Ask an Expert – Disclosure of life insurance commissions

National Technical Manager

David Glen

Introduction

The new regime for the disclosure of life insurance commissions came into effect on 9 July 2025. The measures only apply to personal advice. The measures do not apply to commissions flowing to an adviser or AFSL holder where only general advice is given to the client.

This article outlines the rationale behind this new regime and its requirements. It is important for AFSL licensees and authorised representatives to understand these requirements to modify advice procedures where necessary. This will ensure that procedures and processes in relation to remuneration in the form of commissions are both compliant and meet best practice requirements in respect of both disclosure and consent.

All section references quoted in this article are to sections of the Corporations Act 2001 (Cth.). Nothing in this article constitutes legal, taxation or financial advice.

The Existing Regime

There has been considerable debate on the question of commissions creating a conflict-of-interest situation in the delivery of life insurance advice. Purists have argued that a commission arrangement incentivises the adviser to manage client risks with an insurance product which may not be in the best interests of the client or appropriate to the client’s needs. Best Interest Duties and Appropriateness requirements embodied in the Corporations Act and Financial Adviser Code of Ethics are insufficient to rectify this situation.

The existing system is a compromise where commissions within certain parameters are permitted. Section 963B(1) provides for the carve out of certain life insurance commissions from the conflicted remuneration provisions of the Corporations Act.

Subsection 963BA(2) provides ASIC with the power to set maximum commission levels in a legislative instrument. Commissions are also subject to a ‘clawback’ requirement which ASIC determines by legislative instrument. These measures are currently prescribed in ASIC Corporations (Life Insurance Commissions) Instrument 2017/510.

Why Change?

The Quality of Advice Financial Review found that the current commission arrangements for life risk insurance products should be maintained. This includes maintaining the current arrangements for clawbacks and commissions.

However, the Review also found that, while a financial adviser has a duty to act in the best interests of the client in respect of the advice provided, the prospect of receiving a commission creates a conflict for the adviser. Specifically, Recommendation 13.7 recommended the law should address the potential conflict between an adviser’s obligations and the receipt of commissions by requiring that an adviser should obtain a client’s consent before a commission may be accepted.

The intention behind this measure is that the consent requirement will assist clients in understanding how an adviser’s personal interest might influence the advice they are receiving on life insurance products. The consumer can then make an informed choice whether they should proceed under the commission arrangement.

The objective of this recommendation is to assist consumers to access personal advice about life insurance in order to obtain the type and amount of cover that meets their objectives, needs, and circumstances.

The intention is that the other recommendations will encourage more providers to offer to provide life insurance advice for a fee paid by the client and that over time commissions will play a lesser role in the distribution of life insurance.

Quality of Advice Review Recommendation 13.7

The Change in A Nutshell

The New Regime makes the following changes:

• The general carve out of life insurance commissions from the conflicted remuneration provisions contained in Section 963B(1) will be subject to the new Section 963BB.
• Section 963BB contains the commission consent and disclosure regime which is discussed in detail below.

This structure is important as it means that any commission payment which is contrary to the new regime will constitute conflicted remuneration (which is prohibited). Advisers who fail to comply with this regime face the full wrath of the Conflicted Remuneration provisions of the Corporations Act. Non-compliance exposes advisers to a comprehensive range of sanctions in the form of fines, penalties and banning orders.

ASIC has provided Information Sheet 292 (INFO 292) which answers frequently asked questions about the scope and application of the New Regime. The provisions of INFO 292 are also considered in the discussion below.

Effective date of the Change

The new regime only applies to life insurance products issued on or after 9 July 2025. The regime does not apply to life insurance products issued prior to 9 July 2025.

The new regime will apply to insurance arrangements where the advice has been provided prior to 9 July 2025 but the sale or issue of the insurance only takes place on or after 9 July 2025. This means AFSL licensees and representatives will need to ensure they have arrangements in place to comply with the New Regime well before commencement of 9 July 2025.

This is because the regime applies to commission received on insurance policies issued on or after 9 July 2025 even if the advice to acquire the policy was provided before that date.

How do the consent requirements operate where the adviser purchases a book of business?

ASIC state in Information Sheet 292 that advisers are not required to obtain new informed consent to receive a monetary benefit if the client provided informed consent to monetary benefits being given to the AFS licensee or representative that sold or transferred all or part of the advice business dealing with the client’s insurance, including a book of clients. (FAQ No. 11 in Information Sheet 292; Explanatory Memorandum 1.302); s 963BB(4)).

We observe that this assumes commission rates under the new advice licensee are not increased from that consented to by the client with the prior licensee/representative selling the client book. If commission rates increase under the new licensee/adviser a new consent would be required prior to the increase.

However, purchasers of advice books may choose, in light of their own preferences and policies, to manage any risk that a seller of a client book had not obtained consent, by obtaining their own consent to cover any situations where the seller has failed to comply with the consent and disclosure requirements.

What happens when an adviser takes over a client holding an insurance product from another adviser and steps into the shoes of the previous adviser and receives the commissions due on the product?

Section 963B(1) applies to a “monetary benefit given in connection with the sale of a life insurance product”. Section 963BB(1)(b) requires the consent of the client before the sale of the relevant product.

Analogous to a purchase of a client book, it would appear that, provided the previous adviser acted in compliance with Section 963BB(1)(b), there would be no need for the new adviser to seek consent provided that the original commission arrangement continues unchanged, and the policy is not varied.

However, the new adviser’s commission may breach the ban on conflicted remuneration if the previous adviser failed to obtain informed consent from the client. We would therefore suggest that the new adviser obtains a record of the client’s consent to the ongoing commissions flowing in respect of the life insurance product.

In addition, Standards 4 and 7 of the Financial Adviser Code of Ethics require the adviser to ensure that the client provides “free, prior and informed” consent to the advice engagement, including remuneration arrangements.

What does Section 963BB require?

Any person who provides personal advice to a retail client about life risk insurance must obtain the client’s informed consent before accepting a monetary benefit for the provision of this advice such as a commission. If the client does not provide consent, then the advice provider should agree to provide the advice for a fee paid by the client or decline to provide the advice.

The consent of the client must be obtained before the issue or sale of the insurance product. This provides a genuine and real opportunity for the consumer to make an informed decision before deciding to be issued or sold the insurance product.

Advisers must ensure that they have a written record of the client’s consent and have provided a copy to the client. There is no requirement that the client’s consent be provided in writing, and there is no prescribed form that is required to be used to obtain the consent. However, if verbal consent is obtained a record of that consent must still be retained by the licensee/representative and a copy of that record must be sent to the client. If client consent is obtained in writing, then a copy of the written consent must be provided to the client.

The intention is that the consent requirements should not be onerous but should instigate a conversation between the advice provider and the client on the scope and extent of the adviser’s remuneration. A formal written agreement or an email that records a conversation where the consent was discussed and obtained would both be sufficient evidence of consent (provided the information required to be disclosed to the client about the commission has been disclosed to the client: s 963BB(1(c) – see below).

Although written consent is not required, we submit that best practice would be that the client consents in writing to the commission arrangements after being supplied the requisite information discussed below and the adviser supplies a copy of the consent to the client. The delivery of this copy should also be file noted or otherwise evidenced.

Before the client can consent, the following information must be disclosed to the client under s 963BB(1)(c) in respect of life risk policies:

• The name of the insurer under the relevant product (if known);
• The rate of the monetary benefit, expressed as a percentage of the policy cost (premium);
• If more than one monetary benefit will be given in connection with the issue or sale of the relevant product, the frequency of giving those monetary benefits and the period over which monetary benefits covered by the consent could be given;
• The nature of any services that the AFS licensee or authorised representative will provide the client (if any) in relation to the relevant product;
• A statement that it is a requirement of the law that client consent must be obtained before payment of an insurance commission; and
• The fact that the consent is irrevocable.

The client cannot waive any rights to receive information or the requirement to provide consent required by Section 963BB.

Variations

When discussing variation of commission, the adviser is required to obtain consent to the variation of the rate or frequency of commission where the rate or frequency is increased relative to what has been disclosed to the client. If the client consents to the variation, the adviser must ensure that they have the client’s written consent to the variation or a written record of the client’s consent to the variation. The adviser must give the client a copy of the consent or a record in writing of the consent to the variation.

If there is a change to the information supplied as part of the consent process, it will be necessary to disclose the variation and seek the client’s consent in relation to the variation. However, variations which are a lower commission rate or lower frequency than previously consented to, do not require a new consent (s 963BB(2(b)).

Application to Non-Monetary Benefits

The disclosure provisions do not apply to non-monetary benefits provided by insurers such as education or training benefits, or non-monetary benefits below the existing threshold of $300 where identical or similar benefits are not given on a frequent or regular basis.

Important Qualification

Section 963BB(2)(a) provides that information does not need to be disclosed if it has already been disclosed to the client. ASIC accepts that there is no need to disclose information which has been provided in the Statement of Advice (“SOA”). Information Sheet 292 (INFO 292) Question 5.

Therefore, advisers should ensure that the SOA and Authority to Proceed contain all the information required by the Commission Disclosure Regime to avoid the confusion and inefficiency in repeating disclosure of commission information. In particular, the Authority to Proceed should contain an express statement that the client understands the commission arrangements disclosed in the Commission Section of the SOA, consents to this arrangement, and acknowledges that the consent is irrevocable if that is the intention.

Advisers should review the remuneration disclosure paragraphs in their existing SOA and Authority to Proceed templates. Current SOAs and Authorities to Proceed should be updated to ensure they contain all the information and consent details required by these provisions. It will be necessary to expand the SOA and Authority to Proceed details to ensure they contain this additional information.

It is important that the client is supplied a copy of the signed Authority to Proceed, and that the supply of the copy is also file noted.

The Commission Section of the SOA and Authority to Proceed should be clear, concise, and effective. The font size used should be the same as the font size elsewhere in the SOA (INFO 292, Question 6).

Supply of consent to the insurer

Product issuers are not deemed to have given conflicted remuneration if an AFSL holder (advice licensee) or authorised representative has failed to meet the informed consent requirement (Section 963K(2)). ASIC has provided the following views on this question in Paragraph 10 of INFO 292:

• There is no explicit provision to give insurance product issuers a client’s informed consent in the Corporations Act and product issuers are not deemed to have given conflicted remuneration if an AFS licensee or representative has failed to meet the informed consent requirement: see section 963K(2)).
• However, the insurance product issuer may wish to ask for a copy of the client’s informed consent or agree that this is done as part of their compliance or risk mitigation strategies, as product issuers (and sellers) must not give AFS licensees and representatives conflicted remuneration: see section 963K(1). It is also possible for an insurance product issuer to include the request for informed consent as part of the product application process.
• If a product issuer takes this approach, it would need to meet ASIC’s expectations for how information is disclosed to clients. The product issuer would also need to have a process to give the written consent (or a copy of it), or a written record of any verbal consent from the client to the relevant AFS licensee and representative.
• This is because the AFS licensee or representative must have the client’s informed consent for the informed consent requirement to be met. To meet this requirement, the AFS licensee or representative must also give the client a copy of the written consent, or a copy of the written record of any verbal consent, as soon as practicable after the client has consented: see section 963BB(1)(e).

TAL at this stage is not proposing to collect, request, or obtain a copy of any commission consent on behalf of advisers / licensees.

Way Forward

It is important to ensure that the advice process takes a comprehensive approach to the disclosure of commission.

The commission arrangement should be tackled up front by being fully disclosed in the engagement letter. This should be provided as part of the “Free, Prior and Informed Consent” requirements of Standard 4 of the Financial Adviser Code of Ethics.

The advice process should also incorporate steps where remuneration is fully discussed, and the discussions recorded as part of the advice process file notes. File notes should indicate that the client understands both the mechanics of the commission arrangement and the amount payable under the arrangement.

The SOA should specify the structure of commission flows in both the first year and the subsequent years in a discrete section covering remuneration. Best practice would suggest that on reading the terms of the SOA, the client should not be shocked or surprised by this disclosure as the information has already been discussed.

The Authority to Proceed should be carefully worded to cover and record the client’s express consent to the remuneration arrangements. A copy of the Authority to Proceed in its final form should be supplied to the client and this supply file noted or otherwise evidenced.