Lawyer warning on LIF adviser fee anomoly

There is a danger that adviser fees for insurance advice could form part of the capped benefits component under the new Life Insurance Framework (LIF), according to financial services lawyer, Ian McDermott.

McDermott said that while the proposed changes may have been broadly welcomed by the industry, the drafting of the remuneration cap provisions appeared to have created an anomaly which needed to be rectified before the legislation was finalised.

McDermott, the principal of imac legal & compliance, said it was pretty clear the proposed remuneration caps were only supposed to apply to commissions which have been deemed to be conflicted remuneration.

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"However, the wording of the exposure draft legislation (Corporations Amendment (Life Insurance Remuneration Arrangements) Bill 2015), in particular the proposed new s963B(1)(b) and s963BA, are drafted so that they could put a limit on any benefit given in relation to a life risk insurance product, not just commissions," he said.

"This could potentially include any fee-for-service or hybrid commission/fee arrangements advisers put into place.

"Typically, fees-for-service do not come within the definition of conflicted remuneration. But the fear is that, because they may be charged in lieu of or in addition to insurance commissions, they will be deemed to have met the conflicted remuneration definition because the nature of the benefits or the circumstances in which they are given could reasonably be expected to influence the choice of financial product or the financial product advice itself," McDermott said.

"If that is the case, fees-for-service could come within the capped amount."

He said this represented an uncertainty in drafting that the industry could do without and that it would be best that the new legislation made it expressly clear that adviser fees-for-service, whether they be standalone or hybrid, are excluded from the calculation of the remuneration caps.

"I urge advisers, licensees and industry bodies to provide feedback to Treasury and Australian Securities and Investments Commission (ASIC) as part of the consultation process to clarify and, if necessary, remove this anomaly," McDermott said.

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I was under the impression that the caps had been side-lined due to the unworkability of it. It appears it's getting slipped in again?

While we're at it, let's look at it from the client's perspective: If they receive make a "Fee for service" payment for advice relating to Income Protection or Business Overheads (almost always tax deductible), is the advice (previously paid for through premium) tax deductible, as it relates to the replacement of income, or is it (as per the ATO) part of "capital", and included in set up costs? Further, let's examine the more complex aspects of Business Succession, where the enactment of lump sums is intended for Key Person or revenue replacement. What happens then? The "Holier than thou" ideological purity of out of touch, unaccountable Consumer Advocates, failed academics and ideologues esconced in ASIC, Treasury, and government, and avaricious unions, banks and insurers will ultimately collapse the Australian economy, and has already driven it into hub deep mud. As the German medical community would declare in the 1890's: "The operation (framework, procedures, process, etc) was perfect, but the patient died...". We will have a "perfect" F/S Regulatory regime, but no advisers, no clients, and being unaffordable. Shades of "Yes, Minister"!

Dead right Davey...whatever happened to the less red tape and more productivity mantra of the coalition government? Seems to be getting worse, well in this industry anyway. My working day as an adviser is filled with fear. I no longer work for the client but for the regulator and licensee. Financial advisers will still be around, but I suggest overqualified and perhaps underpaid for the risk involved. Other occupations may start to look more attractive.

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