ASIC proposes tough stance on clawback
Life/risk advisers will have until 29 January to respond to an Australian Securities and Investments Commission (ASIC) consultation paper on the new Life Insurance Framework regulatory arrangements in which it has defended 100 per cent commission clawback.
The consultation paper, issued today, outlines the regulatory approach ASIC intends taking in the event that the Government's underlying legislation passes the Parliament and makes some very pointed references to the two-year clawback formula.
It said the proposal to impose a maximum commission level of 60 per cent of the premium in the first year of the policy, together with the requirement to repay 100 per cent of the commission if the policy lapses, was "designed to reduce the incentive for advisers to inappropriately rewrite clients' policies".
"Increasing the period for clawback is intended to remove the incentive to rewrite the policy for at least two years, and reduces the level of the conflict of interest for the adviser," it said.
"Even though the reform package reduces the current levels of upfront commission to 60 per cent of the first year's premium, we still consider the clawback arrangements are necessary," the ASIC discussion paper said.
It said the combination of the cap on upfront commissions and the clawback of commission over a two-year period should bring about better quality advice, as it significantly reduced the incentive for advisers to inappropriately switch a client's policy.
The discussion paper also makes clear the level of data ASIC would be requiring from insurers with regard to churn, with the insurers being required to provide detailed analysis of why policies lapsed.
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