The Australian Securities and Investments Commission (ASIC) has issued the formal legal document setting limits on life insurance commissions.

It sets an upfront commission of 60% of the first year’s policy costs, and a trail of 20%.

The upfront cap will commence on January 1 2020, but in the meantime ASIC has set limits for policies sold from next year.

Next year the upfront cap will be 80% of the policy cost, and the following year 70%.

The 20% trail takes effect from next January 1.

The ASIC document also enshrines the clawback, with 100% of the commission in the first year, subject to certain exclusions, and 60% in the second year.

This takes effect on January 1.

ASIC Deputy Chairman Peter Kell says setting commission caps and clawback amounts will reduce incentives to provide inappropriate advice.

“The commission caps and clawback requirements are important steps in improving the quality of advice,” he said.

“ASIC is warning advisers against inappropriately switching clients into new policies prior to this commencement date where this is not in their clients’ best interests.”

The regulator is using data from insurers to undertake targeted surveillance of advisers engaging in this misconduct, he says.