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Anomaly exists in LIF draft, lawyer says

The way the draft Life Insurance Framework is worded could mean fee-for-service advice would also form part of the capped benefits, according to a financial services lawyer.

In a statement, imac legal and compliance principal lawyer, Ian McDermott, said the drafting of the remuneration cap provisions appears to be an "anomaly" which should be rectified before the legislation is finalised.

"It was pretty clear that the proposed remuneration caps were only supposed to apply to commissions, which have been deemed to be conflicted remuneration," Mr McDermott said.

"However, the wording of the exposure draft legislation is drafted so that they could put a limit on any benefit given in relation to a life risk insurance product, not just commissions.

"This could potentially include any fee-for-service or hybrid commission/fee arrangements advisers put into place," he said.

Mr McDermott added that, typically, fee-for-service advice is not considered conflicted.

"But the fear is that, because they may be charged in lieu of or in addition to insurance commissions, they will be deemed to have met the conflicted remuneration definition because the nature of the benefits or the circumstances in which they are given could reasonably be expected to influence the choice of financial product or the financial product advice itself," he said.


"If that is the case, fees-for-service could come within the capped amount."

Mr McDermott recommended the new legislation make it "expressly clear" that adviser fee-for-service is excluded from the remuneration caps.

"I urge advisers, licensees and industry bodies to provide feedback to Treasury and ASIC as part of the consultation process to clarify and, if necessary, remove this anomaly," he said.