Members of the Association of Independently Owned Financial Professionals (AIOFP) conveyed to the government at a meeting on 4 April that the Life Insurance Framework (LIF) is not fit for purpose.
A team of AIOFP delegates met with a five-person Treasury team appointed to facilitate the consultation process that will inform the government’s Quality of Advice Review (QAR) response in Canberra.
In a document summarising the meeting sent to AIOFP members and ifa, the group argued that LIF has been “outrageously inefficient” for consumers and the industry since its inception.
While slamming the QAR’s recommendation that current LIF conditions should be maintained, 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.
“Currently advisers generally do not write any risk cover due to the compliance costs involved, this must change to protect families and future Centrelink welfare liabilities,” the document reads.
“Emphatically LIF has NOT been beneficial to consumers and the QAR recommendation only serves to maintain that detriment.”
Among the 22 recommendations handed down by the lead of the 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. Current levels are 60 per cent for upfront commissions and 20 per cent for trailing commissions, with a two-year clawback.
Expounding on this recommendation, Ms Levy said she had formed the view that there is a “real risk” that fewer people would get life insurance advice if commissions were banned.
“Nothing we have seen suggests that life insurance advice is of a poorer quality than advice on other topics and nothing we have seen suggests that financial advisers are recommending life insurance in circumstances where the client will not benefit from holding life insurance,” 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 noted.
Answering calls for an increase in commission, Ms Levy opined that this would only increase the cost to the life company and therefore would have the effect of increasing premiums.
“I do not think it would be desirable for commissions to increase,” she said.
Earlier this year, AIOFP executive director Peter Johnston 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.”
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LIF has been a huge failure with absolutely no benefit to the end consumer. So, with this in mind, should the “advice” emanating from Academics, Politicians, Consumer Groups, etc regarding to the formation of LIF be held accountable? You know, in the same way that an Adviser is on the hook for their advice to a client? Of course this won’t happen, but LIF has panned out exactly like every adviser said it would, yet know one even bothered to consult with advisers at the time.
Spot on. Over to you FAAA
This shows how politicians and the lawyers they appoint simply don’t understand the intricacies and mechanics of delivering financial advice in a commercially viable manner. Simple Economics 101 tells you that if you make things commercially un-viable for ANY type of business, service providers won’t deliver the service. LIF has done exactly that. We no longer serve young first home buyers or Aussie Battlers as we can’t afford to serve them and they can’t afford to pay us at a commercially viable level…….therefore we now only serve the wealthy with capacity and willingness to pay fee for service and leave the rest for the “wise” politicians and lawyers try to sort out. Why oh why is it always politicians and lawyers that stuff things up so magnificently? Imagine if politicians and lawyers forced a baker to reduce his price of bread……the baker wouldn’t bake you any bread anymore……and so then you go hungry.