On 14 November 2022, the AFA made our submission in response to the Quality of Advice Review Conflicted Remuneration – Consultation Paper. Subject to clarification on the client consent requirement for life insurance clients, we were happy to support all the proposals in this consultation paper.
The most important proposal in this paper was the retention of life insurance commissions, however subject to a requirement to obtain client consent. We understood that this would be a once off obligation and that it should not apply to clients who have already provided consent (i.e. by signing the Authority to Proceed). We were also concerned to ensure that we did not need to provide copies of this consent to life insurers. We had the opportunity to meet with Michelle Levy on 11 November and to clarify these points, which we addressed in a LinkedIn post, which was covered widely in the trade media last week.
In our submission, we emphasised the importance of maintaining commissions, repeating our preference for upfront commissions for life insurance advice to be increased to 80%. We did, however put forward two specific ideas to improve the Life Insurance Framework:
- At the AFA, we are very conscious that access to life insurance advice has become very difficult for young Australians and those everyday Australians paying moderate premiums. This is a simple reality given the 60% commission cap, and rising cost of providing advice. To address this we have put forward an idea where there could be a flat fee on top of the existing commission caps, with $300 paid for each product type that was implemented. Across all four product types (Life, TPD, Trauma and IP) this could amount to an additional $1,200, making risk advice more economically viable.
- We have proposed a reduction of the clawback in year two. Whilst our preference is that year two clawbacks are removed, we are conscious that two years has been built into the law. We have therefore suggested that the second year could be split into two halves, with a 50% clawback in the first half and then 25% in the final six months. This would be a big reduction on the current 60%, which is certainly not justifiable in the second half of year two. We have highlighted that clawback is often enacted for reasons other than inappropriate product replacement, such as extreme premium increases and economic circumstances.
We were pleased that the QAR team have agreed to the retention of some of the focused non-monetary conflicted remuneration exemptions, including the small dollar amount, training and education, and information technology software or support”.
The next step in the Quality of Advice Review is the final report, which will be handed to the Minister on 16 December 2022. We are not sure if it will be published on that date, however we will be keen to see it as soon as possible.
For any questions on the AFA submission, please email email@example.com.