Australia: Planners lobby against commission clawback
Source: Asia Insurance Review | Nov 2015
The new Australian Cabinet, which took office after Mr Malcolm Turnbull was sworn in as Australia’s 29th Prime Minister in September, is urged to review the three-year commission clawback provisions in the Life Insurance Framework (LIF).
The Association of Financial Advisers (AFA) and other key stakeholders dealing with the LIF have been holding meetings with the new Assistant Treasurer, Ms Kelly O’Dwyer with the AFA seeking greater clarity around the clawback.
The AFA has declared that the proposed three-year claw-back contained in the LIF transfers too much responsibility from insurers to advisers. Further, AFA Chief Executive Brad Fox has claimed the arrangements might compromise advisers’ best interests responsibilities.
LIF is a reform package proposed by AFA, Financial Planning Association of Australia and Financial Services Council on behalf of the retail life insurance industry. Under LIF, the clawback is 100% of the commission on the first year’s premium if the lapse occurs in the first year of the policy, 60% of the commission on the first year’s premium in the second year of the policy, and 30% of the commission on the first year’s premium in the third year of the policy.
One issue is that under LIF, some clients face the likelihood of being locked into products that can quickly become uncompetitive as premiums are raised. Mr Simon Hoyle, Editor of Professional Planner said that in some cases where advisers have sought to switch clients to cheaper alternatives, they have been labelled as “churners”.