Government moves forward on commission, advice reforms
Treasury has released draft legislation to implement proposed advice changes as recommended by the Quality of Advice Review (QAR), including requiring general insurance brokers to obtain “informed” consent in writing from retail clients before accepting a commission.
The package of draft laws released today is part of the Federal Government’s phased response to QAR Reviewer Michelle Levy’s recommendations after she submitted her final report in December last year.
Financial Services Minister Stephen Jones had announced in June the Government will take up several of the proposals including keeping the commissions remuneration model, and will progress the implementation in a three-phase process.
The tranche of law amendments released today represents the first phase and Treasury’s draft explanatory memorandum says the exposure Bill implements 11 of 22 recommendations in the QAR final report.
The Bill’s provisions include improving consent requirements for general, consumer credit and life insurance, the explanatory memorandum says.
A broker or intermediary who provides personal advice to retail clients must have the client’s “informed” consent before accepting a commission or any other monetary benefit under new requirements that the Government intends to introduce.
Consent must be obtained before the issue or sale of the insurance product and before the client can agree, the adviser must disclose information such as the name of the insurer, an explanation why consent is required and the rate of monetary benefit.
For general insurance products, advisers must disclose the rate of benefit as a percentage range of the premium.
“This provides a genuine and real opportunity for the consumer to make an informed decision before deciding to be issued or sold a certain insurance product,” the explanatory memorandum says.
Consent should be recorded in writing and it would apply to the commission paid when the product is first issued and the commission paid on each subsequent renewal. Consent is not required for any renewals of the same type of cover provided the client’s original consent applied to the commission payable on any renewed cover.
If the client does not consent, then the advice provider can agree to provide the advice for a fee paid by the client, or they can decline to provide the advice.
Proposed Financial Services Guide (FSG) changes will also impact general insurance. The draft Bill takes up the QAR recommendation to allow personal advice providers the “flexibility” to decide how they disclose the information that is otherwise required to be in a FSG to their clients.
The proposed FSG change means a provider can choose whether to continue providing an FSG in accordance with the current law or alternatively provide the FSG on their website, subject to certain requirements.
These requirements include making sure the advice provided is personal; and at the time the advice is provided, the client has not requested a copy of the FSG and the information that would have been in the FSG is available on the provider’s website.
Radford Lawyers Principal Solicitor Mark Radford says the FSG changes are positive as “they will reduce red tape”.
On the commission consent requirement, he says the “most important change relates to the obligation on brokers to obtain informed consent for their monetary remuneration and provide certain information, failing which the conflicted remuneration exemption won’t apply, exposing them”.
Closing date for submissions is December 6.
Click here for the exposure draft and other materials.