Industry prepares for advice reforms as Treasury consults on draft legislation
The Federal Government has proceeded to implement the first phase of its response to the Quality of Advice Review (QAR) final report.
Last week Treasury released for consultation draft legislation to adopt 11 of 22 recommendations that Reviewer Michelle Levy made in her final report to the Government last year.
Of most relevance to the general insurance industry in the draft bill is the retention of the commission model, introduction of consent requirements for brokers/intermediaries that provide personal advice to retail clients and proposed Financial Services Guide changes.
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 Government will also announce its final position on the outstanding recommendations of the QAR report, including Ms Levy’s proposal to broaden the definition of personal advice, before the end of the year, Mr Jones said last week on the day the draft legislation was released for consultation.
An explanatory memorandum for the draft bill 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.
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 must be obtained before the issue or sale of the insurance product and the broker or licensee must have the client’s written consent or a copy of the written consent. If the consent is not obtained in writing, then a written record of the consent will suffice.
However, 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.
Closing date for submissions is December 6.
Click here for the exposure draft and other materials.