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The Minister for Revenue and Financial Services Kelly O’Dwyer says the reduction of upfront commissions will better align the interests of financial advisers and their clients, following the passage of the Life Insurance Framework bill through the House of Representatives.
Ms O’Dwyer said in a statement the changes to LIF will significantly reduce the incentive for advisers to churn clients between life insurance products where there is no consumer benefit.
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“High upfront commissions have been identified as a significant cause of poor quality life insurance advice,” she said.
“ASIC’s 2014 review found that in 45 per cent of cases involving high upfront commissions, the advice provided failed to meet the legal standard.
“This is unacceptably high. Similar concerns were also expressed by the Murray inquiry and the industry-initiated Trowbridge report.”
Under LIF, the rate of upfront commissions paid to advisers will be phased down to a maximum of 60 per cent, with ongoing commissions capped at 20 per cent, the statement said.
The bill will also introduce a two year upfront commission clawback period under which 100 per cent of the upfront commission will be clawed back in the first year, and 60 per cent of the upfront commission will be clawed back in the second year, should a policy lapse.
Level commissions and fee-for-service remuneration will remain and be uncapped, the statement said.
The changes will commence on 1 January 2018 and will apply equally to all life insurance advisers, and will provide flexibility to ensure the reforms capture all life insurance channels in the future, including those that may not be considered to provide financial advice.
[Related: Govt lobbied over commission clawbacks]
