Announcing the passage of the legislation, the Minister for Revenue and Financial Services, the Hon. Kelly O’Dwyer MP, said that the reductions would benefit consumers.
“High upfront commissions have been identified as a significant cause of poor quality life insurance advice. The measures in the Bill will reduce these high upfront commissions and better align the interests of financial advisors and their clients,” Minister O’Dwyer said.
“ASIC’s 2014 review found that in 45 per cent of cases involving high upfront commissions, the advice provided failed to meet the legal standard. This is unacceptably high. Similar concerns were also expressed by the Murray Inquiry and the industry-initiated Trowbridge report.
“The changes will significantly reduce the incentive for advisors to churn clients between life insurance products where there is no consumer benefit.”
The legislation follows other legislation introduced in late November to mandate professional standards for financial advisers.
The Corporations Amendment (Professional Standards of Financial Advisers) Bill 2016 includes:
|Compulsory education requirements for both new and existing financial advisers|
|Supervision requirements for new advisers|
|A code of ethics for the industry|
|An exam that will represent a common benchmark across the industry|
|An ongoing professional development component|
— Kelly O’Dwyer (@KellyODwyer) November 22, 2016
Life Insurance: Upfront commission changes
Under the framework contained within the Corporations Amendment (Life Insurance Remuneration Arrangements) Bill 2016:
- The rate of upfront commissions paid to advisers will be phased down to a maximum of 60%, with ongoing commissions capped at 20%;
- A two year upfront commission ‘clawback’ period will be introduced, under which 100% of the upfront commission will be clawed back in the first year and 60% of the upfront commission will be clawed back in the second year, should a policy lapse; and
- Level commissions (that is, commissions that are a consistent amount each year;) and fee-for-service remuneration remain and are uncapped.
The changes will commence on 1 January 2018 and will apply equally to all life insurance advisers.