A planned separate review of the Life Insurance Framework (LIF) – which caps commissions paid to advisers – will now be conducted as part of a broader examination into quality of advice offered to consumers.

Financial Services Minister Jane Hume announced the change last week, outlining the Morrison Government’s expectations and priorities as the industry prepares to defend the commission-based remuneration model.

“Access to high quality advice is important, whether it be in financial planning or life insurance,” Ms Hume said in her address to the Financial Services Council’s (FSC) Life Insurance Summit last week.

“In order to continue the transition of the advice industry to a true profession, it is important that remuneration structures move closer toward alignment with other professions.

“That does not mean that there is no future whatsoever for commissions. Parliament has continued to allow commissions in life insurance.

“The issue with commissions is not their existence per se. The issue is when they influence the advice provided.

“In short, the problem is when an adviser receives conflicted remuneration.”

She says advisers “need to be paid for their work” but also recognises a flat fee model “can be a challenging business proposition”.

“Consumers struggle to understand what they are paying for,” Ms Hume said. “They may not have the cash to pay upfront themselves.”

Ms Hume says merging the two reviews “will avoid some duplication” of the work involved. Treasury will now look into the LIF review as part of its “wider mandate” for the quality of advice examination, which was recommended by the Hayne royal commission in its final report released in 2019.

FSC has welcomed the move to merge the two reviews. CEO Sally Loane says it will mean less duplication of process for the industry.

Ms Hume says the Australian Securities and Investments Commission (ASIC) – which was to have carried out the LIF review – will finish its data collection as planned for the review and provide the information to Treasury.

“The Quality of Advice Review will be conducted under the one roof by Treasury, who can appropriately consider the full breadth of issues impacting on both quality and affordability of all forms of financial advice,” Ms Hume said.

The Hayne royal commission in its final report says the Quality of Advice review should preferably be completed by June 30 next year but no later than December 31 2022.

It also says the review into “conflicted remuneration related to life insurance products” should consider further reducing the cap on commissions. The cap should ultimately be reduced to zero unless there is a clear justification for retaining those commissions.