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High upfront commissions 'not appropriate'

The FSC/AFA-led Trowbridge report has conceded commissions have a place within risk advice, but argues high upfront payments are “not appropriate”.

The Life Insurance and Advice Working Group (LIAWG), which was formed by the FSC and the AFA following ASIC’s critical review of the life insurance advice industry, has released an interim report responding to the issue raised by the regulator.

Independent chairman of the LIAWG John Trowbridge – a former member of APRA – said the interim report has put forward four areas of discussion including adviser remuneration.

“There are four keys areas of the report – [there is] the quality of advice, remuneration, [and the] other two areas are insurer practices and product offerings,” Mr Trowbridge said.

Mr Trowbridge, on the point of remuneration, said the LIAWG would not consider alternative fee models to commissions, but does not believe high upfront commissions are “appropriate”.

“I am offering a view [that] nil commissions won’t work and the other is that the high upfront commissions of more than 100 per cent on the first year’s premium – we are ruling that one out too,” Mr Trowbridge said.

“But we haven’t ruled anything out between those two extremes.”

Mr Trowbridge pointed out that life insurance advice will “not work” unless there are commissions.

“We have actually dismissed the nil-commission model because there are too many issues with making insurance available than if you don’t have commissions – bearing in mind fee-for-service is not a realistic option,” Mr Trowbridge said.

“The report cites a few different parties that have said they don’t think [alternative models are] realistic. The Ripoll inquiry is happy to see commissions and certainly the industry, both the insurers and advisers believe it’s needed,” he said.

Mr Trowbridge said the process the LIAWG is now undertaking is similar to that of a government review and it will now be accepting submissions from the industry to respond to the discussion points it has put forward.

Submissions will be accepted until the end of January 2015 and the final report will be released by March 2015.