THE POWER OF SELF-REGULATION

The long-awaited Quality of Advice Review Report was released last month, and while the Government has indicated it wants an independent review of the recommendations, the signs from an insurance brokers’ perspective are very positive.

The independent review was conducted by Michelle Levy, a well-respected Partner at Allens, who specialises in trust law, financial services regulation, prudential standards plus tax advice on superannuation funds and life insurance companies.

While the review had a broad scope and primarily focused on the Quality of Financial Advice, the key issue for insurance was the reviews’ brief to address Recommendation 2.6 from the Royal Commission into Misconduct into the Banking, Superannuation and Financial Services Industry, otherwise known as the Hayne or Banking Royal Commission. The recommendation was to consider whether the exemption to the ban on conflicted remuneration under the Corporations Act, remains justified, i.e., should commissions continue to be allowed?

The response from Ms Levy, was yes! The report reads, “subject to one condition, I recommend that the conflicted remuneration provisions in the Corporations Act for benefits provided in respect of general insurance remain as they are.” The condition is that a person who provides personal advice to a retail client in relation to a general insurance product must explain to their client that they will be paid a commission if the client decides to buy the recommended insurance product and they must ask for the client’s consent. It is important to note that it is the record of consent that is to be in writing, not the consent itself, so a phone call or email is sufficient, though we know many brokers will insist on written consent for further protection.

Ms Levy acknowledged that like financial advisers, clients look to brokers for independent advice. “Where they provide personal advice to retail clients, they will have an obligation to provide good advice. In a perfect world, they would charge a fee for their advice and they would not be paid a product commission. And in some cases, they do. This is because commissions do create a conflict – they provide an incentive for the broker to sell a more expensive insurance product or more insurance than might be required by the consumer. However, I have not been able to find any real evidence of widespread misconduct and I am concerned that consumers who rely on brokers may not be willing or able to pay a fee for their advice”.

Other recommendations include an expansion of the application of personal advice to ensure the client fully understands whether or not their personal circumstances are being considered in the delivery