The final version of the Trowbridge Review on Retail Life Insurance Advice has been released.
Initiated by the Financial Services Council (FSC) and the Association of Financial Advisers (AFA), it was designed as an independent review following the Australian Securities and Investments Commission (ASIC) retail life insurance research - originally released in October 2014.
It contains 11 recommendations, six of which are policy-oriented. The other five concern implementation and a final recommendation to review the efficacy of the proposed reforms after five years.
In short, the policy recommendations are: that adviser remuneration be based on a system of level commissions (at a maximum of 20% of premiums) supplemented by an Initial Advice Payment (IAP) which can't be made again more than once every five years, and that there be a three-year transition period for reforms, during which the industry operates on the current hybrid commission system with a cap on initial commissions for new business.
Further proposed policy reforms are that licensees are prohibited from receiving benefits that create product choice and/or advice conflicts; that every licensee includes at least half of the 13 authorised retail life providers on its APL; that licensees and advisers address cultural barriers to reform; and that a Life Insurance Code of Practice is developed, modelled on the General Insurance Code of Practice.
The report follows on with four implementation recommendations, which are: that ASIC supports policy recommendations 1, 2 and 3 and imposes licensing conditions on life insurers appropriately; that licensees proceed with including at least half of the authorised retail life providers on their APLs as soon as possible; that a professional association, licensee and adviser taskforce be created to make recommendations to the advice sector; and that the Life Insurance Code of Practice mentioned above be developed in conjunction and consultation with life insurers, licensees, advisers and consumers.
Finally, as mentioned above, the report recommends a five-year review of the implemented changes.
Speaking at the FSC's Annual Life Insurance Conference, Trowbridge noted that the proposed IAP was less than the cost of advice, but emphasised the importance of promoting a client-negotiated fee-for-service model. He also hit back at those suggesting the report should have considered a completely commissions-free system, suggesting the idea would be disastrous for the industry.
He said, in the submissions, there are two extremes, which I mention in the interim report. One is, 'Why can't we maintain the current 120% upfront commission?' And the other is, 'Why do we need commissions at all?' Neither of those is feasible. I've come to the view that both of those positions are ideological.
"The people who want to retain 120% are really saying, 'Who is the government, or anybody else, to interfere in the commercial arrangements that we might make with insurers?' Well, I think there are plenty of reasons why that's not the right way to go forward, and arguably those high upfront commissions and the misaligned incentives they represent are the reason we're here today.
"The other extreme is also ideological, and it's about people who believe that all commissions are evil. Well, fee-for-service is always available, so anyone who doesn't like commissions is free to go and talk to their adviser and work on a fee-for-service basis, but if there were no commissions at all we would have an industry that's in total disarray and would decline."
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