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.
"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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