'A win for Australians': Insurers welcome DBFO reforms

While the Deliver Better Financial Outcomes (DBFO) has been a hot button issue for the advice profession for quite some time now, one of the biggest points of contention between industry stakeholders in regards to tranche two has been the prospect of a new class of advisers, as announced by Minister Jones in December last year, that would allow insurers and super funds to provide simple advice.

The primary argument against this has been that the initial proposition would see businesses prohibited from charging a fee and receiving commission for the service of this new class of advisers, putting advice firms at a disadvantage as they, unlike super funds and insurers, would be unable to absorb the costs.

In a statement on Tuesday night, Jones provided a long-awaited update on tranche two of the DBFO, explaining that licensees will be allowed to charge a direct fee for advice provided by the new class of advisers.

While some institutions will likely opt to charge customers indirectly for the service, this change will allow advice businesses to utilise this opportunity in a financially viable way, which Jones said would deliver "neutrality across different advice models” while expanding the supply of advice.

Responding to the announcement, Council of Australian Life Insurers (CALI) chief executive Christine Cupitt said this is a “big win for all Australians who want to secure their financial future”.

“The positive impacts of these reforms will be felt over generations,” Cupitt said.

CALI has been vocal about their support for this proposition since its initial announcement, arguing that it is crucial for helping bridge Australia’s advice gap.

“This had to happen. We can’t continue to have almost three and a half million people in this country who are underinsured and unprotected when times get tough,” Cupitt said.

“These reforms will allow Australia’s life insurers to provide a better customer experience to the millions of people they serve every day.

“Of course, this will only happen with strict consumer protections and appropriate qualifications to ensure that this is a reliable, trusted and safe choice for people looking to get advice about their life insurance needs.”

Outlined in the minister’s statement, this new class of advisers will be “restricted to providing advice on products issued by prudentially-regulated entities”, helping consumers with matters such as choosing an insurance policy or basic questions about their retirement.

Furthermore, they will be limited to customer-initiated engagement for new customers, protecting consumers against cold-calling and unsolicited advice.

Australian life insurer TAL has also thrown its support behind the announcement, stating that this will make it easier for “financial advisers, super funds and life insurers to support customers through their lives”.

TAL group chief executive and managing director Fiona Macgregor said the reforms will help improve Australians' access to affordable financial advice.

“We recognise that making decisions on financial products can be hard and believe that Australians should be able to access advice when they ask for it,” Macgregor said.

“Life insurance provides an important financial safety net for millions of Australians. But the reality is, many Australians remain underinsured and under-protected, unable to easily access the right advice to set themselves and their loved ones up for the future.

“Today’s announcement is a win for Australians. These reforms are critical to making financial advice more affordable and accessible.”

Meanwhile, MLC Life Insurance has voiced its support for the proposed reforms, particularly the modernisation of the best interests duty and subsequent removal of the safe harbour steps, as well as the changes to the statement of advice (SOA) and the introduction of the new class of adviser.

MLC Life chief executive Kent Griffin said the firm welcomes the proposed reforms, stating that they provide necessary clarity on the scope of advice institutions will be able to provide while “supporting the range of information and advice options available to [consumers]”.

“These measures demonstrate that simplifying regulations and maintaining strong consumer protections are not mutually exclusive. Together they will provide the industry with the clarity needed to innovate while giving customers greater confidence in securing their financial futures,” Griffin said.

“If fully implemented, these reforms will unlock access to simple advice so people can get what they need when they need it.”

AIA Australia also congratulated the minister on his “ongoing work” to expand Australians’ access to quality advice.

“As a life insurance and advice provider, we want to be able to help more people to understand their protection needs as their lives change, to right-size where needed and to assist with affordability. We believe the government reforms will be a huge step towards meeting an under-served need in the current environment,” AIA Australia chief executive and CALI co-chair Damien Mu said.

The insurer noted the government’s efforts to ensure an even playing field across the industry by making it financially viable for advice firms to employ the new class of advisers.

“Australians benefit when they have access to good advice, and we are so pleased that the government’s reforms will allow a range of institutions and advice models to provide much-needed advice efficiently and effectively,” Mu said.

Despite this update, it is still unclear when draft legislation for the second tranche will be made available.