Insurance and FOFA changes

The winds of change continue to blow in the financial services sector with the Assistant Treasurer, The Hon Josh Frydenberg MP, today announcing two important changes: 1. Industry has agreed on reforms to life insurance practices; and 2. The government intends to introduce (through regulations) several minor FOFA amendments before 1 July 2015.

 With the life insurance reforms, industry associations have agreed on a number of insurance-related proposals. The headline reform is a cap on upfront commissions of 60% of the initial premium (which compares with some current upfronts of 120%) and 20% ongoing commissions. Other changes include a 3-year retention (clawback) period on commissions; a ban on volume based payments; and introduction of fee-for-service insurance products. The Minister’s media release is available here and includes transitional timeframes.

 With the further FOFA regulatory ‘refinements’, the headline change is not going to be legislated until the second half of the year, i.e. changes to extend the current 30-day requirement to send fee disclosure statements and opt-in renewal notices to 60 days. Refinements proposed for pre-1 July 2015 cover: default superannuation advice to employers to be retail advice (this is a clarification of current arrangements); including a wholesale/retail client distinction for FOFA; several minor changes to basic banking products and other simple financial products such as travel money cards; and ensuring that benefits provided by a retail client are exempt from conflicted remuneration provisions. The Minister’s media release is available here.

 Importantly, after a long period of unprecedented change, the media release also stated “once these refinements are finalised, FOFA should be considered settled and given time to work.” That will undoubtedly be music to advisers’ and compliance managers’ ears.