The Financial Services Council (FSC) is understood to be close to reaching a compromise on its so-called Life Insurance framework which, if agreed, would give advisers a less prolonged exposure to the claw-back of their upfront commissions.
Money Management understands that following a series of discussions with both the Association of Financial Advisers (AFA) and the Financial Planning Association, the FSC is being asked to agree to some adjustments around its framework – with the aim of recognising some of the industry realities confronting advisers.
It is understood that a core part of the compromise discussions has concerned reducing the FSC's original three-year claw-back proposal to two years, and adjusting arrangements with respect to hybrid remuneration structures involving part fee-for-service and part upfront commissions.
The proposed compromise is intended to ensure that the graduated clawback arrangement would recognise the work carried out by the adviser to put the life policy in place.
The FSC's original policy position, announced during its national conference in August, was a tiered commission claw-back involving:
– 100 per cent of remuneration paid by an insurer to an adviser if the policy lapses within the first year;
– 75 per cent of remuneration paid by an insurer if the policy lapses within the second year; and
– 50 per cent of remuneration paid by an insurer if the policy lapses within the third year.
Explaining the FSC's position at the time, FSC chief executive John Brogden said the industry had been left with little choice other than to address the matter because of the approach adopted by the Minister for Financial Services, Bill Shorten, who had specifically referenced the need for a claw-back provision.
However, Brogden later used a joint Money Management/AFA forum to apologise to advisers for the lack of consultation prior to the FSC's announcement, and acknowledged the need to put downward pressure on premiums to allow advisers to be paid for work done.
At a later Money Management roundtable to discuss the issue, a number of senior insurance company executives acknowledged that it was difficult to assess the level of churn actually occurring in Australia because of a lack of specific data around lapse rates.
AFA chief executive Richard Klipin was reluctant to comment on the detailed issues under discussion, but said that it had been an extensive process.
"The FSC is to be applauded for the consultative approach it has taken and I think it is capable of leading to a workable outcome," he said.
