The government has welcomed the consensus reached by industry lobbyists on remuneration reform, but the AFA has conceded that for some advisers the process will not be easy.
This morning, Assistant Treasurer Josh Frydenberg announced that the government was backing a move toward flat and level commissions or fee for service agreed to by the FSC, AFA and FPA over gruelling negotiations in recent weeks.
The agreed policy will consist of a maximum total upfront commission of 60 per cent of the premium in the first year, including a maximum ongoing or trail commission of 20 per cent of the premium in all subsequent years.
"Starting from 1 January 2016, upfront commissions will be capped at 80 per cent and then reduced to 70 per cent from 1 July 2017, before settling at 60 per cent from 1 July 2018," a statement from Mr Frydenberg said.
However, despite the consensus, AFA chief executive Brad Fox acknowledged that not all advisers will be pleased with the deal, adding that the last eight months have been very difficult for his association.
"The final position represents a compromise that, whilst challenging, is at least workable for most advisers and offers a package of measures and a transition that will see advisers, licensees and insurers sharing the responsibility for improving the outcomes from retail life insurance advice," said a statement from the AFA.
Mr Fox revealed that the AFA was pushing for a more generous hybrid 80/20 solution but ultimately conceded "this is not something the community will now accept for the long term".
However, he said that the three-year transition period will be "critical to advisers being able to adjust to the significance of the change."
The FSC and FPA have both issued statements welcoming the agreement and the conclusion of successful negotiations between the three bodies, as did insurer Suncorp
Suncorp Life boss Geoff Summerhayes said the proposed policy was a "well considered response to a number of delicate issues" while acknowledging that some advisers will be put out and may have "difficulty in adjusting".
Industry Super Australia (ISA) said that the recommnedations made by the indutrsy-established review don't adequately tackle the problems of life insurance commissions.
"While we support the proposal to ban volume rebates (wholesale commissions) and put in place clawback provisions, the proposals do not go far enough given the significant detriment to consumers identified by last year's ASIC report on life insurance, including that 37% of advice provided was inappropriate for the client." Matthew Linden, ISA's director of public affairs said.
"The proposal leaves in place commissions as the dominant remuneration model in life insurance advice. While a 60% commissions are lower than current levels, they are still going to lead to biased advice and poor consumer outcomes."
SUBSCRIBE TO THE IFA DAILY BULLETIN
- 15 Oct 2018FASEA is setting a new standard for the industry: Assistant TreasurerBy Eliot Hastie
- 12 Oct 2018ASIC takes action on compliance breachesBy Adrian Flores
- 15 Oct 2018FPA board announces new chairBy Adrian Flores
- 15 Oct 2018New adviser capability added to IOOF offeringBy Adrian Flores
- 15 Oct 2018AFA names new state directorsBy Adrian Flores
- 12 Oct 2018Westpac boss warns against further regulationBy Charbel Kadib
- view all