On Monday 31 October 2022, the Quality of Advice Review team issued a Conflicted Remuneration Consultation Paper.  This was a core part of the scope of the QAR and also a requirement of the Life Insurance Framework.

This consultation paper addressed a number of the recommendations of the Hayne Royal Commission, as set out in the QAR Terms of Reference.  Principle amongst these was Recommendation 2.5, where Commissioner Hayne had suggested that ASIC should consider further reducing the commission cap on life insurance, and noted that he thought that unless there was justification, that it should be reduced to zero.

The AFA took this threat very seriously, and we have been working hard to ensure that this was not the outcome.

Importantly, Michelle Levy has recommended in the consultation paper that life insurance commissions should be retained, however subject to an obligation for advisers to obtain client consent.

We are very conscious that this consent requirement has raised concerns by many advisers, and we are seeking clarification of how it might apply in practice.  We certainly expect that it should be  once-off and only applied to new clients.  We also believe that this is already addressed through disclosure in SoAs and through the client signing the Authority to Proceed.  We do need to consider this proposal in the context of Michelle’s other recommendation to remove the mandatory requirement to provide an SoA.

There are a range of additional complexities that need to be worked through, including the form of the disclosure of ongoing commissions, the implications for the sale of a book of clients and what an adviser ultimately needs to do with the consent form. We will be arguing for efficient and pragmatic outcomes.

The consultation paper also made a range of other recommendations, including:

• Retention of commissions on general insurance, however subject to a client consent requirement.
• Removal of the execution only conflicted remuneration exemption.
• Removal of the conflicted remuneration exemption for employees of ADIs.
• Retention of the small benefit non-monetary benefit exemption.
• Retention of the training and education exemption.
• Keeping the exemption for the provision of information technology software or support.

We welcome the consultation paper and the proposal to retain life insurance commissions.  We will work through the detail on how this consent obligation might apply, ensuring that it is reflective of the existing processes, and minimising any additional work that might be required.

Whilst there is still a lot of detail that needs to be worked through, and we still have some serious concerns about how this may play out in practice, we are certainly relieved that the proposal is to retain life insurance commissions.

The deadline for submissions is 14 November 2022, so there is not much time to respond.

We welcome any feedback from members, which can be emailed to policy@afa.asn.au.