Quality of Advice Review proposes Commissions to be retained

Quality of Advice Review proposes Commissions to be retained

The much anticipated proposals in relation to Conflicted Remuneration have been released by Treasury as part of the Quality of Advice Review.

NIBA CEO Philip Kewin said, “Noting that these are only proposals at this stage and not the final report, the paper acknowledges that the industry is changing voluntarily and in response to recent changes in law, and the overall theme is supportive of the retention of the current commission structures, which we welcome.”

The proposal in relation to General Insurance is outlined in the proposals paper as follows:

“Retain the existing exemptions for benefits given in relation to general insurance products and consumer credit insurance, but financial advisers (relevant providers), insurance brokers and other intermediaries who provide personal advice to retail clients in relation to general insurance products or consumer credit insurance to obtain their client’s informed consent, in writing, to receive a commission or other benefit in connection with the issue of the general insurance product or consumer credit insurance.

In order for the consumer to be able to make an informed decision, the relevant provider, broker or intermediary must disclose to the consumer any commission and/or other benefits they would receive in connection with the issue of the general insurance product or consumer credit insurance.

This requirement would not apply to other distributors of general insurance or consumer credit insurance products (such as white label providers or retailers) that distribute these products on behalf of the insurer.

Where a general insurance product or consumer credit insurance can be renewed, consent could be sought prior to the initial issue of the insurance product and would not be required at each subsequent renewal, provided that the initial consent included the client’s agreement to the adviser, broker or intermediary accepting a commission and/or other benefits on renewals.”

Effectively, the recommendation is that the payment of a commission to a broker is allowable but must be disclosed and the client must give their consent. As this is a proposal at this stage, the design of this requirement is not yet known.

In making the recommendation, independent reviewer Michelle Levy acknowledged that “the general insurance industry is changing, voluntarily and in response to recent changes to the law. We have been told that, as a result of these changes, many of the key contributors to the misalignment between industry incentives and consumer interests (such as volume bonuses and junk products) have ceased or will shortly cease.”

While accepting that the payment of commissions still presents the risk of a conflict, Ms Levy acknowledged that the risk was diminished by a number of recent changes to the law, and would be further reduced by the proposals outlined in the initial proposals paper, including the removal of general advice and the requirement to provide “good” advice. She added that “a client should be put in a position to understand and consent (should they choose) to their adviser (broker) receiving a benefit from a product issuer.”

The proposals paper also addresses areas such as life insurance and time share. The full paper can be found at www.treasury.gov.au/review/quality-advice-review/conflicted-remuneration.

NIBA will be formulating our response on the template provided by Treasury, to be submitted no later than 14 November 2022.

If you have any questions, please email info@niba.com.au