ASIC confirms LIF review approach

The Australian Securities and Investments Commission (ASIC) has formally revealed the underlying processes for its review of the Life Insurance Framework. 

Answers to questions on notice from the House of Representatives Standing Committee on Economics has seen the regulator detail its approach. 

It said ASIC will review two randomly selected samples of personal life insurance advice files, one sample of files from 2017 before the LIF reforms were introduced and one sample of files from 2021 after the LIF reforms are fully phased in. 

“The advice files will be assessed for compliance with the ‘best interest duty and related obligations’,” it said. “The results will show whether the quality of life insurance advice has improved since the LIF reforms were introduced.” 

The regulator said it was also collecting aggregate level data from life insurers every six months, covering the period from 2017 to 2021. 

“ASIC will use this data to assess compliance with the law (i.e. compliance with commission caps and clawbacks) and to observe industry-level trends since the introduction of the LIF reforms. ASIC will publicly release the findings of the LIF review in late 2022 and will provide Government a copy of the report prior to its release.” 

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Why wouldnt the files from 2021 be assessed against the files collected and reviewed in relation to the production of ASIC Report 413? It is this report that determined the path forward with regard to LIF. Now ASIC are going to take a different set of files (from 2017) and compare that. What am I missing? Surely you compare to the files that got us in this mess in the first place.

Exactly, the cherry picked known Churn Advisers files in ASIC Report 413, perfectly selected to show the problem of Churn.
That post LIF ASIC said oops, Churn isn't a real problem unless we pick the known dodgiest Churning Life Advisers and guess what, we got the Report and Stats to prove a complete lie. Welcome to LIF !!!!!
ASIC will again Cherry pick files to tell the story they want to tell.
Just ask Labor's Stephen Jones, case closed Life Insurance Commissions are Bad and Go to ZERO.
Forgone conclusion ASIC, disgusting Regulatory Capture corruption against Real Advisers.
But as long as Industry Super use wholesale HIDDEN COMMISSIONS on a grand scale for their Life Insurance that is fine.
And Industry Super can happily use HIDDEN COSSISIONS to provide Intra Fund Sales / Advice and further use such Hidden Commissions to cross subsidies their Industry Fund Advisers that provide more detailed Advice.
Any other Commissions, like Real Adviser Life Commissions must cease.
ASIC - report complete, hatchet job complete.
Great ethical job done ASIC.

Good luck with the comparison. In 2017 they could have reviewed my client risk files and in 2021 they wont have a file to review. Essentially all the LIF reforms have done is seen less people having access to the vital protection they need. So from a quality point of view you can probably pat yourselves on the back, but I hate to think about the heartbreak that some consumers have endured because the LIF reforms. All its done is have less advisers providing advice on insurance, client premiums going up, clients cancelling cover or not getting cover in the first place. But hey, at least the file audits have improved.

Can’t wait to be screwed over again

Hopefully the files will show no improvement. Using a scientific analogy, as commission levels were the variable manipulated and they haven't had the expected change and will be reinstated to pre LIF levels. Then ASIC can find another variable to pin their false hopes on. Maybe try individual licensing, or capping PI premiums? Or breeding unicorns?

Jeez I hope all you old AFA lifers are thinking of existing the industry soon ? That's so the real pros remaining can get on and look after clients rather than worry about bloated trails being paid for doing diddley squat. The savings for punters on a no commission life insurance product are massive. Oh. But some don't give a shit about that...

Hi Big Trev, I'm not sure if you are being sarcastic or not. Maybe you are a holistic adviser that uses the fees from your investment and superannuation advice to cross subsidise the costs you incur in providing those same clients with insurance advice where you dial out 100% of the commission. Maybe you are not even an adviser! Or maybe we just leave them to the Industry Funds - I have a 44 year old client who is paying 3 time the cost of an individually underwritten policy for $1.2M life and TPD cover. I do give a shit about getting more people appropriate, cost effective advice.

I think Big_Trev is really a Little_Trev.

Your argument doesn't hold water...

The upfront commissions on a life insurance policy pre-LIF amounted to the equivalent of around 15% of premium per year, but the reduction in advised new "sales" made has shrunk the industry to such a degree that many life offices are no longer engaging in new business. For those life offices still participating in new sales, the reduced revenue means they no longer have the same economy of scale. Their cost ratio increases and their policy holders suffer with increased premiums. Have clients benefitted with lower premiums since LIF was introduced? No. The only notices I have seen come through to clients since LIF was introduced are the same notices we saw previously where companies have had to increase their charges.

The only variable was commission and it is quite clear that advisers are not being remunerated sufficiently for the work needed to be done to write a book of advice for any particular client.

Ahh. Nup. nice try trying to promote an argument supporting bloated commissions.
More likely to do with the massive removal of younger people from the overall pool, thanks to the various super reforms that has seen thousands of young people lose cover. Equally, the claims increase in mental health related issues has also contributed to the profitability of Insurnace. Of course, you blow your own argument about affordability. If the commissions were not a factor, then the premiums by definition are less. It means your client can afford more cover for the available premium. You need to have a different charge structure based on fees for work done. But of course, that then puts the actual work done under the glare of the spotlight and you might not be able to justify a fee that pays the same amount as a semi hidden commission. OMG complete accountability that considers value for money for a client ! That will be terrifying for some..

Please provide your address....we need to talk.
And I don't mean the skip bin in the alley.

Is this the Big Trev who holds Industry Fund insurance?

Big Trev, you write - "But of course, that then puts the actual work done under the glare of the spotlight and you might not be able to justify a fee that pays the same amount as a semi hidden commission."

Could you please explain where/what the 'semi hidden' commission is? Is such a fee not required to be disclosed in the Statement of Advice?

Big Trev, you also write, "OMG complete accountability that considers value for money for a client ! That will be terrifying for some.."

Have you considered the function of Standard 7 in the FASEA Code of Ethics? It states, "You must satisfy yourself that any fees and charges that the client must pay to you or your principal, and any benefits that you or your principal receive, in connection with acting for the client are fair and reasonable and represent value for money for the client?"

Are you suggesting that the current requirements do not require advisers to consider value for money for a client?

With regard to providing choice in how Australian's pay for the provision of financial advice, there appears no consideration to this at all within your post. Is there a 'semi hidden' societal consequence of not allowing choice?

If I recommend a policy with $1,000 premium, I get paid $600 commission for the time and effort involved in meeting the client, documenting a fact find, analysing their requirements, assessing potential products, writing an SoA, presenting the SoA, lodging the application, dealing with underwriting queries, and writing voluminous file notes. After business overheads, that $600 becomes about $400 of pre tax income. You think that's bloated?

By the way if the client's application is declined by the insurer, I get paid nothing. If the client cancels the policy within the first two years I have to pay some/all of it back.

You know . I really don’t give a shit. Dinosaurs die. Try to defend your indefensible position. I’ll prosper while you thrash about.

Big Trev, you gave enough of s*** to write what you did and now you don't want to back it up.

That's disappointing. Yawn...

Because ASIC manipulated the process in regard to Report 413, the lack of respect or trust this time around is non existent.
Previously ASIC were out to prove the higher the commission rate, the greater the likelihood of potential of policy churn. The problem lay in the fact the very small sample group were chosen to support ASIC's pre-determined outcome.
There is also now another major problem looming and that is the volume of insurance policies that have had to have been cancelled by policyholders or adjusted downward in the last 8-10 months because of skyrocketing premium increases and the financial impact of COVID 19.
If these policies have shown to have lapsed or to have " partially lapsed " due to a re-adjustment of premium due to unforseen affordability issues, the Life Insurers will now be reporting these to ASIC as lapses, cancellations and/or policy replacement when the recommendation to change has not been instigated by the adviser, but requested and instructed by the client.
Not only will these examples be used to adversely affect the ASIC data, but the adviser will be compromised by the report being provided to ASIC, even though the adviser has done nothing wrong.
It is this manipulation of data to suit a purpose which is entirely wrong, unfair and unacceptable.
The purpose of Report 413 was to determine the extent of policy churn based on various commission rates , but described the " quality of advice " as being a key factor.
The inference that the quality of advice is determined around remuneration levels is absurd.
A client can receive high quality advice if the maximum or minimum remuneration was charged, a fee for service was charged or in fact absolutely no fee at all was charged.
Similarly, a client can receive substandard advice in respect to varying remuneration models also.
The pure fact is that there exists an overwhelming obsession with adviser remuneration within ASIC, the Labor Party (just see Stephen Jones' latest comments) and consumer groups.
The available data that clearly shows the consumer is unwilling to pay a fee for service only model for insurance advice is well documented and readily available. It just appears that Stephen Jones just doesn't know about or chooses not to know.
As Labor's Stephen Jones was quoted as saying " his party will engage with the 2012 ASIC review of life insurance commissions with a bias against retaining them at any level.".
" I've got to say I start with a bias against commissions" he said.
When you have this sort of uneducated, ideologically based bias from a senior politician, it is negligent and irresponsible.
The regulator has lost the trust of financial advisers in regard to the Life Insurance space because of the manner in which the previous report sought to significantly penalise all advisers because of a small minority.
There were controls that could have been easily implemented to monitor and control the incidence of policy replacement but the regulator and the Govt chose to ignore the expertise and simply penalise everyone.

Stupidity knows no bounds!

I think I see how ASIC will play this out. They will never admit that their previous report 413 was a con and they will never admit that the LIF has been a disaster for customers and has increased lapses and under-insurance to unprecedented levels. ASIC and the FSC are responsible for this.
I think ASIC will simply come out and say that they think advice on files reviewed has improved (because they are not targeting specific advisers to get the result they want this time) and will then try and shift the blame for the negative impacts of the LIF to the insurers and the FSC.

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