You’re offline. This is a read only version of the page.
Determination
Case number | 12-00-1029826 |
Financial firm | Ccafp Wealth Pty Ltd |
Case number: 12-00-1029826 27 September 2024
In July 2011, Mrs D and Mr D (the complainants) received advice from Mr J to take out life insurance, TPD and income protection policies.
This complaint is about whether the financial firm, after acquiring the rights to Mr J’s clients in September 2022, was required to disclose the commissions it was receiving on those policies.
The complainants say the financial firm never informed them it was receiving commission on their policies, and they only found out about it when they asked their accountant to review them. Their accountant subsequently switched off the commission in August 2023, which reduced their monthly insurance premiums by approximately $400.
The complainants seek $15,000 in financial loss, which they say represents a portion of the commission paid to the financial firm.
The financial firm says the commission was disclosed to the complainants in a Statement of Advice (SOA) Mr J provided them in 2011. It says that when it became responsible for the complainants’ files there was no legal requirement to provide any further disclosure or services in exchange for product commissions.
It also says commissions payable are a financial arrangement between the financial firm and the product provider, and not with the client.
No. The commission does not constitute an ongoing service fee. The financial firm was therefore not required to provide the complainants with services in exchange for the commission.
No. The commission was disclosed by Mr J in a Statement of Advice dated 20 July 2011 and the financial firm was not required to disclose the commission on an ongoing basis.
I sympathise with the complainants given they had stepped insurance premiums that increased significantly with age, and I acknowledge that at times these premiums caused them financial hardship. I also acknowledge they were not aware of the extent to which the adviser’s commission affected their premium.
However, when the initial advice was provided, the SOA clearly disclosed the upfront and ongoing commissions the adviser would receive. Though the complainants’ files were transferred to different financial firms over time, this did not create an obligation to re-disclose the commission, nor did it create a requirement to provide ongoing advice. Given the financial firm has not breached any obligation it had to the complainants, it would not be fair to require it to compensate the complainants.
This determination is in favour of the financial firm. The financial firm is not required to take any action in relation to this complaint.
No. Insurance commission does not constitute an ongoing service fee. The financial firm was therefore not obligated to provide the complainants with ongoing service in exchange for commission.
The complainants say that despite the use of the term "commission" in the initial 2011 SOA, the subsequent evolution of their financial arrangement mirrors a fee-for-service model. They note that when their accountant turned off the commission, there was a significant reduction in their payments, but their insurance coverage remained consistent. The complainants argue that in a traditional commission-based scenario, their fees should have remained the same, or they might have experienced a decline in coverage when the commission was discontinued.
I do not agree. I consider this is in fact an example of a standard insurance commission model. The product issuer pays the adviser a commission, and the issuer builds this cost into insurance premiums. Put simply, this means the complainants paid higher premiums while the adviser was receiving a commission, and less when the commission was “switched off”.
The 2011 SOA explains how commissions may impact premiums (“product fees”):
Advice fees and commissions are the payments that the adviser receives. These may be commissions paid to the adviser by the product issuer out of the product fees referred to above, or fees agreed between you and your adviser charged directly to you by your adviser. Generally, if an adviser chooses not to accept commissions, the product issuer will reduce product fees.
I am therefore satisfied the complainants and the financial firm did not have a “fee for service” arrangement.
The complainants say the financial firm received commissions from their policies without providing them with a service in exchange. They also say the financial firm did not obtain their consent prior to entering this fee arrangement.
They have cited ASIC’s Information Sheet 256, FAQs: Ongoing Fee Arrangements
For ongoing fee arrangements in force immediately before 1 July 2021, you must obtain written consent from your client before deducting, arranging to deduct, or accepting the deduction of, ongoing fees under the arrangement, starting from 1 July 2022: see sections 1673B and 1673F.
In that same information sheet, ASIC clarifies that commissions will generally not be an ongoing fee:
If a third party pays the fee recipient a fee (e.g. commissions), this will generally not be an ongoing fee, where it is paid under a commercial arrangement between a product issuer or platform operator and a fee recipient. However, commissions may also be considered ongoing fees if they are paid with the clear consent, or at the direction, of the client.
We would not generally consider that a commission arrangement is entered into with the clear consent of, or at the direction of, the client merely because it has been disclosed in a Statement of Advice.
This means commission paid by an insurer (product issuer) to an adviser (fee recipient) is not considered an ongoing service fee unless the commission is paid with the client’s consent or at their direction.
In this instance, the commission was not paid with clear consent or at the direction of the client, rather it was disclosed as a commission in the SOA dated 20 July 2011 and agreed to by the complainants prior to establishing the policy.
Considering this, I am satisfied the commission did not constitute an ongoing service fee and therefore it did not create an obligation for the financial firm to provide ongoing service.
No. The insurance commission was disclosed by Mr J in a Statement of Advice dated 20 July 2011 and the financial firm was not required to disclose the commission on an ongoing basis.
Mr J provided the complainants with personal financial advice on life insurance, total and permanent disability insurance (TPD), income protection insurance, and trauma insurance (the policies) on 20 July 2011.
Mr J’s recommendations feature in a 34-page Statement of Advice (SOA) and the complainants agreed to proceed with the advice on 20 July 2011. The complainants were not charged an upfront fee for the advice. Instead, it was agreed the adviser would receive a commission in exchange for his recommendations.
Both the upfront and ongoing commission paid to the adviser were disclosed on page 24 of the SOA. In addition to this, the SOA includes the following information:
Advice fees and commissions are the payments that the adviser receives. These may be commissions paid to the adviser by the product issuer out of the product fees referred to above, or fees agreed between you and your adviser charged directly to you by your adviser. Generally, if an adviser chooses not to accept commissions, the product issuer will reduce product fees. Advice fees and commissions may include:
an initial component, paid at the time of advice or when the product is set up,
and/or
an ongoing component, paid each year either for the life of the product or for as long as you choose to receive ongoing advice…
…Ongoing Commissions and Ongoing Adviser Service Fees are calculated each year. They are charged as a percentage of your insurance premium for the relevant year. Because of this, the actual dollar amount of ongoing commission and fees will change from year to year. The table above shows how the ongoing amounts will be calculated, and sets out, as a guide only, dollar amounts based on your initial premium. The ongoing component of insurance commissions starts twelve months after the policy was taken out.
Mrs D and Mr D both signed an ‘Authority to Proceed’ which acknowledged they agreed to the recommendations in the SOA and had been provided with a copy of the Product Disclosure Statement (PDS) for the policies. The PDS dated 15 November 2010 states:
Financial adviser commission
If you purchase your OneCare or OneCare Super policy through a financial adviser, we may pay your financial adviser a commission or selling you this product. This payment is already incorporated into your premium.
I am therefore satisfied the commission was adequately disclosed at the inception of the policies and that the complainants were aware that the policies paid both upfront and ongoing commission to their adviser.
The complainants say they did not consider themselves clients of the financial firm. The complainants say they had previously had a financial adviser, Mr J, but their professional relationship with him concluded in 2013 and they have not had any contact since. On this basis, the complainants consider the financial firm was not entitled to receive commission on their policies.
I accept that the complainants did not seek advice and nor did the financial firm provide the complainants with financial advice.
However, the financial firm did inform the complainants it was becoming responsible for their file, in an email it sent Mrs D and Mr D separately on 30 August 2022:
We are excited to announce that ASIC has awarded us our own Australian Financial Services Licence, and it’s important to inform you that changing licensee will not impact you.
At this stage, you are not required to do anything. There are no changes to your adviser, current fees, or services received and no impact on your current superannuation, investments, or insurances managed by us …
The new Licensee, [financial firm] will become responsible for the advice provided from my transfer date, and they will ultimately have access to your file, just as [old financial firm] currently does.
From a privacy point of view, you must be given the opportunity to have your file remain with [old financial firm] should you wish. If you elect to have your file remain with [old financial firm], you will be appointed a new adviser.
The complainants acknowledge they received this email and were aware they were on the financial firm’s mailing list. However, they say these emails were generic and did not alert them to the possibility the financial firm had any association with their life insurance.
I also note that the complainants’ received annual statements from the product issuer that referred to the financial firm as their financial adviser. In a letter dated 28 July 2023, the product issuer sent the complainants a review pack containing a summary of their policy and information about their premiums. In the pack, the financial firm is listed as their financial adviser in the footer of pages 1-8, along with the following references in text:
If any of your circumstances regarding these factors changes, or if you have any questions about any of them, please contact your financial adviser, [financial firm name and number] or call us on [number] for help (p.3).
….
Please speak to your financial adviser (financial firm name and number) or call us to make any changes or ask any questions (p.4).
The letter concludes with this statement (p.8):
[Mrs D], if you have any questions about your cover or you wish to change something, please call your financial adviser, [financial firm name and number] or call us on [number].
In addition, the complainants’ insurance premium summary for their 2022/2023 tax return lists the financial firm as their financial adviser.
I am satisfied these communications were sufficient to make the complainants aware the financial firm was responsible for their file, and that the product issuer regarded it as the complainants’ financial adviser for the purposes of their policies.
I agree the financial firm did not have a legal obligation to inform the complainants they were receiving commission because the ongoing nature of the commission had been disclosed in the 2011 SOA.
I sympathise with the complainants given they have stepped premiums which can increase significantly with age. I also acknowledge they were not aware of the extent to which the adviser’s commission affected their premium.
However, when the initial advice was provided, the SOA clearly disclosed the upfront and ongoing commissions the adviser would receive. Though the complainants’ files were transferred to different financial firms over time, this did not create an obligation to re-disclose the commission, nor did it create a requirement to provide ongoing advice. Given the financial firm has not breached any obligation it had to the complainants, it would not be fair to require it to compensate the complainants.
AFCA has determined this complaint based on what is fair in all the circumstances, having regard to:
The respective parties have completed a full exchange of the relevant information, and each party has had the opportunity to address any issues raised. We have reviewed and considered all of the information the parties have provided.
While the parties have raised a number of issues in their submissions, we have restricted our determination to the issues that are relevant to the outcome.
AFCA is not a court of law. We do not have the power to take or test evidence on oath, or to require third parties to give evidence.
When we assess complaints, we consider:
We give more weight to documents created at the time the events occurred. If there are no relevant documents, we will decide what most likely occurred based on the available information.
If there are conflicting recollections and these are evenly weighted, we may find that a claim cannot be established.
This complaint has a complicated chronology.
Mr J was an adviser for two corporate authorised representatives of three different Australian Financial Services Licensees (responsible licensees) from 2011 to 2019. He retired in 2019, and another adviser at the responsible licensee took over the complainants’ file.
In September 2022, the complainants’ files were taken over by a responsible licensee. This complaint has been lodged against that firm, which is referred to as ‘the financial firm’ throughout the determination. The complainants have made submissions about their interactions with all four responsible licensees from July 2011 – August 2023.
However, the financial firm is only responsible for the period of the complaint where it was the responsible licensee.
This decision therefore only considers the conduct of the financial firm during the time it was receiving commission on the complainants’ policies, being September 2022 – August 2023.
