AIOFP calls for return to pre-LIF environment
The Association of Independently Owned Financial Professionals (AIOFP) has put forward a number of recommendations to fix the life insurance industry.
AIOFP executive director Peter Johnston has presented measures that the association believes would repair the damage wrought by the Life Insurance Framework.
“We are currently witnessing the demise of the once almighty life insurance industry in Australia, unless rescued by government policy intervention there will be further widespread severe negative connotations and outcomes for consumers, taxpayers and the nation’s financial position,” Mr Johnston said.
In line with the AIOFP’s position of returning to a pre-LIF environment to encourage retail policy sales to consumers, its proposals for change are:
- Retain and increase the commission levels back to a capped 80 to 100/15 to 20 per cent configuration.
- Advisers give consumers a choice of a transparent commission and a fee-for-service payment option — let them decide what they want.
- The compliance impost is reduced to eliminate unnecessary costs and duplication.
- The FASEA exam is immediately restructured to eliminate the ambiguity intent and focus content on relevant risk advice capability.
- An amnesty period is given to risk advisers who exited over the past three years to re-sit a revamped exam to immediately re-enter the industry.
“The Life Insurance Framework is arguably the most destructive consumer legislation ever passed through Federal Parliament,” Mr Johnston said.
“We believe it was not a case of unintelligent politicians making mistakes but the first stage of a deliberate strategy to remove financial advisers from the consumer relationship. It has worked exceedingly well with around 50 per cent of the advice community leaving but unfortunately, 30 advisers have committed suicide over the cruel impositions.
“The AIOFP has contended from the outset that the LIF, FASEA and a ban on grandfathered revenue legislation was designed to starve, embarrass and intimidate advisers out of the industry, few now disagree with this position.”
The reduction of commission that came with LIF is central to the AIOFP’s recommendations, particularly when combined with the additional compliance obligations, which Mr Johnston added has resulted in many risk advisers unable to afford to remain in business.
“The LIF reduction in commission from 120 per cent to 60 per cent and the ridiculous impost of compliance has made it uneconomic for most risk advisers to sustain a business model. The circa 50 per cent resultant drop in retail inflows has starved life companies of new capital into their insurance pools ironically causing consumer premiums to increase by circa 50 per cent,” he said.
“A key element to this debate [is] consumers overwhelmingly want a commission structure in place to pay for their cover. We recommend advisers giving consumers a choice of a fee for service or commission option to select from — let them decide, not some Canberra bureaucrat with a flawed philosophical view.”
In November, the AIOFP addressed an open letter to Quality of Advice Review lead Michelle Levy arguing against the return of banks to financial advice.
According to Mr Johnston, the banks should stay out of advice “of any description” and stick to what they do best — “standard banking, administration, management activities”.