The Association of Financial Advisers (AFA) expressed bewilderment over the Financial Services Council’s (FSC) position of supporting the extension of clawbacks in life insurance to three years, saying there must be a disconnect between membership sentiment and the FSC’s final position.
AFA chief executive, Brad Fox, told a media briefing at the 2015 AFA Conference in Cairns that the three-year clawback applying to everything was too harsh, and for the FSC to state in its reaction to the Government’s response to the Financial System Inquiry that there would be substantial consumer benefit, was asking advisers to take two enormous leaps of faith.
Fox said there would have to be an emotional benefit in clients paying fees in addition to a premium, instead of just a premium “because there’s certainly not going to be a financial benefit”.
The second leap of faith would be to believe that direct and group insurance would close the gap that would exist if advised life insurance became more expensive and those who advised around insurance decreased.
“That would be closing the gap with products that are inferior, claims experience that is inferior, and pricing that is higher. It’s an enormous leap of faith to ask us to accept that would be a good outcome,” Fox said.
Fox said the AFA, the FSC, and the Financial Planning Association (FPA) were given clear instructions to form a united industry response to the life insurance framework or risk it going through Parliament and the Senate, and the AFA and the FPA did that.
“We never drove the removal of high up-fronts. We never drove three-year clawbacks and all the other bits,” Fox said.
“We’re participants in a framework where the alternative looked far worse than being able to retain hybrids and helping advisers build business models that look to combine the price fees with the hybrid.”
