The only good news for life insurance advisers in the Federal Government’s response to the Financial System Inquiry is that changes to commissions and the controversial clawback proposal will now start on July 1 next year – a six-month delay.

Assistant Treasurer Kelly O’Dwyer says industry proposals announced in June and agreed with the Association of Financial Advisers (AFA), Financial Planning Association (FPA) and Financial Services Council (FSC) will go ahead.

“We are announcing the adoption of that industry proposal in response to the inquiry and that will commence from July [next year],” she said. “There are changes to the upfront commissions that will be applied and also the trailing commissions.

“There will also be a clawback period that also applies for remuneration.”

The AFA and FPA have remained quiet on adoption of the Life Insurance Framework, but the FSC has praised the move.

This is not entirely unsurprising, because life insurers will be the big winners from the changes.

“We are pleased the Government has continued to lead reform of the advised life insurance sector and will progress the industry reform proposal,” FSC CEO Sally Loane said.

“When implemented, this package of reforms will substantially benefit consumers.”

She says the FSC’s forthcoming life insurance code of practice will complement the package and provide further consumer protection.

AFA CEO Brad Fox says his group will continue talking to the Government about “the detail and implementation of the framework”.

“Ensuring fairness and balance is important for all parties: consumers, insurers and financial advisers – especially those who own and advise in small businesses,” he said.

The Financial Planning Association (FPA) has been silent on the plan.

If the reforms do not work, the outlook for life insurance advisers is even bleaker.

“The Government will consider the extent to which legislation and/or action by the Australian Securities and Investments Commission may be necessary to implement the industry agreement,” Canberra’s formal response to the Financial System Inquiry says.

“A government review in 2018 will consider whether the new industry arrangements for life insurance advice have better aligned the interests of firms and consumers.

“If the review suggests further reform, consideration would be given to the inquiry’s recommendation for a level commission structure or further extending the existing Future of Financial Advice provisions on conflicted remuneration to life insurance advice.”

Advisers will also face higher professional, ethical and educational standards, and the Government will fund a new industry body to define these.

They will have to hold a degree, pass an exam, undertake continuous professional development, subscribe to a code of ethics and undertake a professional year.

Legislation for these new standards will be introduced by the middle of next year.

“The Government will consult on appropriate transitional arrangements for existing advisers,” the response says. “The recently established register of financial advisers will be amended to clearly identify whether individuals meet the new standards.”

Only those on the register can call themselves financial advisers or planners.

There will also be legislation requiring advisers to disclose relationships with associated entities.

Both Commonwealth and NAB have welcomed the changes to adviser standards.

Commonwealth CEO Ian Narev says the bank has advocated enhanced professional standards for advisers and “looks forward to continuing to engage closely with the Government and regulators on the details of all reforms as they are implemented”.

NAB Group CEO Andrew Thorburn says the bank has already strengthened the qualifications of its financial advisers.

“New NAB financial planners will need to hold a degree qualification, and existing senior planners are required to hold a Certified Financial Planner designation or be working towards one,” he said. “Our submission to the [inquiry] supported a national exam for existing planners.”