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Upfront life commissions should be raised: The Advisers Association

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The Advisers Association (TAA) says the upfront life insurance commission rate, set at 60% presently, should preferably be raised to 80% or higher in a submission to the Quality of Advice review.

TAA says the current arrangement is “too low” to cover the costs of providing insurance advice, which is reflected in the number of its members who have ceased providing it.

“Access to insurance advice for consumers has deteriorated with the exit of many risk specialists,” the submission says. “We will leave it to others to argue what the upfront commission should be but our starting point is it should not be less than the current 60% and preferably be 80% or above.”

Since January 2020 the upfront commission rate has been capped at 60% of the premium in the first year of a policy, under gradual changes brought in by the Life Insurance Framework. In 2018 the cap was set at 80% and in 2019 at 70%.

The TAA submission also addressed other questions raised in the review, which is a recommendation from the Hayne royal commission. The review is examining a range of advice-related matters including the remaining exemptions to the ban on conflicted remuneration, impact of life insurance reforms, compliance costs and role of technology.

TAA says it believes there are significant benefits to consumers and the broader Australian economy to continue to allow commissions on insurance, especially where the commission percentages are prescribed.

“The current mandated commission rates applicable to all providers go a long way to manage and minimise the risk of conflicts – as the adviser gets the same percentage and remuneration no matter which product provider they choose for their client,” TAA says.

“We have a strong view of the need to continue with commissions for life insurance products as this helps consumers have access to accessible, affordable and quality advice.”

TAA, which advocates on behalf of AMP Financial Planning and Hillross Financial Services financial advisers, also made a joint submission with 11 other financial services associations including the Financial Services Council, the Financial Planning Association and Association of Financial Advisers.

The joint submission focused on five key areas: consumer-first focus, recognition of professionalism, regulatory certainty, open data and innovation, and sustainability.

“Our joint associations believe in the value of financial advice and we wish to see an outcome where quality financial advice is both accessible and affordable for everyday Australians,” the submission said.

But the submission says the government and regulators, until recently, “appear to have taken the view that financial advice should remain a highly regulated environment that relies on black letter law, legislative instruments and regulatory guidelines”.

“This has led to a complex, inconsistent, costly and difficult to comply with environment with licensees and advisers being very fearful of making even the most minor error,” the submission said.

“The cost to serve consumers, customers and clients has increased significantly, with even simple advice or a simple review taking between 10-20 hours to ensure that all regulatory and compliance requirements are satisfied.”

Click here for the TAA submission and here for the joint submission.