No unscrambling the LIF omelette
There can be no doubting how many life/risk advisers remain aggrieved by the LIF outcome, but bi-partisan Parliamentary support means there is no unscrambling the omelette, Mike Taylor writes.
There has always existed within the Australian financial planning industry a significant cohort of advisers whose major focus has been the provision of advice around life/risk products. It follows that their businesses have been founded on the decades-long remuneration structures and practices common to that sector.
The so-called Life Insurance Framework (LIF) which flowed out of the Trowbridge process has served to significantly alter those remuneration structures and practices and so it is little wonder that people who have pursued business models predicated on a regime which allowed 130 per cent up-front commissions are upset not only at that outcome but about how that outcome was arrived at.
And it is the manner in which the Trowbridge processes led into the LIF that has given rise to a potential schism within the Association of Financial Advisers (AFA) as a number of members who are risk advisers pursue an extraordinary general meeting (AGM) aimed at changing the organisation's constitution to prevent a repeat of those processes.
The claim being made by the proponents of the constitutional change is that they were not adequately consulted by the board of the AFA before it became involved in the Life Insurance Advice Working Group, which was ultimately chaired by former Australian Prudential Regulation Authority (APRA) member, John Trowbridge.
They also argue that the AFA and, by definition, risk advisers emerged the ultimate losers from the Trowbridge and LIF processes and that the Financial Services Council (FSC) representing the major insurers did not play a fair hand in circumstances where it later pursued a carve-out for direct insurance.
The AFA found itself a part of the Trowbridge process alongside the FSC because of the Australian Securities and Investments Commission (ASIC) Review of Retail Life Insurance Advice of October 2014 which was highly critical of the quality of some life/risk advice and which, in part, blamed the misalignment of financial incentives.
However, what needs to be remembered about the ASIC review was that it was initiated at the strong urging of the former Minister for Financial Services and now Federal Opposition leader, Bill Shorten, and it came amid the heated atmosphere of the Future of Financial Advice (FOFA) processes. It also needs to be remembered that the Coalition Government, when it gained office, did not seek to slow the momentum for change.
There was much criticism directed at the AFA at the time of the Trowbridge Report and the later LIF position, and Money Management said at the time that the AFA had found itself in the vexed position of being damned it participated in the Trowbridge processes, and equally damned if it didn't.
Two years down the track, the calls for an EGM and the imposition of constitutional limits to the powers of the AFA board are proof that the political heat has not left the issue and that there are members of the AFA who feel deeply aggrieved at the processes which led them there.
For its part, the AFA board has warned that it is impossible to unscramble the egg with its chief executive, Brad Fox, warning that those who are pursuing the EGM risked "winding back the clock on the years of authentic, respectful, and thoughtful advocacy" which have given the organisation a legitimate seat the policy table.
But perhaps the real message for those seeking to "turn back the clock" on LIF is that both the Government and the Federal Opposition are committed to the process and the outcome — something stated by the Minister for Revenue and Financial Services, Kelly O'Dwyer, at the recent FSC Leaders Forum where she said: "I want to reiterate that the life insurance advice reform package remains a priority for the Government and I intend to work closely with stakeholders to ensure its passage through the Parliament".
There can be no doubting how deeply aggrieved many life/risk advisers feel about the LIF, but in circumstances where the processes were initiated by a Labor minister in 2013, and where the ongoing process has been endorsed by a Liberal minister after a closely-fought Federal Election in 2016, it is arguable that any slamming of the stable door will only cause long-term damage to the AFA.
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