The policy was taken to the government by industry and ratified overnight.

The policy will consist of a maximum total upfront commission of 60% of the premium in the first year.

It will also include a maximum on-going or trail commission of 20% of the premium in all subsequent years.

Also agreed to was a three-year retention or clawback period to commence on 1 January 2016 and a ban on other volume-based payments, with appropriate grand-fathering arrangements consistent with the FOFA laws.

Life insurance companies will offer fee-for-service insurance products to support advisers who wish to operate under this model.

“The Government welcomes the significant reform package received today from the Association of Financial Advisers (AFA), Financial Planning Association of Australia (FPA) and Financial Services Council (FSC) on behalf of the retail life insurance industry,” Assistant Treasurer Josh Frydenberg said.

“Having previously expressed my preference for industry to develop genuine solutions to the problems identified in the Australian Securities and Investments Commission’s (ASIC) Report 413 Review of Retail Life Insurance Advice (2014) rather than for the Government to act unilaterally, I welcome industry’s response,” he said

Transition details

The new regime will be transitioned into existence as follows:

•     Maximum total upfront commission of 80% of the premium in the first year of the policy from 1 January 2016.
•     Maximum total upfront commission of 70% of the premium in the first year of the policy from 1 July 2017.
•     Maximum total upfront commission of 60% of the premium in the first year of the policy from 1 July 2018.
•     Three year retention (‘clawback') period, to commence from 1 January 2016 to apply as follows:

1. In the first year of the policy, to 100% of the commission on the first year's premium;
2. In the second year of the policy, to 60% of the commission on the first year's premium;
3. In the third year of the policy, to 30% of the commission on the first year's premium.