Could life insurance commissions really be banned?
What is the future for life insurance commissions?
While all advice businesses – risk-focused practices in particular – are rolling up their sleeves and adapting to the reality of the Life Insurance Framework remuneration reforms, a new narrative has emerged, courtesy of initial insights stemming from the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.
The future of risk commissions was raised in the Banking Royal Commission’s Interim Report Volume 1, which deals with the Commission’s first four rounds of hearings during the first half of 2018.
Amongst many issues that emerged in connection with financial advice, Commissioner Hayne notes:
Should the life risk exceptions to the conflicted remuneration provisions now be changed?
- How far should they be changed?
- If they should be changed, when should the change or changes take effect?
In his 39 policy questions arising from the Royal Commission’s Module 6 hearings into Insurance in September, Commissioner Hayne again raised the issue of the future of risk commissions. Question 8 reads, in part:
Should monetary benefits given in relation to life risk insurance products remain exempt from the ban on conflicted remuneration…
These two sets of comments from Commissioner Hayne appear to place the future of life insurance commissions in doubt, especially given the government of the day (whichever government that may be), will fall under significant political pressure, given the revelations stemming from the Royal Commission, to implement all of Commissioner Hayne’s recommendations, or have a very, very good reason for not doing so.
In an editorial four years ago, in the lead-up to the release of what became known as the Trowbridge Report, we suggested that, given the direction the industry appeared to be heading at the time, that a ban on upfront commissions in favour of either an 80/20 hybrid or flat commission model, which at the time seemed unacceptable, may be seen as a victory for common sense, rather than as a defeat.
Fast forward to late 2018, and it may appear to many advisers that retaining the restricted commission structures being implemented by the Life Insurance Framework reforms, which will ultimately settle at a 60/20 hybrid model, might very well now be viewed as a ‘win’, especially for risk-focused advisers, if that model is retained after the dust settles on the fallout from the Royal Commission.
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