Financial planners that provide life and risk insurance advice will be subject to a new remuneration regime after the federal government backed an industry proposal.
The Financial Planning Association (FPA), Association of Financial Advisers (AFA) and Financial Services Council (FSC) have been locked in tense negotiations over recent weeks following the release of an explosive report recommending reform of life insurance advice remuneration penned by former APRA official John Trowbridge.
Yesterday the three associations announced they had reached an agreement on a reform package, with Assistant Treasurer Josh Frydenberg handing down a governmental endorsement of the proposal.
The policy will consist of a maximum total upfront commission of 60 per cent of the premium in the first year, including a maximum ongoing or trail commission of 20 per cent of the premium in all subsequent years.
Also agreed to was a three-year retention or clawback period to commence on 1 January 2016 and a ban on other volume-based payments, with appropriate grandfathering arrangements consistent with the FOFA laws, while insurers will offer fee-for-service insurance products to support advisers who wish to operate under this model.
“The government welcomes the significant reform package received today from the Association of Financial Advisers, Financial Planning Association of Australia and Financial Services Council on behalf of the retail life insurance industry,” Mr Frydenberg said.
“Having previously expressed my preference for industry to develop genuine solutions to the problems identified in the Australian Securities and Investments Commission’s (ASIC's) Report 413 Review of Retail Life Insurance Advice (2014) rather than for the government to act unilaterally, I welcome industry’s response.”
AFA CEO Brad Fox acknowledged that for many advisers the transition will be “challenging”.