
So Levy wants advisers to accurately disclose the commission they will receive for the duration of the policy when the duration of the policy time frame is unknown at the commencement date.
Or, does she now want advisers to disclose and gain authority from the client for every single year via a signed annual consent form?
This is completely nuts.
if a client does not opt in and the commissions are then retained by the insurer. How does that benefit the client? Will the insurer reduce the premium if the client does not Opt In? I’m guessing the life insurers won’t reduce premiums as their systems won’t allow it.
Once again, we have bureaucrats making decisions in this industry who simply have no idea.
The industry is being destroyed and clients will be not benefit.
It’s GOOD but is that the BEST Michelle could come up with?
Most SoA’s set out what benefits an Adviser will get from the Life Insurer in detail. Then, clients sign the “Go Ahead”
on the SoA. So what’s Michelle trying to say? Or is it she’s never read an Advice SoA and doesn’t know this fact !
That’s right. The current SOA format discloses the commissions and asks for client’s consent on whether they wish to proceed with the advice which entails that if they proceed with the recommended covers mentioned in the SOA then the adviser will receive the disclosed commissions. So, as you said, I don’t think Levy has ever read a full SOA and understood the purpose of disclosing the commissions in the first place.
Can we expect to have these people making these changes there full salaries disclosed and what they do for us, plus the fringe benefits, like cars, fuel etc… and since we have to, can we have the retailers do that as well ( this may shock a few ), this could be a conflict, as a retailer could be promoting a product that pays them more, but not the best product for me.
So advisers need more red tape. Wouldn’t it be better to be conflicted call centre, robo-advice or general advice so there is LESS compliance? Shouldn’t it be the other way around?
Between FSG Disclosure, Life Insurance quote remuneration disclosure, and SOA disclosure, what part of Informed Consent are we not already obtaining??
wow! Imagine doing all the work and at the SOA stage after already explaining how you are paid in the FSG and adviser profile, you then enable the client the option to opt out of paying you via commissions. Thanks Mish.
Well, I’m glad we already get client approval and disclose commissions in the SOA.
SoA’s already do this?
We assume our existing documentation i.e. discussions with clients followed by disclosures in the SoA should be sufficient. It will be a nightmare if we are expected to obtain “commission consent forms” from clients to add to the fee consent forms.
Huh, does the advice process not already do this? We tell them 500 times what we get paid and they sign it off.
Hey Einstein we already disclose the commissions we receive for insurance (upfront and ongoing) via a Statement of Advice. This person is heading up the enquiry!!!!! “Give me Shelter.”
Does Ms Levy realise that this is in an SoA?
Its a no brainer. Do it.
A partner from a prestigious law firm who is probably on close to $1 million a year in salary, wants an insurance adviser to get permission from a client to receive $200 in renewal commission?? Seems fair.
We already provide this information in the Statement of Advice. Thanks a lot Jane Hume for putting this incompetent clown in this role before the election…
Ah, yes, thats right, because we already disclose the upfront, we already disclose the ongoing, these rates have been halved through LIF, and yet consumers are still not protected? But they let Group Life just trundle along through Union run funds and no protections for consumers in there? Well, their plans are working, we will have half the number of Advisers giving advice by next year, even less offering Insurance Advice and consumers will not be getting the cover they need, signing a consent form wont encourage Advisers to give Insurance advice and it won’t help bring the rates of under-insurance or having no insurances…..
I love how Lawyers won’t look at their own backyard, all they do is look at everyone else”s industry and tell you are conflicted…..and yet those Ambulance Chasing Law Firms that charge 50% commission on Accident and Compensation claims keep raking it in…..no conflict there at all?????
Well said, agree, and all of the underinsurance problems are just being shifted to the welfare side, if you don’t have income protection, and you can not work, then you have to fall back on welfare. If a partner / husband or wife dies and they don’t have life cover to help support, they go to welfare, the risk still remains its just who is going to pay up.
Good call Michelle….doesn’t a SOA disclose this which is signed off by the client already?
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?
This people will destroy the Insurance industry
Remuneration is already disclosed and signed off on through the SOA, so what is the point of yet another signature page?
What happens when a lawyer of bureaucrat becomes involved in financial services…More confusion, compliance and paperwork, this enquiry is supposed to simplify the process!
The client already provides consent for the adviser to receive remuneration via commission through signing and acknowledging the SOA.
The remuneration amounts both initial and recurring are clearly identified within the SOA.
What is Levy proposing??….that every single year, the adviser must have the client sign an ongoing authority for the adviser to receive the recurring commission??????
I have read these comments in numerous formats and it appears that this will not apply to those business that provide general advice. I.e they provide a client with a list of insurers and premiums and the client chooses.
These businesses are out there and they make me Ill and I have no idea how they legally operate as they are not on the FAR
If they get a carve out for this it is a travesty
Technically, it is not illegal to do this. Which is more reason we need to get rid of the Annual Fee Consent renewal forms/system, that doesn’t exist in any other nation on earth, except in Australia. An epic failure.
It could be my bias, but I still struggle to see the conflict in insurance commissions.
Aren’t all companies required to pay the same commission % and not offer sweetheart commission increases for volume? Its a standard approach where there has been regulator intervention, so hasn’t conflict been managed at a provider level? The adviser picks of quality of product in line with cost expectations for the client. Where is the conflict? Is Ms Levy saying that Advisers are now just picking the most expensive product to obtain more commission?
I’d love for Ms Levy to come sit in on a client appointment with me as a risk specialist and watch how all clients decline fee for service and opt for commission structures to save them extra costs, most quote ‘why would I do that?’. A recent client would’ve been $2,400 worse off had we’d stripped commission and charged a fee.
Insurance is a grudge product no one wants to pay for (in any aspect), this is another barrier for clients to seek insurance positively.
We have had a client who paid no more than $100 per year (client for 10 ish years) in trail receive their TPD payout with our assistance as part of our claim service that we don’t charge for. Had that client gone to Splatt/M & B/Shine lawyers, they potentially would’ve lost $120k for their claim fee. Tell me who’s in it for the money??
Isn’t this already provided? has been for 20 years!
look forward to seeing the posted comments on this one!