The Federal Government has provided its response to the Quality of Advice Review (QAR) recommendations. While agreeing to retain general and life insurance commissions, it has decided to postpone other significant proposals, such as expanding the definition of personal advice, until consultation with stakeholders is carried out.
Financial Services Minister Stephen Jones’ recent announcement regarding the exemption of commissions from the ban on conflicted remuneration has been well received by brokers and life advisers. Phil Kewin, the CEO of the National Insurance Brokers Association, expresses satisfaction with the decision, stating that it provides the much-needed clarity for their industry.
Mr. Kewin expressed his reaction to insuranceNEWS.com.au, stating, “I would have been surprised if the outcome had been different, but you never know for sure.”
He further explains, “The government is essentially reaffirming its support for the preservation of commissions, but with the condition that there is client consent and appropriate disclosure, as outlined in the Quality of Advice recommendations.”
Michelle Levy, the financial services lawyer who spearheaded the review and presented her final report in December, proposed retaining the commissions remuneration model. However, she recommended that individuals offering personal advice to retail clients regarding general insurance products must disclose to their clients that they will receive a commission.
The condition of disclosing commissions also extends to life insurance.
According to Mr. Jones, the Albanese Government will fully or partially adopt 14 out of the 22 recommendations put forth by Ms. Levy.
Among the recommendations that will be adopted, the government has included the replacement of the statement of advice with a more suitable advice record.
Additionally, there will be clarity established that monetary or non-monetary benefits provided by a client do not fall under the category of conflicted remuneration.
The Government has agreed to the proposal of removing the Safe Harbour steps from the Best Interests Duty requirement. They will engage in consultation to determine the implementation details and assess the potential implications of adopting the “remaining parts” of the recommendation.
The proposed change entails replacing the existing Best Duty requirement with a new “statutory Best Interests” obligation.
In her final report, Ms. Levy specifies that the new statutory duty will solely apply to financial advisers. However, the Government has indicated that it is accepting “part of” the recommendation in principle.
Mr. Jones has expressed his approach as prioritizing between what is urgent and what is important.
Mr. Jones stated, ‘Not everything is a burning deck… which is not to say that we ignore the important.’ He further added, ‘We are keeping our options open regarding the recommendations and will finalize our stance on the remaining recommendations by the end of the year.
Mr. Jones explained that the QAR recommendations have been categorized into three streams by the government. Proposals that are considered less “urgent” are classified under Stream Three, which focuses on exploring new channels for advice.
Referring to Stream Three, Mr. Jones stated, “The final stream will assess the potential role of other institutions, such as banks and insurers, in delivering enhanced information and advice.” He emphasized that, in terms of priority, addressing the issues faced by financial advisers is more pressing.
The final stream also encompasses proposals regarding the expansion of the definition of personal advice, the removal of the general advice warning, and the potential allowance for non-relevant providers to offer personal advice.
The Council of Australian Life Insurers (CALI) has expressed appreciation for the Government’s response to the QAR. However, CALI emphasizes the significance of enabling life insurers to offer limited advice directly to Australians upon their request through appropriate government legislation.
CEO Christine Cupitt stated, “While this announcement is a positive step, further actions are required to address the unmet financial advice requirements of working Australians, extending beyond individuals nearing retirement.”
Mark Radford, Principal Solicitor at Radford Lawyers, highlights that the Government’s plan regarding the introduction of standardized consumer consent requirements for insurance commissions lacks clarity. He emphasizes the need to address the escalating issue of underinsurance, which leaves individuals vulnerable during challenging times.
According to Mark Radford, Principal Solicitor at Radford Lawyers, the lack of clarity from the Government regarding consent requirements is not unexpected, considering the need for clarification in the final Quality of Advice report. He emphasizes that insurance brokers must thoroughly evaluate the proposed consent obligations to ensure their practical feasibility.
Source : insurancenews.com.au