Consumer group CHOICE has welcomed legislation introduced by the Federal Government today that will dramatically reduce commissions that financial advisers receive for selling life insurance and is calling on all parties to support the Bill.
Corporations Amendment (Life Insurance Remuneration Arrangements) Bill introduced by the Minister for Revenue and Financial Services Kelly O’Dwyer will lead to a cap on commissions. Upfront and ongoing commissions will be capped at 60 and 20 per cent respectively, with a two-year clawback provision to discourage product churn.
“This legislation will remove the worst practices in the financial advice industry but much more is needed,” says CHOICE CEO Alan Kirkland.
“After numerous reviews, research reports and inquiries showing that consumers suffer under the current system that sees financial advisers earn commissions up to 120% for selling life insurance, we need this life insurance legislation to pass as quickly as possible.
A recent investigation into life insurance advice by Australia’s financial services regulator ASIC found that 37 per cent of advice failed to comply with legal requirements to prioritise the needs of clients [note 1]. When an adviser was paid under an up-front commission model, 45 per cent of advice did not comply with the law [note 2].
“When an adviser is paid to sell, they’ll sell – even if it’s not in the consumers’ best interests. The Federal Government has already recognised that it’s inappropriate for financial advisers to be paid to flog products rather than give advice but a loophole exists for life insurance products – consumers need that loophole closed,” Mr Kirkland says.
“It is incredibly disappointing that the financial advisers who benefit most from the current commission arrangements have been mounting an aggressive campaign to scrap the legislation.
“Bizarrely, these advisers have been claiming that consumers will lose out when advisers receive lower incentives to sell inappropriate products.
“We hope this legislation is the first step to removing all commissions from financial advice.”
Notes:
[1] ASIC (2014), REP 412 Review of retail life insurance advice, http://asic.gov.au/regulatory-resources/find-a-document/reports/rep-413-review-of-retail-life-insurance-advice/
[2] Ibid, ASIC (2014)
