3.3 Reducing or eliminating the conflict

As I said in the Interim Report,[1] and have repeated above, consideration of conflicts between duty and interest begins from two simple observations:

• So long as advisers stand to benefit financially from clients acting on the advice that is given, the adviser’s interests conflict with the client’s interests.
• So long as licensees stand to benefit financially from clients acting on the advice that is given, the licensee’s interests conflict with the client’s interests.

Consideration of how to reduce or eliminate conflicts of interest in the financial advice industry must therefore begin with consideration of the benefits that flow to advisers and licensees.

3.3.1Conflicted remuneration

As I have mentioned, the FoFA reforms included a ban on conflicted remuneration. That is, they provided that a financial services licensee must not accept conflicted remuneration and that it must take reasonable steps to ensure that representatives of the licensee do not accept conflicted remuneration.[2]

Section 963A of the Corporations Act defines conflicted remuneration as ‘any benefit, whether monetary or non‑monetary, given to a financial services licensee or a representative of the licensee, who provides financial product advice to persons as retail clients that, because of the nature of the benefit or the circumstances in which it is given:

• could reasonably be expected to influence the choice of financial product recommended by the licensee or representative to retail clients; or
• could reasonably be expected to influence the financial product advice given to retail clients by the licensee or representative.’

That is, the very hinge about which the conflicted remuneration provisions turn, is that the payment is one that ‘could reasonably be expected to influence the choice of financial product recommended to retail clients’.

An authorised representative[3] or other representative[4] must not accept conflicted remuneration. An employer of a financial services licensee or a representative of a licensee must not give employees conflicted remuneration[5] and a product issuer or seller must not do so.[6]

Volume‑based benefits are presumed to be conflicted remuneration.[7] A platform operator cannot accept volume‑based shelf‑space fees.[8] Financial services licensees[9] and authorised representatives[10] are forbidden to charge asset‑based fees on borrowed amounts.

From 1 January 2018, conflicted remuneration includes volume‑based benefits given to a licensee or representative in relation to information given on, or dealing in, a life risk insurance product.[11] A monetary benefit relating to a life risk product will not be conflicted remuneration if it is a level commission within the applicable cap[12] and provides a ‘clawback’ arrangement if the policy is cancelled, not continued, or the policy cost is reduced in the first two years of the policy.[13]

Section 965 seeks to prevent avoidance of the conflicted remuneration provisions by forbidding entering into, beginning to carry out or carrying out a scheme if it would be concluded that the sole purpose of the scheme was to avoid the application of any part of the relevant Corporations Act division.

On their face the conflicted remuneration prohibitions may appear to be comprehensive. But there are exceptions to their application[14] relating to general insurance,[15] life risk insurance products[16] and basic banking products,[17] and there is also power to prescribe benefits, or circumstances in which a benefit is given, that take the benefit outside the definition of conflicted remuneration.[18]

Any attempt to reduce or eliminate conflicts of interest in the financial advice industry must begin, therefore, with examination of those exceptions, and whether they continue to be justified. That examination must take place against the point of principle made by ASIC in its submissions. This is that ‘any exception to the ban on conflicted remuneration, by definition, has the ability to create misaligned incentives, which can lead to inappropriate advice’.[19] As I said in the Interim Report,[20] that is not a point that depends on evidence. It is the unchallenged (and unchallengeable) basic premise for the conflicted remuneration provisions.

I will begin with the exception that received the most attention in the Commission’s hearings – the exception for grandfathered commissions.

The exception for grandfathered commissions

As I noted in the Interim Report,[21] after the commencement of the FoFA reforms, payment and receipt of some forms of conflicted remuneration for financial advice was permitted to continue by ‘grandfathering’ provisions made by Subdivision 5 of Division 4 of Part 7.7A of the Corporations Regulations 2001 (Cth).[22] It is neither necessary nor profitable to trace the detail or history of those grandfathering provisions. At the risk of some minor inaccuracy it is enough to note that certain arrangements made before the FoFA reforms came into force in July 2013 that would otherwise have fallen within the ban on conflicted remuneration were, and remain, excluded from the definition of conflicted remuneration. For present purposes, two points are important.

First, despite it being recognised that the grandfathered forms of remuneration are conflicted remuneration (because they could reasonably be expected to influence the choice of financial product recommended by a licensee or representative to retail clients, or could reasonably be expected to influence the financial product advice given to retail clients by the licensee or representative), charging and receiving these exempted forms of remuneration has been permitted to continue.

Second, in 2014 when ASIC looked at the value of ‘grandfathered’ benefits, it found that, ‘[o]n average, licensees indicated that grandfathered benefits were worth around one‑third of their total income (though substantially more or less than the average in some cases).’[23]

In the Interim Report,[24] I posed the following question: If the premise for the conflicted remuneration provisions is accepted (and no‑one suggested that it should not be) how can the grandfathering provisions be justified today?

In my view, the answer to that question is now clear: they cannot.

Each of the major banks has already announced steps to reduce or eliminate payments of grandfathered commissions in their financial advice businesses.[25]

Westpac was the first to make changes in this area. In June 2018, Westpac announced that financial advisers employed by BT Financial Advice would no longer receive grandfathered commissions. Westpac estimated that up to 140,000 client accounts were subject to commissions that would be removed,[26] and estimated a resulting $40.8 million annual reduction in revenue.[27] But it also noted the countervailing advantage that the products relieved of grandfathered commission will be more attractive to clients and therefore will be more competitive market offerings.[28] Ultimately, Westpac said, it was preferable to make the changes because they were consistent with the intent of the legislation, the interests of customers, and the professionalisation of the financial advice industry.[29]

In early July 2018, media reported that Macquarie had issued a statement that it would turn off commissions paid to its private wealth and private bank advisers, affecting approximately 17,000 client accounts.[30]

In August 2018, ANZ informed the Commission that, from April 2019, ANZ Financial Planning would no longer retain grandfathered commissions in relation to the OnePath investment and superannuation platforms, and that clients would receive the amount of the commission by way of a rebate.[31]

On 3 September 2018, NAB announced that customers of its Financial Planning and Direct Advice businesses would be rebated grandfathered commissions paid by NAB Wealth product providers from 1 January 2019.[32]

On 9 October 2018, CBA announced that it would rebate all grandfathered commissions to CFPL clients from January 2019 in respect of investment and superannuation products. CBA estimated that this would benefit around 50,000 client accounts by a total of approximately $20 million annually.[33]

The submissions made in response to the Interim Report also supported ending grandfathered commission payments to financial advisers,[34] and from superannuation accounts.[35] In their submissions, each of the major banks, along with other industry participants, supported legislation to repeal the grandfathering provisions under the Corporations Act.[36]

At the time the grandfathering arrangements were first introduced, participants in the industry could say that sudden change in remuneration arrangements may bring untoward consequences for countervailing benefits that would not outweigh the harms of disruption. In the seventh round of hearings, Mr Comyn cast doubt on whether that argument was ever valid. He described the decision by banks to lobby for the grandfathering exemption as a ‘poor decision’.[37] Even if the arguments relied on to justify the grandfathering exception were valid when that exception was introduced, it is now clear that they have outlived their validity.

The exception for life risk insurance

Another exception that received attention during the Commission’s hearings was the exception for commissions on life risk insurance products.

Until 1 January 2018, commissions paid in respect of life risk insurance products (other than group life policies and life policies for members of default superannuation funds) were exempt from the ban on conflicted remuneration. This meant that product issuers – that is, life insurance companies – could continue to pay financial advisers high rates of upfront and trail commission to encourage the advisers to recommend their products.

In the Commission’s sixth round of hearings, the witness statements received from the life insurers showed that each paid commissions to financial advisers (or financial advice entities) whose clients purchased their products. Between 1 July 2013 and the sixth round of the Commission’s hearings:[38]

• Zurich paid more than $113 million in commissions in respect of its life insurance products;
• AMP paid more than $380 million;
• CMLA paid more than $460 million;
• Suncorp paid more than $590 million;
• AIA paid more than $690 million;
• Westpac paid more than $697 million, and a further $158 million in grandfathered commissions in relation to life insurance arrangements within superannuation accounts;
• TAL paid more than $840 million;
• OnePath paid more than $1.02 billion; and
• MLC paid more than $1.16 billion.

That amounts to a total of more than $6.1 billion paid in commissions to financial advisers in connection with the sale of life insurance products issued by these insurers in about five years.

As noted above, since 1 January 2018, conflicted remuneration has included volume‑based benefits given to a licensee or representative in relation to information given on, or dealing in, a life risk insurance product.[39] But a monetary benefit relating to a life risk product will not be conflicted remuneration if it is a level commission within the applicable cap[40] and provides a ‘clawback’ arrangement if the policy is cancelled, not continued, or the policy cost is reduced in the first two years of the policy.[41]

ASIC will conduct a post-implementation review in 2021 to assess the effect of the reforms.[42]

In the Interim Report,[43] I questioned the separate treatment of benefits given in relation to life risk products (other than a group life policy for members of a superannuation entity, or a life policy for a member of a default superannuation fund).[44]

In contrast to the position in relation to grandfathered commissions, few submissions in response to the Interim Report supported making any further changes to the exception for life risk insurance products. Many submissions pointed to the fact that the arrangements that took effect on 1 January 2018 reflect a compromise between the risk of underinsurance and the risk of adverse client outcomes arising from conflicts of interest.[45] Many submissions proposed that the best course would be to allow the cap on commissions to continue to reduce over the next few years, and to allow ASIC to undertake its planned post-implementation review in 2021.[46]

I doubt that a complete ban on conflicted remuneration in respect of life insurance products would lead to significant underinsurance. At the time of writing, the overwhelming majority of life insurance policies in Australia are held through superannuation funds. As at August 2017, more than 70% of Australian life insurance policies were held in this way.[47] While it may not follow that every Australian who holds a life insurance policy through a superannuation fund has the same level of cover that he or she would be advised was appropriate on consulting a financial adviser, I am not convinced that a move away from commissions for life insurance products would see large numbers of Australians without an appropriate level of life insurance.

Having said that, I accept that the best way to be sure of the effect of lowering or removing commissions for life insurance products is to assess what happens as the levels of those commissions are reduced over the next few years. I also acknowledge that the financial advice industry will need time to absorb a number of changes over the next few years, and that there may be some benefit in deferring the implementation of further changes to arrangements for life insurance commissions.

I encourage ASIC to take all necessary steps to ensure that it conducts its post-implementation review in 2021 as expeditiously as possible. If that review indicates that the cap on commissions has not contributed (or, at least, not significantly contributed) to underinsurance, then I would urge ASIC to continue reducing the cap – ultimately, to zero. Unless the reduction in life insurance commissions can be shown to contribute significantly to underinsurance, I can see no justification for allowing this form of conflicted remuneration to continue to be paid. While the decision will ultimately be one for ASIC, any decision that commissions should continue to be paid and received in relation to life insurance products should be based on clear evidence that the harm that would flow from abolishing commissions would outweigh the harm that already flows from allowing this form of conflicted remuneration to continue.

The exceptions for general insurance, consumer credit insurance and non-monetary benefits

In the course of the review referred to in Recommendation 2.3, a question that ought to arise is whether the exceptions to the ban on conflicted remuneration for general insurance products, consumer credit insurance products and non-monetary benefits remain justified.

Monetary and non-monetary benefits given solely in relation to general insurance products are currently wholly exempt from the ban on conflicted remuneration, and have been since the conflicted remuneration provisions of the Corporations Act commenced on 1 July 2012.[48] Monetary benefits given in relation to consumer credit insurance products are also exempt,[49] as are non-monetary benefits given in the circumstances set out in section 963C of the Corporations Act.

By the time of the review referred to in Recommendation 2.3, these exemptions from the ban on conflicted remuneration will have been in place for almost 10 years. In my view, if the exemptions are still in place at that time,[50] it will be appropriate for ASIC to consider whether each of them remains justified.

3.3.2Structural separation?

Although the most obvious conflicts of interest affecting the provision of financial advice are the conflicts between an adviser’s duty and his or her financial interests, they are not the only conflicts. Other conflicts can also arise from the associations or relationships between a financial adviser and the issuer of financial products. As I said earlier, advisers may be expected to know more about the products manufactured by the licensee with which the advisers are associated than they know about a rival licensee’s products. Advisers will often be readily persuaded that the products ‘their’ licensee offers are as good as, if not better than, those of a rival. These types of conflicts direct attention to the structure of the industry.

In the Interim Report,[51] I asked: How far can, and how far should, there be a separation between providing financial advice and manufacture or sale of financial products? There are several forms that any such separation could take.

• One approach would be to require all advisers to be ‘independent’ advisers, in the sense that they must satisfy the requirements of section 923A(2) of the Corporations Act, which govern the use of the words ‘independent’, ‘impartial’ and ‘unbiased’.
• Another approach would be to require separation between any AFSL holder authorised to issue financial products and any AFSL holder authorised to provide financial product advice.
• An alternative approach would be to prohibit any adviser who is not an ‘independent’ adviser within the meaning of section 923A of the Corporations Act from recommending any product manufactured by an entity associated with the AFSL holder with which the adviser is associated.

Adopting any of these approaches would be likely to reduce the conflicts of interest that affect the financial advice industry.[52] So much may be accepted. But, adopting any of these approaches would also involve significant disruption to that industry, and the financial services industry more broadly.

This point was emphasised in the submissions received by the Commission following the second round of hearings, and in response to the Interim Report. Almost none of those submissions supported the enforced separation of product and advice.[53] Many pointed to benefits of vertical integration (such as economies of scale, and the convenience for customers of a relationship with a single financial institution)[54] that would be lost if structural separation were enforced.[55] This was perhaps unsurprising from those whose businesses might be affected by the changes. But it is noteworthy that ASIC was among those who did not support structural separation of product and advice.[56]

Ultimately, whether there should be a separation between the manufacture or sale of financial products and the provision of financial advice will depend on whether the benefits of such a separation would outweigh the costs.

The assessment of those benefits and costs must take place against the backdrop of:

• the changes to the regulation of the financial advice industry that are already in train, and will take effect in the coming years – including the improvements to adviser education standards and the introduction of the design and distribution obligations and ASIC’s product intervention power;
• the additional changes to the regulation of the financial industry that will take effect in the coming years if the recommendations in this Report are adopted – including the cessation of grandfathered commissions, and a more coherent and effective disciplinary system; and
• the changes to the industry, as many vertically integrated firms sell parts of their businesses.

I have dealt with the first two of those points elsewhere in this chapter, and I need not repeat those matters here. The third point warrants further attention.

I said earlier in this chapter that from the time of the Wallis Inquiry, banks’ accumulation of wealth management businesses accelerated. During the late 1990s and early 2000s, each of the major banks acquired or merged with a fund manager. In more recent times, banks have sold off a number of those acquisitions.

In May 2017, Westpac sold BT Investment Management, a product manufacturer.[57]

• In September 2017, CBA announced that it was selling its life insurance business to AIA,[58] and, in July 2018, announced that it would seek to sell the remainder of that business.[59] In late June 2018, CBA announced that it would demerge its other wealth management and mortgage broking businesses, including Colonial First State, Colonial First State Global Asset Management, Count Financial, Financial Wisdom and Aussie Home Loans, into a separately listed entity.[60]
• In October 2017, ANZ sold its aligned licensees to IOOF.[61]
• In May 2018, NAB announced that it proposed to sell its MLC advice, platform and superannuation, and asset management businesses.[62]
• In October 2018, AMP announced the sale of its life business,[63] and throughout the course of 2018, AMP exited almost 200 ‘higher risk’ practices.[64] There has also been a change to AMP’s business strategy in its advice business throughout 2018. Mr Michael Wilkins’ evidence in the seventh round of the Commission’s hearings was that AMP’s strategy for the period 2018 to 2022 is to transition AMP from primarily a face-to-face aligned advice channel structure, to more integrated and digitally enabled channels.[65] Each of these changes was prompted, at least in part, by the increased regulatory scrutiny around AMP’s advice business and was, and is, intended to be a way of managing that risk.[66]

Of course, none of these entities has abandoned the vertically integrated business model entirely.

• ANZ continues to employ financial planners through ANZ Financial Planning.
• NAB continues to employ financial advisers through NAB Financial Planning, and intends to keep one advice licensee, JBWere.
• CBA intends to continue to employ financial advisers through CFPL.[67] In the seventh round of the Commission’s hearings, Mr Comyn said that CBA wants to continue to provide financial advice for customers, and is exploring the best long-term model for financial advice.[68] Mr Comyn acknowledged difficulties with and conflicts inherent in vertically integrated business models.[69]
• Mr Wilkins made plain in his evidence that AMP remains committed to a vertically integrated business model, and that that model remains fundamental to AMP’s business.[70]
• At the time of writing, Westpac has not announced its intention to sell its wealth business. In the seventh round of hearings, Mr Brian Hartzer acknowledged that there is a potential for conflict in Westpac owning both the advice licensee and product manufacturer.[71]

The changes that have been made appear to have resulted, at least in part, from the increased costs associated with employing professional advisers, as compared to a team of salespeople. Mr Hartzer said, in effect, that the cost of compliance to ensure that advisers are properly qualified, and that provision of advice and services is properly documented, is high.[72] The tenor of Mr Hartzer’s evidence was that the value in Westpac owning advice licensees had changed over time – and changed to a point where the business model was not as profitable as it was once.[73] At least to some extent the change can be attributed to a shift in the role authorised representatives have played in Westpac’s wealth business; from distribution channels to professionals providing advice and owing duties to clients.[74]

As further changes to the regulation of the financial advice industry take effect over the coming years, those costs are likely to increase – or, at the least, are unlikely to reduce. It follows that the trend away from vertically integrated institutions may well continue, even if structural separation is not mandated.

A further complicating factor in the analysis is the present uncertainty about the impact of technological developments on the financial advice industry. Many in the industry have recognised that technology is likely to play an important role in the future of financial advice,[75] but there is not yet a clear picture of what that role might be. Any recommendation directed to altering the current structure of the industry would need to grapple with the fact that the industry itself will very probably look very different in five years’ time.

The industry is already undergoing significant change. Many of those changes – both those already in train, and those recommended in this Report – should improve the way that conflicts of interest are managed by financial advisers, and help to eliminate some of those conflicts. Further changes will follow as the industry adjusts to these and other changes – including, perhaps, a continued shift away from vertically integrated institutions, which would help to reduce or further eliminate conflicts of interest.

Enforced separation of product and advice would be a very large step to take. It would be both costly and disruptive. I cannot say that the benefits of requiring separation would outweigh the costs, and the Productivity Commission concluded that ‘forced structural separation is not likely to prove an effective regulatory response to competition concerns in the financial system’.[76] I observe, however, that the Productivity Commission recommended, and I agree, that commencing in 2019, the Australian Competition and Consumer Commission (the ACCC) ‘should undertake 5 yearly market studies on the effect of vertical and horizontal integration in the financial system’.[77]

I am not persuaded that it is necessary to mandate structural separation between product and advice.

[1]FSRC, Interim Report, vol 1, 139.

[2]Corporations Act s 963F.

[3]Corporations Act s 963G.

[4]Corporations Act s 963H.

[5]Corporations Act s 963J.

[6]Corporations Act s 963K.

[7]Corporations Act s 963L.

[8]Corporations Act ss 964, 964A.

[9]Corporations Act s 964D.

[10]Corporations Act s 964E.

[11]Corporations Regulations 2001 (Cth) reg 7.7A.11B.

[12]For the calendar year 2018, 80% upfront commission and 20% trail commission, reducing to 70% upfront and 20% trail in 2019 and 60% upfront and 20% trail from 1 January 2020. See ASIC, ASIC Corporations (Life Insurance Commissions) Instrument 2017/510, 31 May 2017 (Cth) Pts 2, 3; Corporations Act s 963B; Corporations Regulations 2001 (Cth) regs 7.7A.11C(1)(d), 7.7A.11D(1)(b).

[13]See ASIC, ASIC Corporations (Life Insurance Commissions) Instrument 2017/510, 31 May 2017 (Cth) s 6.

[14]ASIC, Regulatory Guide 246, 7 December 2017, 72.

[15]Corporations Act s 963B(1)(a).

[16]Corporations Act s 963B(1)(b).

[17]Corporations Act s 963D.

[18]Corporations Act s 963B(1)(e).

[19]ASIC, Module 2 Policy Submission, 31 [139].

[20]FSRC, Interim Report, vol 1, 97.

[21]FSRC, Interim Report, vol 1, 93.

[22]Corporations Regulations 2001 (Cth) regs 7.7A.15B–7.7A.16F.

[23]ASIC, Report 407, 17 September 2014, 30 [96].

[24]FSRC, Interim Report, vol 1, 94.

[25]ANZ, Interim Report Submission, 35–6 [175]; CBA, Interim Report Submission, 40 [215]; NAB, Interim Report Submission, 13 [32]; Westpac, Interim Report Submission, 29 [134].

[26]Exhibit 2.278, Witness statement of Michael Wright, 15 August 2018, 5 [27].

[27]The estimate was made as at 15 August 2018: see Exhibit 2.278, Witness statement of Michael Wright, 15 August 2018, 6 [33(a)].

[28]Exhibit 2.278, Witness statement of Michael Wright, 15 August 2018, 7 [39].

[29]Exhibit 2.278, Witness statement of Michael Wright, 15 August 2018, 3 [19].

[30]See, eg, Alice Uribe, ‘Macquarie Scraps Grandfathered Commissions’, Australian Financial Review, 3 July 2018 <www.afr.com/business/banking-and-finance/financial-services/macquarie-scraps-grandfathered-commissions-20180703-h126n8>.

[31]Letter from ANZ to Mr Simon Daley dated 20 August 2018.

[32]NAB, ‘NAB Moves on Grandfathered Commissions’ (Media Release, 3 September 2018).

[33]CBA, Interim Report Submission, 14 [66]–[67].

[34]See Mortgage Choice, Interim Report Submission, 19; ABA, Interim Report Submission, 13; FSC, Interim Report Submission, 10; AMP, Interim Report Submission, [73]; ASFA, Interim Report Submission, 4, 16–17.

[35]See CBA (Colonial First State Investments and Avanteos), Module 5 Policy Submission, 18–19 [99]–[100]; NAB, Module 5 Policy Submission, 16 [67]; Westpac, Module 5 Policy Submission, 13 [44]; ANZ, Module 5 Policy Submission, 7 [40]; ASIC, Module 5 Policy Submission, 20 [98]; ISA, Module 5 Policy Submission, 9 [31]; FSU, Module 5 Policy Submission, 20 [140]; TWU Super, Module 5 Policy Submission, 3–4 [15]–[16]; ASFA, Module 5 Policy Submission, 16–17; AIST, Module 5 Policy Submission, 13.

[36]ANZ, Interim Report Submission, 35–6 [175]; CBA, Interim Report Submission, 14 [66]; NAB, Interim Report Submission, 13 [31]; Westpac, Interim Report Submission, 29 [133]; ABA, Interim Report Submission, 13; FSC, Interim Report Submission, 10; FPA, Interim Report Submission, 10.

[37]Transcript, Matthew Comyn, 19 November 2018, 6550.

[38]Exhibit 6.18, Witness statement of Tim Bailey, 21 August 2018, 26 [20]; Exhibit 6.26, Witness statement of Gregory Johnson, 10 September 2018, 47–8 [143]; Exhibit 6.20, Witness statement of Helen Troup, 31 August 2018, 19 [106]; Exhibit 6.494, 19 December 2018, Letter from CMLA Re Correction to Statement of Helen Troup; Exhibit 6.25, Witness statement of Christopher McHugh, 27 August 2018, 40 [94]; Exhibit 6.11, Witness statement of Michael Thornton, 21 August 2018, 59 Annexure F Table C; Exhibit 6.410, Witness statement of Michael Wright, 20 September 2018, 2–3 Schedule D; Exhibit 6.7, Witness statement of Timothy Thorne, 22 August 2018, 46 [171]; Exhibit 6.24, Witness statement of Gavin Pearce, 21 August 2018, 60–1 [184]; Exhibit 6.13, Witness statement of Sean McCormack, 21 August 2018, Exhibit SAM-1 Tab 20 [MLC.101.007.0060].

[39]Corporations Regulations 2001 (Cth) reg 7.7A.11B.

[40]For the calendar year 2018, 80% upfront commission and 20% trail commission, reducing to 70% upfront and 20% trail in 2019 and 60% upfront and 20% trail from 1 January 2020. See ASIC, ASIC Corporations (Life Insurance Commissions) Instrument 2017/510, 31 May 2017 (Cth) Pts 2, 3; Corporations Act s 963B; Corporations Regulations 2001 (Cth) regs 7.7A.11C(1)(d), 7.7A.11D(1)(b).

[41]See ASIC, ASIC Corporations (Life Insurance Commissions) Instrument 2017/510, 31 May 2017 (Cth) s 6.

[42]ASIC, Media Release 17-168MR, 5 June 2017.

[43]FSRC, Interim Report, vol 1, 157.

[44]Corporations Act s 963B(1)(b).

[45]See, eg, NAB, Interim Report Submission, 14 [35].

[46]See, eg, CBA, Interim Report Submission, 14–15 [68].

[47]See Peter Kell, ‘Insurance in Super: The Regulators – What Do They Think?’ (Speech delivered at the Association of Superannuation Funds of Australia Spotlight on Insurance, Sydney, Australia, 27 February 2018).

[48]Corporations Act ss 963B(1)(a), 963C(1)(a). Advice given in relation to general insurance products and consumer credit insurance products was also carved out of other aspects of the FoFA reforms, including the best interests duty: see Corporations Act s 961B(3).

[49]Corporations Act s 963B(1)(ba).

[50]On 18 December 2018, the ACCC released the first interim report of its Northern Australia Insurance Inquiry. One of the recommendations in that report was to remove the exemption for general insurance products from the conflicted remuneration provisions: see ACCC, Northern Australia Insurance Inquiry: First Interim Report, November 2018, 196.

[51]FSRC, Interim Report, vol 1, 156.

[52]ASIC, Treasury, ANZ, CBA, NAB and Westpac all accepted that a vertically integrated business model gives rise to conflicts of interest: ASIC, Module 2 Policy Submission, 4 [15], 29–30 [128]–[137]; Treasury, Module 2 Policy Submission, 6 [38]; ANZ, Module 2 Policy Submission, 3 [11]–[12]; CBA, Module 2 Policy Submission, 2 [6]; NAB, Module 2 Policy Submission, 6 [21]; Westpac, Module 2 Policy Submission, 28 [111].

[53]None of ASIC, AMP, ANZ, CBA, NAB, Westpac, the AFA or the FSU supported the enforced separation of product and advice: ASIC, Module 2 Policy Submission, 30 [137]; AMP, Module 2 Policy Submission, 26 [132]; ANZ, Module 2 Policy Submission, 3–4 [11], [15]–[18]; CBA, Module 2 Policy Submission, 1–3 [2]–[7] (in respect of platform operators and financial advisers); NAB, Module 2 Policy Submission, 5 [18], 24 [101]; Westpac, Module 2 Policy Submission, 28 [111]; AFA, Module 2 Policy Submission, 8, 26; FSU, Module 2 Policy Submission, 23 [171], 24 [183]; Westpac, Interim Report Submission, 27–8 [126]–[128]; CBA, Interim Report Submission, 49–50 [268]–[278]; ANZ, Interim Report Submission, 48 [222]–[223]; ABA, Interim Report Submission, 18–19; FSC, Interim Report Submission, 8.

[54]ASIC, Report 562, 1 January 2018, 16 [56]–[57].

[55]See, eg, AMP, Module 2 Policy Submission, 8–10 [34]–[39]; CBA, Module 2 Policy Submission, 1–3 [2]–[7]; NAB, Module 2 Policy Submission, 5 [18]–[20].

[56]ASIC, Module 2 Policy Submission, 30 [137].

[57]Transcript, Brian Hartzer, 21 November 2018, 6834.

[58]CBA, ‘Divestment of Australian and New Zealand Life Insurance Businesses’ (ASX Announcement, 21 September 2017).

[59]CBA, ‘Completion of New Zealand Life Insurance Divestment’ (ASX Announcement, 2 July 2018).

[60]CBA, ‘Intention to Demerge Wealth Management and Mortgage Broking Business’ (ASX Announcement, 25 June 2018).

[61]ANZ, Submission in Response to the Commission’s Letters of 15December 2017, 7 [5.6]; IOOF, ‘IOOF to Acquire ANZ’s OnePath Pensions and Investments Business and Aligned Dealer Groups’ (Media Release, 17 October 2017).

[62]NAB, ‘2018 Half Yearly Results 2018’ (Half Year Results, 3 May 2018) 15, 53.

[63]AMP announced the sale of its life business on 25 October 2018. See Transcript, Michael Wilkins, 27 November 2018, 7216.

[64]Transcript, Michael Wilkins, 28 November 2018, 7246.

[65]Transcript, Michael Wilkins, 27 November 2018, 7208.

[66]See Transcript, Michael Wilkins, 27 November 2018, 7208, 7216; Transcript, Michael Wilkins, 28 November 2018, 7246.

[67]Transcript, Matthew Comyn, 20 November 2018, 6681–2.

[68]Transcript, Matthew Comyn, 20 November 2018, 6682.

[69]Transcript, Matthew Comyn, 20 November 2018, 6682–3.

[70]See Transcript, Michael Wilkins, 28 November 2018, 7238–46.

[71]Transcript, Brian Hartzer, 21 November 2018, 6834.

[72]Transcript, Brian Hartzer, 21 November 2018, 6831.

[73]See, generally, Transcript, Brian Hartzer, 21 November 2018, 6832–4.

[74]See, generally, Transcript, Brian Hartzer, 21 November 2018, 6832–4.

[75]See Background Paper No 6 (Part A), 7. See also AMP, Interim Report Submission, 6 [27]; Westpac, Interim Report Submission, 1 [4]; Institute of Managed Account Professionals, Interim Report Submission, 12; ANZ, Interim Report Submission, 47 [220(c)].

[76]Productivity Commission, Report 89, 29 June 2018, 272.

[77]Productivity Commission, Report 89, 29 June 2018, 274.