The Life Insurance Framework, announced by Assistant Treasurer Josh Frydenberg, has left some advisers in the advice community up in arms. The proposed introduction of a 60/20 hybrid commission model by 1 July 2018 and the imposition of a three-year clawback policy have left advisers questioning if offering risk advice to their clients is sustainable.

That said, when compared with the Trowbridge Report proposals and the recommendation of level commissions by the Financial System Inquiry, the reforms seem less onerous.

Since the release of the reform proposals, AFA national president Deborah Kent has told association members that by getting involved in the debates they were able to stave off a far worse outcome.

“We could [have] ended up with something like a nil commission [model],” Ms Kent said. “There are still others out there that would rather see us have nothing, or [even] level commissions, which was [recommended] in the FSI report.”

Even chief executive Brad Fox said that for the AFA and FPA to get insurers to agree with the proposals in their current form was a “major win” – but not without also expressing his disappointment that they could not get a more beneficial result for advisers.

The FPA echoed the AFA’s comments, emphasising that the association was fighting to ensure advisers are not left short.
“While the FPA was unable to secure every recommendation put forward in the [Life Insurance] Blueprint, we continue to fight for a sensible interpretation of the outlined policy announced on 25 June 2015, particularly the interpretation of what constitutes a lapsed policy for the purpose of the clawback provisions,” the FPA said.

Despite this assurance, many advisers are still angry. They have questioned the negotiations and said that by agreeing to the reforms they provided consent to the wants of the institutions.

While readers of ifa have been critical of the associations, none has been as critical as the executive director of the Association of Independently Owned Financial Planners (AIOFP), Peter Johnston.

In an email to his members, Mr Johnston said he would submit an alternative proposal to that of Mr Frydenberg in an attempt to create a more beneficial outcome for small business owners and those who offer risk advice.

The proposals, which reflect the FPA’s Life Insurance Blueprint, call for the commission rate to be increased to 70 per cent in the first year and for the clawback period to be reduced to two years.

But the proposal also suggested a punishment for advisers who were found ‘churning’ their clients – it called for ‘churners’ to be placed within a level commission structure and to remain there until they can “prove their innocence”.
“The risk submission put forward by the institutionally-aligned associations to the minister has all the hallmarks of the political strategy used against the financial advisers with FOFA over the platform rebates,” he said.

With the Assistant Treasurer yet to reply to the AIOFP’s proposals, any possibility of a change to the reforms remains to be seen.

Mr Johsnton believes that had the AIOFP joined the AFA and FPA during the debates at the beginning, the associations may well have had a stronger platform on which to stand and argue for better terms.

That is the beauty of hindsight though. Had circumstances been different, the risk advice industry may have been left with a better future. But in the face of the Trowbridge Report and the FSI, there is the very real possibility the industry would have been left worse off. So it raises the question: should the associations have got involved?

As reforms to the life insurance industry unfold, it is not just the associations that need to be as open and transparent as they can, but the institutions themselves that need to come forward and give the closure to the advice community that it clearly deserves.