The Life Insurance Advice Working Group (LIAWG) released the
Review of Retail Life Insurance Final Report (known as the
Trowbridge Report) on 26 March 2015.
LIAWG was established by the Association of Financial Advisers
(the AFA) and the Financial
Services Council (the FSC),
and was independently chaired by John Trowbridge. The Report was
prompted by ASIC's Report 413: Review of retail life insurance
advice, released in October 2014.
The Report recommends the life insurance and financial advice
sectors adopt reforms across 3 broad areas.
Addressing misaligned incentives
The Report expresses concern regarding the inherent conflicts
that arise under existing remuneration arrangements between
advisers/ licensees and clients, particularly in relation to
replacement product advice and 'churning'.
To address remuneration issues, the Report recommends the
adoption of what it calls the Reform Model, which caps level
commissions at a maximum 20% of annual premiums and also includes
an Initial Advice Fee set at a maximum of $1,200. The Initial
Advice Fee is paid by an insurer to an adviser when a client first
takes out a new policy and cannot be paid for a further 5 years,
even if that adviser recommends a replacement policy.
A 3 year transitional period is proposed for the adoption of the
The Report also recommends a ban on licensees receiving any
benefits from insurers that might influence the advice
Quality of Advice
The Report comments on the use of overly restrictive Approved
Product Lists by some licensees, impeding an adviser's ability
to satisfy their best interests duty. To address this issue and
increase access to more competitive life insurance products, the
Report recommends that all licensees include at least half of
authorised retail life insurers on their Approved Product
The Report also notes the importance of clients being provided
with good quality life insurance advice that ensures the clients
are sufficiently engaged in the advice process and receive advice
that enables them to make informed decisions.
To improve the quality of advice, the Report recommends that the
life insurance advice industry, in consultation with ASIC and
relevant stakeholders, develop a best practice advice process. The
Report considers this should include:
enhanced adviser training and education
high standards of client engagement and education
clearer regulatory guidance from ASIC
The Report comments that the codes of practice in force within
the banking and general insurance industries have contributed to
discipline and fairness amongst product providers and been
favourable for consumers. The Report recommends the development of
a Life Insurance Code of Practice, modelled on the General
Insurance Code of Practice, aimed at setting best practice
standards for life insurers, licensees and advisers.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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