The current Life Insurance Framework Bill is flawed because it doesn’t include the recent changes to the best-interests duty, former Association of Financial Advisers President Michael Nowak says.

“The framework proposal only addresses remuneration for advisers, delivered in the form of a blunt instrument and does not pay adequate consideration to recent changes to the best-interests duty and upcoming minimum education standards,” he says in a submission to the Senate Economics Legislation committee.

“Nor has it recommended that the life insurers play any significant role.”

Mr Nowak is MD of Joe Nowak Financial Services in Brisbane, a business with more than $3.5 million of life insurance premiums under management.

“Future of Financial Advice legislation passed in 2015 strengthened the best-interests duty by legally binding advisers to act in the best interests of clients,” he says. “Previously advisers were required to demonstrate that they know their client.”

The Australian Securities and Investments Commission (ASIC) now has greater powers to enforce such regulations, Mr Nowak says.

“Many argue that this alone is sufficient to make significant improvement to life insurance advice outcomes, as those doing the wrong thing can be dealt with by the regulator,” he says.

“It also avoids penalising the many advisers that are currently operating correctly.”

Mr Nowak says the ASIC report which started the push for more legislation was flawed.

“The ASIC report concentrated on a small sample of advisers who wrote large amounts of life insurance business but also those who had the highest lapse rates. Hence poor results were expected from this report.

“I was extremely surprised and concerned when ASIC… released this report as an ‘industry-wide’ report, as it clearly was not.”

Mr Nowak says the Government’s draft framework recommendation of level commissions was made without any consultation with advice bodies or advisers.

“It does not give any commercial acknowledgement to the fact that upfront quality life insurance advice takes a significant amount of time and resources to implement,” he says.

“The Financial Systems Inquiry Chair, David Murray, only engaged the banks and ASIC in consultation.”