During an XY Adviser webinar recently, Mr Fox reflected on the process that led to the proposed legislation, saying it was a challenge because the AFA had been battling “an ideology that commissions are bad”.
Mr Fox noted that the AFA had approached its membership four times to ask for views.
“During that process, about 100 advisers only put in their views,” he said.
Nonetheless, Mr Fox believes the AFA has been effective in fighting to get advisers’ voices heard. He said there was a “strong push” from insurers with “really loud voices” for LIF to include level commissions only.
“We fought hard in that regard. We would have liked it to have been a little higher than where it’s ended up in terms of the commission rates and would have liked clawback to have scaled down in the second year,” he said.
“But political forces won’t allow that and I don’t just mean the Coalition… So there are enormous forces saying change has to happen and the change has to be pretty radical compared to what today is.
“But I think we have been effective in getting to a position where advisers will be able to operate a sustainable practice.”
Mr Fox added that while LIF is intended to improve the quality of life insurance advice, “it doesn’t directly do that”.
“It only does it indirectly by making sure advisers know they’re under notice that if they were writing business unsustainably or if they were doing replacement business not in their clients’ best interests,” he said.
“They’re on notice for that now and that is not a bad thing because the good advisers have no trouble with it.”
Excuse my ignorance, Brad, but can you please advise when you asked AFA members whether or not the AFA should partner with the FSC and Trowbridge and form the LIAWG? An association that has directly led to the LIF legislation that will harm so many risk-focused advisers. Even the FPA weren’t stupid enough to do that.
From my review of emails I received from the AFA during that period, all I was asked for was a submission to this skewed process.
It’s a bit like asking us what colour we want to paint the gate that the horse just bolted through.
I can understand why the AFA made it’s decision without direct input from the membership because I suspect they knew the membership would reject it as a bad idea. But, hey, what would we know – right?!
The LICG have today stated that “Politicians that we have lobbied have commented that if the AFA withdrew its support from the LIF, they would have reason to reconsider the Legislation and, in particular, be able include all the compelling and factual evidence provided from the good work done by the LICG.”
The LIF is damaging to both customers and advisers and you the AFA have a mandated duty to fight this.
You do not have nor have you sought the backing of AFA members and you did not get a good deal, with your paymasters the FSC laughing at both you and advisers.
Further the LICG are promoting a members call for an Extraordinary General Meeting (EGM) of the AFA Board to concerns about the LIF and many others with this request.
Is this going to simply be ignored and go unreported too by the AFA?
I agree that the AFA did the best job possible in the circumstances. Where they failed was in the appointment of Trowbridge given he does not appear to live in the real world given his belief that people will provide advice in exchange for revenue which is less than the cost of providing that advice. Once that report had issued in conjunction with ASIC Report 413 (which is also flawed in a number of ways) the AFA were pushing it uphill. The sad part in the whole process however is that it has not helped the consumers at all.
If the LIF does not or will not DIRECTLY improve the quality of Life Insurance advice to the consumer, it has comprehensively failed in it’s design.
The primary catalyst for the LIF was ASIC Report 413 and on the front page of this report it states the following:
” The purpose of the project was to understand the advice consumers are currently receiving about life insurance and to identify opportunities to promote advice that is in the best interests of consumers”.
As the LIF has yet to state or identify any measurable consumer benefit in their best interest as a direct result of it’s proposed implementation, the LIF is therefore not following the intended purpose of the ASIC Report 413.
In addition, the matter of unsustainable or sustainable business does not directly relate to acting in the client’s best interest. The inference it is the adviser’s who must be placing unsustainable insurance business that is not in the client’s best interest, however, the industry trends findings from ASIC Report 413 state the drivers behind high lapse rates include:
“a. product innovation by insurers, such as changing actuarial assumptions at underwriting or the redesign of key policy features such as definitions and exclusions, which lead to the re-pricing of policies:
b. age-based premium increases affecting affordability: and
c. incentives for advisers to write new business or re-write existing business to increase commission income.”
So it goes therefore that 2 of the 3 reasons for unsustainable insurance business is directly related to and directly the responsibility of the insurers and not the adviser.
These 2 reasons for unsustainable insurance business are out of the control of the adviser and are totally under the control of the insurers.
It is therefore incomprehensible the adviser is being made the sole scapegoat for the failings of the insurer’s mismanagement of their actuarial projections, claims management, product pricing and business profitability.
It is the adviser and the consumer who is paying the high price in relation to the LIF, not the insurer.
The third reason can be managed accordingly:
1. Remove Upfront commissions and retain existing Hybrid and Level commission models to allow continued sustainability of adviser’s businesses to deliver quality and affordable advice to consumers.
2.Require all insurers to sign a Memorandum of Understanding to collate data relating to advisers who repeatedly replace insurance business over short time frames and to ensure this data is made available to all through a common register.
3.Remove or ban any form of take over terms promoting ease of replacement.
4.Ensure workable clawback system that does not penalise adviser’s remuneration for the client initiated cancellation of insurance due to significant age related premium increases, constant policy enhancement premium increases, client death or claim.
OMG Brad wakeup