Despite a number of its members being vocal supporters of hybrid commissions, the FSC argued the life insurance industry should move to a level commission regime, ifa can reveal.
The FSC’s confidential submission to the Life Insurance and Advice Working Group – a copy of which was leaked to ifa – reveals the product manufacturers’ lobby group was pushing for a number of reforms that ultimately found their way into John Trowbridge’s final report.
The submission recommends the removal of “high upfront commissions from inception” and that the industry move to a “level percentage commission structure so that the upfront commission for life insurance advice is no greater than ongoing commission on an ongoing basis”.
Like Mr Trowbridge’s “reform model”, the FSC’s “proposed model” argues that the level should be lower than current market rates, offering 20 per cent as an appropriate level.
The total first year remuneration for an adviser should be “significantly lower than existing rates for hybrid commissions”, the FSC argued.
“A level commission structure will result in a meaningful change across the advice industry that will assist in cultivating an environment conducive to behavioural change,” the submission said.
It also called for consultation on “how statements of advice could be streamlined to better meet the spirit of the law” and suggested ASIC provide guidance on “how the best interest duty can be met in the provision of life insurance advice”.
The comments come despite a number of FSC members investing heavily in hybrid commission programs in recent years.
For example, in Feburary 2014, AIA chief executive Damien Mu – a member of the FSC board – said hybrid commissions can increase the long-term value of advice businesses looking to wean themselves off upfront commissions.
An anonymous stakeholder who forwarded the document to ifa described the submission as evidence that the LIAWG was “hijacked by the FSC”.
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