Giving risk advice consumers the choice of payment via commissions or upfront fees is good in theory, but we still need to ascertain if commissions are in the best interests of consumers according to Mathias Cormann.
Speaking at the Professional Planner Risk Summit in Sydney on Tuesday with former MP Bernie Ripoll, the current Minister for Finance and leader of the government in the Senate said that “conceptually”, giving people the choice of payment methods is a “completely reasonable position”.
“However,” Cormann continued, “there have been systemic failures that have had negative consumer consequences…”
Cormann indicated the government was prepared to see the LIF reforms implemented and then let ASIC check that those reforms have been “bedded down” in its government-mandated 2021 review. At that stage, he said, “further adjustments” may be required.
He noted, however, the need for government intervention to be balanced.
“The key is always to only have as much regulation as is necessary, to get that balance right between consumer protection, competitiveness, the viability of the industry and affordable quality advice,” Cormann said.
Earlier, ASIC executive director of wealth management, Joanna Bird, said the corporate regulator was already “collecting data” in anticipation of the review.
The Risk Summit’s proceedings were dominated by the commissions debate, with risk advisers and insurance executives desperate to impress upon representatives from parliament and the corporate regulator that a fee-for-service industry – as intimated in Hayne’s royal commissions report – couldn’t survive.
Licensee Clearview’s CEO Simon Swanson said a move to eradicate commissions would be a “tragedy”, while AIA’s CEO Damien Mu commented that a commission ban that led to less consumers accessing risk advice would be a “horrible outcome”.
The chief argument for retaining commissions – as it has been since the Life Insurance Framework reforms and then Hayne’s final report put them under a cloud – is that consumers are disinclined to pay upfront and banning commissions will exacerbate the insurance gap, as well as decimating the advice industry.
Ultimately, one adviser said, consumers will be forced to pay for something that product providers pay for now.
Cormann sympathised, but again pointed to issues in the past.
“There is the affordability piece that we’ve always got to keep an eye on, I get that,” he said. “But essentially, we are where we are because of what happened in years gone by.”
Explain your value
Cormann said the onus was on the industry to convince consumers of the value of insurance and insurance advice.
Responding to a question about the level of underinsurance in the country, Cormann said Australians “have got to make their own decisions”. Government and regulators needed to make sure those choices could be made in a “well-informed and safe” way, but it is up to industry participants to convince consumers to buy it, he said.
“In the end it’s not our job to sell your product,” Cormann added.
In an earlier session, Labor’s Matt Thistlethwaite, the Shadow Assistant Minister for Financial Services, took a similar tack in pushing responsibility back on industry participants. If risk advisers want commissions to be retained, he said, let the community know how important they are.
“The challenge for your industry is to explain why those commissions should exist,” he argued, imploring advisers to “distinguish the importance” of their work.
Part of the issue in getting the message across, Thistlethwaite noted, was that there is so much confusion around the term ‘commissions’.
“It’s about your industry explaining to people that there are differences in financial advice commissions… in commissions that go to mortgage brokers and commissions that go to your industry,” he said.
Labor hasn’t made a decision on risk advice commissions, he said, and would wait for the results of a review ASIC will conduct in 2021.
“No doubt while that review is going no there will be a lot of commentary on it, and I think that’s a good opportunity for your industry to explain its value proposition,” he added.