Industry funds argue LIF is 'relatively feeble'

Industry superannuation funds have told a Senate Committee that the Government's legislation underpinning the Life Insurance Framework is 'relatively feeble' when it is compared to the approach recommended by both the Financial System Inquiry and the Trowbridge Report.

What is more, the industry funds have warned the committee that the legislation has still failed to eliminate the "opportunity for payments from life insurers to advisers".

The criticisms are contained in a submission from the Australian Institute of Superannuation Trustees (AIST) to the Senate Economics Legislation Committee inquiry into the Corporations Amendment (Life Insurance Remuneration Arrangements) Bill 2016.

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The submission argues that the provisions in the Bill are "relatively feeble compared to the approach recommended by both the Financial System Inquiry and the Trowbridge Report".

"We note that the Financial System Inquiry, which recommended banning upfront commissions, whilst the Trowbridge inquiry recommended eventual transition to an initial advice payment (IAP) and level commissions of 20 percent of premiums," the submission said.

"We note that this Bill will still provide the opportunity for payments from life insurers to advisers and consequently, we do not support the provision to allow the Australian Securities and Investments Commission (ASIC ) to make criteria that allows for these payments.

The AIST submission urged the inclusion of a sunset clause "to ensure that it is eventually phased out, along with commissions, generally".

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The AIST should then also make a submission that no industry funds receive any payments for placing their insurance business with external parties. Rebate it back to the clients if you want to do the right thing, talk about a pot and a kettle, this is the biggest pot of hypocritical crap going.

Constant sabotage by ISA (or ISIL?) is impossible to bear.

Just abolish all Industry Funds who have used poor underwriting to provide inadequate "Life Cover" and receive Commissions at the same time!

I really don't understand why ISA have any say at all on legislation in the life insurance industry. They are only participants in the industry through their group insurance contracts, why should they have any say on how financial advisers are paid and operate in the retail sector.

Just another attempt by the Industry Funds to wipe out small independent financial planners, who they view as competitors. If they were serious, they would lead by example and provide all insurance in their super funds at cost, rather than banking commissions or other profits on the premiums they skim from members accounts. The erosion of small client balances from insurance policies members didn't request or agree to, especially low income workers with multiple funds is a scandal on a grand scale.

The fact is that Industry Super Funds have a vested interest in independent advisers beind rendered unable to operate. I don't understand why they should have ANY say in this at all.

Mark my words...commission will eventually go. More and more bad reports will continue to emerge in the media which will tarnish advisers and commissions. This will continue until commissions are removed. It's best the our industry accept this will happen and work on efficient advice now. That will mean removing costly inefficient SOAs as we know it. A standardized file note template should be sufficient. We should be able to charge a fee for reviewing people's insurance, the definitions, level of cover etc. become the sought after experts.

Given we're all going to be degree qualified professionals with no commission bias, we should therefore be able to operate without the costly time-consuming compliance regime.

A whole lot of HESTA and Care super members have had claims denied by Comminsure after being recommended to get those insurances by advisers and "workplace educators" employed by HESTA and Care. Comminsure was recommended because it is the underlying provider of the insurance built into HESTA and Care super funds. Those advisers weren't paid commission, yet it appears they gave very poor, conflicted advice, without due consideration of alternatives.

Proof that method of remuneration is not the issue, unmanaged conflict of interest is. And inhouse advisers in a financial product company have the greatest conflict of interest.

Hi Paul, I agree with a lot of what you say regarding biased advice from in house Advisers not being ideal for super members, but to say that there is a link between Comminsure declining claims and poor advice from Advisers is another example of Advisers being blamed for a situation that is out of their control. There's only ever 2 reasons for insurance claims being declined and they are non-disclosure on the part of the client or dubious claims decisions by the insurer. The Advisers you mention may not have the ability to shop around for the best policy for those members but have recommended cover from one of the major life insurers in the country and have had their names tarnished by the shocking claims processes of that insurer. I'm assuming your an Adviser - I think as a profession we need to steer clear of blaming other Advisers wherever possible.

We have to be paid for what we do for clients or we go broke; it is as simple as that. Knowing that commissions on products was going to be dropped due to pressure from union fund advertising, the sentiment of which was amplified by the media, I did a two year survey of my clients asking if they would prefer to pay me via a fee for service or by commission. With only one exception everyone elected commission as the preferred method of payment leading me to the conclusion that commissions are understood and accepted by Australians but they retain a strong aversion to fees.
Based on the flawed premise that being paid by commission was a conflict of interest and being paid the same amount by fee-for-service was not, clients have been denied a preferred method of paying us for our services.
When I came into the industry over 25 years ago, I was told insurances was sold, not bought. Except for members of some professions and insurance cover bundled as default cover on superannuation policies, that is still the case. Given that the majority of Australians are significantly under-insured, the latest outcomes will only exacerbate the situation. If they get their way, we can expect industry super funds to continue to push for no commission to advisers while at the same time seek to increase their shoddy declining default cover as a way of increasing the commissions they receive from insurers.
I do not deny that churning was the catalyst for Trowbridge and the Senate Committee and agree with any measures to make illegal this immoral practice. To inflict unnecessary restrictions on all practitioners and create unintended under-insurance consequences way into the future to curb these practices is the wrong approach. Brett H correctly points out that union funds should have no voice in this issue but as has been apparent in the past, they could not pass up another opportunity to strengthen their position at the expense of the retail sector.

Great post Keith agree 100% and explains how a lot of us feel about this issue.

Great comment Keith. Hopefully it will now all come out how the group life premiums calculated and allocated and claims are processed with thd big part how much of a percentage is kept but not returned to the members, lets see if the industry funds have the transparency they claim they have

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