Election timing could shape LIF outcomes

Philip Anderson, general manager of policy and professionalism at the AFA, has made the observation on a new episode of the wish you'd known podcast, referring to the upcoming ASIC review into the Life Insurance Framework (LIF) reforms.

The regulator is set to collect a random sample of personal life insurance advice files later this year to compare advice after the implementation of LIF, against files it is currently reviewing from 2017. The results will be handed down next year.

According to Mr Anderson, ASIC had collected roughly one to three files from around 120-150 advisers for the 2017 benchmark.

But the outcome of the inquiry and the future of life commissions for advisers could intersect with the next federal election, depending on when the government calls it and the result.

“The opposition has said that they have a predisposition to the removal of conflicts, but they haven’t made up their mind when it comes to life insurance commissions and that they’re not going to make up their mind until the ASIC review is released at the end of next year,” Mr Anderson stated.

“The government is more balanced and say well, they do not see a reason or justification for the removal of life insurance commissions – I think we’ll wait and see this process play out.

“I think another interesting part of this whole debate is the timing of the next election and who might be the government that receives that report from ASIC at the end of the next year.”

Like others in the advice landscape, Mr Anderson has argued there is a compelling case for the retention of life commissions, commenting clients are not prepared to cover the cost of the advice.

He added Australia could look to overseas markets to see the results of limiting commissions: a decimation of the policy volumes through advice channels.

“There’s no international basis to argue that life insurance commissions should be banned, which is interesting, because one of the terms of reference for the royal commission was to consider international jurisdictions to see what they were doing,” Mr Anderson said.

“Now I don’t think the Hayne royal commission did that. I don’t think they looked at whether annual renewal was a requirement in the US or the UK. And they certainly didn’t look at what the situation was with commissions in other jurisdictions.”

The AFA is one of a number of advice industry bodies involved in the Choice and Access to Life Insurance (CALI) campaign, which also has major life insurers sitting at the table.

The organisations united in July last year to call for a reset of policy settings around insurance advice, arguing that consumers should be able to choose if they pay via commission or fees.

The royal commission skipped making a recommendation on life insurance commissions, leaving its fate to the ASIC review.

Mr Anderson stated the first goal for advisers is to make sure the advice provided this year is of “high quality”.

“That goes out to everyone – everyone in risk advice space has a role to play. When files are called for, we want them to be good quality files,” Mr Anderson said.

“And we want to make sure therefore, we get through this review and ASIC, when they send their report to government, the results are good. If we get that, nothing will happen to make it worse.”

Advisers will have stronger leverage if they’re able to prove they have confronted and solved inappropriate incentives and churn, he added.

“Now we have to look at the combination of two issues, the cost of providing financial advice and the remuneration that’s available to provide life insurance advice,” Mr Anderson said.

“And if we can take back to the government, after we’ve got through the LIF review, that the cost is too high and remuneration is too low, the government thus needs to do something to either reduce the cost or increase the commission.”

BT head of financial literacy and advocacy, Bryan Ashenden recently told ifa that the industry has little reason to be pessimistic heading into the review.

A podcast for risk advisers, wish you'd known is cohosted by My Millenial Money podcast host Glen James, alongside Zurich Insurance risk strategy specialist Danielle Visser.