The Association of Financial Advisers (AFA) has expressed disappointment that the terms of reference of the Life Insurance Advice Working Group (Trowbridge Report) were not delivered.
In a statement issued today, AFA chief executive, Brad Fox appeared to back earlier claims by Centrepoint Alliance chief executive, John deZwart, when he said the terms of reference had been “to deliver a unified solution the whole industry could support”.
“It is a great disappointment that this was not achieved, and that the terms of reference were not delivered,” he said.
However Fox said the AFA remained open to change and that it had stated at the start of the process that it believed the industry needed to move away from high upfront commissions (exceeding 100 per cent of the premium) which were identified by the Australian Securities and Investments Commission (ASIC) as being correlated to non-compliant advice.
However he said the remuneration recommendations in the Financial System Inquiry (FSI) and the Trowbridge Report “are unworkable, impractical and do not acknowledge the value life insurance advisers provide to consumers”.
“For this market to be sustainable and for consumers to continue to access quality advice there must be a sensible balance between the interests of all parties. The proposals put forward are based on unsupported assumptions and inadequate research. There has been no independent assessment of the potential implications on consumers, financial advisers and licensees,” Fox said.
“The ASIC Report on Life Insurance provided an answer on adviser remuneration, which should have meant that remuneration was the easiest part of this exercise to solve. The ASIC Report demonstrated that the quality of advice delivered on a ‘hybrid’ (reduced up-front commission) basis achieved an acceptable pass rate of 93 per cent and could safely be adopted.
“With this solution, the job should have been to focus upon the other, very important, levers to improve the quality of advice – for example, training and education, codes of conduct, strategic life insurance advice, improved client engagement and advice documentation,” Fox said.
However he said that, in reality and unfortunately, the focus had been almost entirely on adviser remuneration at the expense of the other levers.
“Both the Trowbridge and FSI reports have put forward a view that advisers should earn less than the actual cost of providing the advice. Advisers working in small business practices provide the majority of life insurance advice – no business of any size can survive if they earn less than they pay in costs,” he said.
Fox said the AFA remained committed to a unified industry response that addresses the concerns raised in the ASIC Review.
