Three of Australia’s peak financial services bodies have met to discuss a swift resolution to concerns over the Financial Services Council’s (FSC) new insurance framework.
Last week, representatives from the FPA and Association of Financial Advisers (AFA) met with members of the FSC to talk through the details of the new policy.
“It was certainly a worthwhile meeting. It was an initial meeting and we expect to have further dialogue on this matter,” FPA chief executive Mark Rantall told InvestorDaily.
Rantall said the FPA had received a “lot of feedback from members” who had opposed the framework’s policy on clawbacks.
He said members were particularly vocal on the three-year time period to have clawbacks in place for replacement policies, particularly if the replacements were in the best interests of the clients.
“Whilst we understand level commissions are excluded from that, we seek clarification around hybrids and also clarification around full rebating of commissions costs back to the client where a fee for service has been charged by the adviser,” he said.
“There are more issues than just the replacement policy.”
He said the “positive outcome” had been a willingness by insurance companies, the FSC and other relevant associations to work towards finding a solution for advisers and make sure consumer interests were protected as well.
“All parties are keen to reach some sort of resolution to ensure that there is not any confusion on behalf of the advisers and move forward with a policy that’s in the best interest of consumers and advisers,” he said.
InvestorDaily understands the FSC intends to continue its discussions with the associations and will continue to work with all parties with the view to address all concerns.
AFA chief executive Richard Klipin said last week’s meeting allowed all parties to place “key issues on the table”.
“It’s fair to say this issue has created a lot of concern in the marketplace with advisers and licensees,” Klipin told InvestorDaily.
“What’s most important is that we frame up the debate appropriately and ensure that we’ve got robust data to make good policy decisions.
“We look forward to working constructively to get to an outcome that leads to a sustainable insurance industry.”
He said the AFA had been “on record” for a number of years regarding Australia’s underinsurance concerns and how advisers were “part of the solution and need to be at the table when working on the best way to address the sustainability issues”.
“Of course, with the GFC [global financial crisis and] the rise of competitive insurance offers, the industry collectively needs to address sustainability issues and all parts of the market need to have input and share responsibility for addressing issues that have arisen over the last few years,” he said.
“This is a key issue that needs focus and attention and [the AFA] continues to work with the FSC in resolving it.”
Earlier this month, FSC chief executive John Brogden said the council would meet with representatives from the AFA and FPA over its broad sweeping changes, which were aimed at eliminating churning of products and reducing Australia’s underinsurance problem.
Under the FSC’s new framework, where an upfront commission was taken, there would now be a clawback process, Brogden said at the time.
“This is quite a radical change of the remuneration process. If the policy lapses in the first 12 months, 100 per cent of the commission will be paid back to the insurance company by the adviser,” he said.
“Where there is a lapse in the second year, 75 per cent of the commission will be paid back. Where there is a lapse in the third year, 50 per cent will be paid back.”
He said it was the FSC’s intention to commence the changes on 1 July 2013, in line with a number of regulatory changes facing the financial services sector.
