The Trowbridge Report

The Review of Retail Life Insurance Advice Final Report, the so called Trowbridge Report, was released on 26 March 2015.

The report was commissioned by the Association of Financial Advisers (AFA) and the Financial Services Commission (FSC) as its response to ASIC’s 2014 Report 413 Review of Life Insurance Advice. The review was independent and received 137 submissions concerned with the quality of advice, remuneration and other adviser incentives, insurer product offerings and industry productivity.

You can read the full report here: the Trowbridge Report.

Not surprisingly, amongst other things the Trowbridge Report recommended across the board commission caps and the banning of certain payments to AFSLs that can influence advice.

Not surprisingly, the Trowbridge Report generated heated debate between the insurers, the adviser representative groups and the government, in the form of ASIC and Treasury.

Not surprisingly, the government won the debate.

In early November 2015 the new Minister for Small Business and Assistant Treasurer Kelly O’Dwyer announced a legislative package to cap commissions and introduce certain related reforms.

In summary, Ms O’Dwyer said the law will be changed to allow ASIC to:

  1. set maximum first year commission rates of no more than:
    1. 80% from 1 July 2016
    2. 70% from 1 July 2017 and
    3. 60% from 1 July 2018
  2. set maximum trailing commissions of no more than 20%
  3. prohibit volume based payments
  4. require minimum two year claw back period.

Ms O’Dwyer also said the FSC will set up a new Code of Practice and a new standard for approved product lists to widen client choices and options.

Observers such as Rice Warner have said they “expect the maximum commissions will become the standard default commissions across the industry”[1] and we agree with this.

This is all great news for the insurers: not surprisingly, events unfolded to lower commissions, and lift profits, across the board, neatly solving the first mover paradox and making sure no one insurer suffered the loss of profit and market share connected to a first mover decision.

But what about advisers?

The Dover Group