ASIC’s review of life insurance advice files is unlikely to lead to further reductions in commissions given the dramatic tightening of advice regulation that has occurred since its last report into the sector, according to BT.
In a recent episode of The ifa Show podcast, the institution’s head of financial literacy and advocacy, Bryan Ashenden, said advisers had little reason to be pessimistic heading into the review, which was due to take place this year with the results being released in 2022.
“In terms of how the regulator might conduct the review, one thing that’s important is we can’t expect the regulator would be looking at insurance commissions just in isolation,” Mr Ashenden said.
“By the time they’re doing this review we’ve had the FASEA code in place for two years. The historical issues we had and the Trowbridge insurance reforms that led us to this stage of the review, a lot of those things have already been addressed.
“We’ve seen changes in commission levels and so on, so the things that led to the Trowbridge review, we’re not going to see them come up anymore. Hopefully we’re going to see a positive outcome from this next review.”
In recent responses to questions on notice from the House economics committee, ASIC gave more detail into its review process for the forthcoming report, saying it would review a random selection of risk advice files from 2021 and 2017, prior to the introduction of the life insurance framework.
“This will allow ASIC to compare results to see if the quality of life insurance advice has improved since the LIF reforms,” the regulator said.
The results of the review will give the regulator and government little room to move when it comes to commission settings, given recommendation 2.5 of the royal commission stated that “When ASIC conducts its review of conflicted remuneration relating to life risk insurance products, [it] should consider further reducing the cap on commissions in respect of life risk insurance products”.
“Unless there is a clear justification for retaining those commissions, the cap should ultimately be reduced to zero,” the commission’s final report stated.
The federal opposition has also stated a similar bias in favour of removing risk commissions, with financial services spokesman Stephen Jones telling the AFA Conference last year that “the burden lies upon the industry to prove that a commission-based sales model attaching to an advising sector is able to provide a service to customers that is not conflicted”.
Mr Ashenden said while it would take time for the LIF commission settings to have a pronounced impact on advice quality, other pieces of regulation were likely to have had an effect.
“When you take the Trowbridge reforms that we have with the lift in professional standards that everyone has been going through and the introduction of the code of ethics, I think they are all positive movements that lead to an increase in the quality of advice,” he said.
“Obviously we’ll need to wait and see what the review says, but there’s a lot of positives there that’s going to help us get to a good outcome.”
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