The Financial Services Council’s submission to the Life Insurance and Advice Working Group closely resembles the final Trowbridge Report, InvestorDaily can reveal.
The FSC’s private submission – a copy of which has been leaked to InvestorDaily – makes a number of recommendations to “improve consumer outcomes and address issues raised in the interim report”.
Like the Trowbridge Report, handed down by independent LIAWG chair John Trowbridge on March 26, the FSC’s submission – dated February 5 and signed by FSC director of policy and global markets Andrew Bragg – called for an overhaul of the remuneration system for financial advisers recommending insurance products.
Recommendation number 1 urges the removal of “high upfront commissions from inception” and that the industry move to a “level percentage commission structure so that the upfront commission for life insurance advice is no greater than ongoing commission on an ongoing basis”.
Like Mr Trowbridge’s “reform model”, the FSC’s “proposed model” argues that the level should be lower than current market rates, offering 20 per cent – the figure recommended by Trowbridge – as an appropriate level.
The FSC submission proposes an “optional additional first year adviser service payment” to provide “partial, but not total, compensation to advisers for upfront costs”, similar to the “initial advice payment” (IAP) recommended by the Trowbridge Report.
Both the FSC and Mr Trowbridge recommend that a responsibility period should apply and that existing arrangements for “clawback” of payments should also apply to the service payment/IAP.
The submission suggested that its “proposed model” be implemented by the industry through a “self-regulatory mechanism” or through legislation if this option is unfeasible.
It called for a code of practice for life insurers, adding “this would likely be a code which is agreed by the FSC’s life insurance members” and said 12 months would be required to prepare an appropriate code.
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