A further pullback on insurance advice commissions and the elimination of payment method choice would create significantly worse consumer outcomes according to provider ClearView, which has made the issue a priority in its reform agenda for 2022.
The insurance and investment firm has identified advice simplification, stable life insurance commission rates and sustainable income protection solutions as its three priority areas for reform.
ClearView chief executive Simon Swanson tells Professional Planer retaining commissions is “an issue of choice”.
“Consumers can either pay a fee to the financial planner for the advice they give or alternatively they can pay for the policy via commissions,” he says.
Life insurance commission rates in Australia are capped at 60 per cent upfront and 20 per cent ongoing, which ClearView calls “appropriate”.
Further reductions in the commission rate or its removal altogether would cause “significant” harm to an industry that is already struggling with heightened regulation and compliance, Swanson says, on top of a widening underinsurance gap and decreased advice affordability.
“We’ll be making a submission to the Quality of Advice Review on the issue of commissions,” he notes.
“Just leave commissions as they are for the time being. We don’t believe the industry is ready for the removal of commissions and I don’t see them being reduced either.”
Shadow financial services minister Stephen Jones has vehemently called for banning risk commissions and, with the election weeks away, could soon be responsible for leading the sector.
“I’ve got to say I start with a bias against it,” Jones said in late 2020. “The burden lies upon the industry at large to prove that a commission-based sales model that’s attached to an advising sector is able to provide a service to consumers that is not conflicted… I think that’s an enormous challenge.”
Both Jones and ClearView will wait for the outcome of the Quality of Advice Review, which will include a review of the Life Insurance Framework.
“I’m sure Stephen will listen to everyone’s view on the issue and come to a decision that’s in the best interest of the public,” Swanson says.
ClearView’s reform agenda also calls for tax deductibility of financial advice fees to reduce the net cost to the client and increase affordability.
“If I see an accountant for advice I can get that as a tax deduction so a financial planner giving advice should be tax deductible as well,” Swanson says.
Additionally, the government has been called on to consider making life insurance premiums tax deductible.
“It won’t happen in the short term,” he says. “There are enough fiscal issues the government has to front at this point, but it is something we should be arguing for long term.”
Swanson contends there’s a rebate for health insurance premiums, while there is also a precedent to include life insurance.
“We need to go back to where the industry was in the ‘70s where life insurance premiums were tax deductible,” he says.
Clearview also supports better usage of records of advice instead of statements of advice in cases of “simpler” advice, as well as the removal of Safe Harbour steps.
For Individual Disability Income Protection (IDII), the provider supports APRA’s decision to suspend the introduction of IDII products for at least another two years.
ClearView removed itself from delivering advice last year with the sale of its advice arm to Centrepoint, which it retains a stake in.