The Association of Financial Advisers (AFA) has released a response to the PJC Inquiry into Life Insurance Report, stating it was perplexed and disappointed by parts of the report, which it considers to have drawn conclusions without evidence and having missed the terms of reference for the inquiry.
Phil Kewin, AFA's chief executive, released a statement to members saying the Association noted its initial feedback has focussed on the recommendations that directly impact the retail advice insurance sector and financial advice.
Random Compliance Audits Recommendation
The AFA stated they are amazed at the recommendation, seeing as there is no new evidence or reporting referred to other than what was previously available. This has led to sweeping and significant reforms of the Life Insurance Framework and Professional Standards Legislation.
The Association openly opposes this recommendation, noting there was no basis for it and it contradicts measures already in place by the government and would duplicate audits currently performed by licensees, increasing the level of the ASIC Funding Levy paid by each adviser.
The AFA has suggested that audits should focus on those who are suspected of doing something wrong rather than random audits. ASIC would be able to ascertain who those people were from information currently available to them.
Review of Remuneration
The AFA has questioned the PJC’s recommendation of a review of licensee and adviser remuneration. The Association said the suggestion that there is a vast range of hidden remuneration in the retail advice sector is not substantiated anywhere in the report.
AFA also added that advisers have been obliged to disclose remuneration for years and non-monetary remuneration was banned under the Future of Financial Advice (FoFA) reforms from 1 July 2013.
Term of Reference
The AFA has criticised the failure of the Report to address part B of its own Terms of Reference, which required an assessment of the risks and benefits to consumers of the different elements of group, retail, and direct advice insurance. The AFA claims this report fails to address the objective.
The AFA stated that it merely rehashes research and reports in relation to retail advice insurance and previously comprehensive advice addressed by the government through FoFA, Professional Standards Legislation, and the Life Insurance Framework.
The AFA added that the Report made no attempt to investigate the merits of three life insurance channels and failed to compare the cost of claim payment ratios, underwriting issues, product features, insurance, and the quality of benefits across the three channels.
The AFA stated it would complete and release a more detailed analysis of the Report as well as a formal response. They would also be speaking to the government and politicians, noting the Government hasn’t yet responded to the recommendations made in the Report.
The AFA’s closing remarks were financial advisers and financial advice have been subject to scrutiny, regulation, and legislation over the last 10 years. The increasing cost to provide advice and this scrutiny is threatening the existence of the advice profession and the ability for small business advice practices to provide tailored, cost-effective financial advice.