As expected, the terms of reference released in December for the Government’s Quality of Advice review covered a fairly broad spectrum of issues affecting the advice industry.
These included ASIC’s regulatory conduct and how regulatory compliance obligations could be simplified, how technology could enable “mass-market adoption of low-cost advice,” whether the safe harbour provision for the best interests duty should be removed and a potential rework of the legislative framework around advice in line with the review currently being conducted by the Australian Law Reform Commission. As part of the latter item, the Quality of Advice review will address the impact of the Life Insurance Framework on levels of insurance coverage along with any remaining exemptions to the ban on conflicted remuneration.
The terms of reference include the relevant recommendation made in the final Royal Commission report that ASIC should “consider further reducing the cap on commissions in respect of life risk insurance products” – down to zero in the absence of any “clear justification” for retaining them. This suggests that the Government likely isn’t planning to reverse course on the matter – although if it did, it certainly wouldn’t be the first time.
Either way, though, news of the Government’s intention to examine the ongoing impacts of life insurance reforms recently drew the attention of the Consumer Action Law Centre (CALC). CALC CEO Gerard Brody argued in a submission that the Quality of Advice review “cannot be said to be meaningfully implementing these recommendations without considering Commissioner Hayne’s commentary on the conflicts between interest and duty in financial services.”
Referring to multiple instances of misconduct heard during the Royal Commission, Brody recommended that the review “should have regard to the findings and commentary of the Financial Services Royal Commission regarding conflicts between duty and interest in financial services and advice, and the benefits of removing all forms of conflicted remuneration.”
Additionally, he recommended that the review “should have regard to the need to ensure good consumer outcomes and preventing misconduct and harm.”
The review, Brody concluded, “is a critical opportunity to end conflicted remuneration in financial services for good. Anything less will be seen as a failure to implement Commissioner Hayne’s considered recommendations.”
While the incidents referred to in the CALC submission have been well-publicised since the Royal Commission, the potential impacts of life insurance reforms on advice businesses haven’t grabbed quite as many headlines. About six months ago, we discussed research from ClearView which showed that a shrinking cohort (63%) of advisers see risk advice as being a core part of their offering in the future even though the majority of those surveyed saw insurance and claims management as “a key part of the advice proposition”.
ClearView general manager, life insurance Gerard Kerr said at the time that this state of affairs “reflects the significant challenges currently facing advisers, including the rising compliance burden and cost to provide life insurance advice, falling remuneration under the Life Insurance Framework (LIF) and climbing insurance premiums.”
Furthermore, as Connect Financial Service Brokers CEO Paul Tynan told NMP back in 2018, “what has caused many of the bad advice practices being highlighted at the Royal Commission has been driven by industry business models and product providers who have caused a misalignment between planners’ advice and clients’ best interest.”
“Banning commissions retrospectively,” Tynan added, “fails to acknowledge that individual advisers have borrowed to acquire businesses and client registers to underpin commercial expansion on the assumption that trail commissions would be continued to be paid for the life of the individual policies.”
One hopes that the recommendations made in the Quality of Advice review are able to maintain consumer protections while also addressing the impacts of policy on the sustainability of the advice profession.
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