The AIOFP has proposed an alternative solution to the life insurance reforms, with a focus on reducing the three-year clawback period and amending the first-year commission rate.
The proposals, delivered to Assistant Treasurer Josh Frydenberg's office by the AIOFP yesterday morning, are a response to the proposed life industry reforms which the association believes are impractical and not commercially beneficial for small business operators.
The AIOFP said its major concern was the three-year retention period and has called for it to be reduced to two years.
"How can any business or any person trying to make a living operate with a three year 'threat' over their income for circumstances outside of their control?" the proposal said.
"If the current commission regime of 120 per cent was retained we could understand the three year approach to some degree, but to reduce the upfront by around 60 per cent and then impose a three year claw back is non-commercial and will destroy small business operators."
The AIOFP also suggested an increase in the first-year commission rate to 70 per cent to "adequately compensate" an adviser for taking on new business.
"In recognition of the adviser on-boarding costs, permit advisers to retain 20 percent of the first year's premium in the event of premature termination and implement a time of risk formula for the remainder of the first year.
"In the event of premature termination, the adviser retains 20 per cent of the first year premium and the remainder of the first year commission is subject to refund based on a 'time on risk' formula, assuming a two-year clawback clause," it said.
The association also called for the "imposition" of a capped level commission model for all advisers who have been found 'churning' policies until they can prove "their innocence".
"Churning advisers are a minority but they need to be curtailed," the proposal said.
"We suggest imposing a level commission restriction on any adviser whom is suspected of policy churn and we encourage all stakeholders to report the adviser to ASIC.
"This will restrict or eliminate the minority of advisers who resort to [churning]," it said.
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