Government to make call on LIF by year’s end

Speaking to ifa, the founder and director of Forte Asset Solutions, Steve Prendeville, said the most likely scenario is that current LIF conditions will be maintained.

Current levels are 60 per cent for upfront commissions and 20 per cent for trailing commissions, with a two-year clawback.

Among the 22 recommendations handed down by the lead of the Quality of Advice Review (QAR), Michelle Levy, one concerned the provision of life insurance.

Under this recommendation, Ms Levy advised the government to retain the exception to the ban on conflicted remuneration for benefits given in connection with the issue or sale of a life risk insurance product.

“Commission and clawback rates should be maintained at the current levels,” Ms Levy said.

“The LIF reforms also mean all life insurers pay the same rate of commission and so there is less incentive for an adviser to recommend a policy issued by one insurer over another. This is helpful,” she added.

Answering calls for an increase in commissions, Ms Levy opined that this would only increase the cost to the life company and therefore would have the effect of increasing premiums.

In its response to the QAR in June, the government said it accepts Ms Levy’s LIF-related recommendations.

“Standardised consumer consent requirements will be introduced for life, general and consumer credit insurance commissions,” the government’s Delivering Better Financial Outcomes document reads.

However, the government didn’t provide any further details at the time, including the structure of commissions it plans to endorse.

Mr Prendeville stressed that “all the industry really needs is just legislated certainty”.

“You can build or engineer models that can be profitable if you’ve got the certainty that that’s going to be somewhat of a constant,” he explained.

Earlier this year, the Association of Independently Owned Financial Professionals (AIOFP) argued that LIF had been “outrageously inefficient” for consumers and the industry since its inception.

While slamming the QAR’s recommendation, the group advocated that commission levels need to be lifted to “at least” 80/15 per cent and that consumers should be given a “clear choice” between a commission or a fee-for-service formula.

“Emphatically, LIF has NOT been beneficial to consumers and the QAR recommendation only serves to maintain that detriment,” the group said at the time.

AIOFP executive director Peter Johnston also branded LIF “arguably the most destructive consumer legislation ever passed”.

“We believe it was not a case of unintelligent politicians making mistakes but the first stage of a deliberate strategy to remove financial advisers from the consumer relationship. It has worked exceedingly well with around 50 per cent of the advice community leaving but unfortunately, 30 advisers have committed suicide over the cruel impositions,” Mr Johnston said at the time.

“The AIOFP has contended from the outset that the LIF, FASEA and a ban on grandfathered revenue legislation was designed to starve, embarrass and intimidate advisers out of the industry, few now disagree with this position.”

Condition on LIF commissions

While the QAR has recommended retaining the current LIF levels for commission and clawbacks, this recommendation comes with one condition.

“The condition to this is that the provider of personal advice to a retail client about a life risk insurance product must explain to their client that they will be paid a commission if the client decides to buy the product recommended by the adviser and they must ask for the client’s consent to accept the commission,” Ms Levy said earlier this year.

She clarified that if a client does not consent, an adviser can agree to provide the advice for a fee paid by the client or they can decline to give the client advice.

Noting that consent in all circumstances is desirable, including when advice is provided by an insurer intermediary as opposed to a consumer intermediary, Ms Levy said: “The prospect of receiving a commission creates a conflict for the adviser and under the general law they must have the client’s consent before they can accept the commission”.

Ms Levy also underlined that consent is not intended to be an onerous obligation. Instead, she said, it is intended to foster an open conversation between the adviser and their client.

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