The Association of Financial Advisers is urging the Financial Services Council (FSC) not to wait until 2019 to review the industry’s Code of Conduct.
“The code needs to be strengthened now,” AFA general manager, policy and professionalism, Samantha Clarke, says.
The AFA provided a list of 26 recommendations for how the code could be improved, for consideration by last week’s Parliamentary Joint Committee on Corporations and Financial Services life insurance inquiry.
Clarke and AFA national president Marc Bineham appeared before the inquiry on February 24, as did Brad Fox.
The adviser body is pushing for an enforceable Code of Conduct, more investment in consumer research and the development of professional pathways for advisers.
“We have provided a blueprint of recommendations to work through,” Clarke says. “We want the FSC not only to continue industry training but also to actively work on the second stage of the code,” she adds.
The AFA also wants life insurers to review the way simple, direct insurance products such as accident, life, trauma, total-and-permanent disability and funeral cover are offered direct to consumers to ensure their health risks are indeed covered.
“We want to see all insurance policies fully underwritten at application,” Clarke urges.
This would involve insurers asking more detailed questions of consumers applying for insurance policies, medical tests and reviews of past medical records. At the moment, there are serious concerns insurers are offering policies based on only limited information, such as a person’s age, sex and smoking status.
“We need to be sure the insurance industry understands the risk and the customer is actually covered,” she says.
‘Premiums for no cover at all’
Financial Planning Association chief executive Dante De Gori also raised underwriting in his appearance before the joint committee inquiry.
He said: “There is a serious problem with claims underwriting … a process where you pay for insurance and after you die the insurer will then ask for details to decide if you were ever insured. This means that, in many cases, consumers are paying premiums for no cover at all. This, in our view, is not in the interests of the consumer.”
Clarke stresses that advisers play an important role in achieving good claims outcomes for clients. She says half the insurance policies sold in Australia are intermediated through financial advisers. Additionally, when a consumer receives advice about an insurance product, he or she receives a claims experience that is three times better than average, demonstrating the difference advice makes when it counts.
The AFA is also calling on the life-insurance industry to change so that advisers are not incentivised to sell products to consumers that are not in their best interests. However, the group has not called for a ban on commissions.
Rather, the AFA suggests a prudent and respectful approach to commissions. “A lot of the industry has transitioned to a hybrid remuneration model that includes commissions and fee-for-advice, and this is a trend that will continue,” Clarke explains.
She says the challenge is for more experienced practices that have built their business model on commissions. For the entirety of their business’s life, commissions have been legal. It’s only recently that practices and consumer expectations have changed.
“So reforms capping commissions require a lot of support for more experienced practices that need to move to a new business model,” she says.
Expect further news about the FSC’s next steps on the Code of Conduct soon.
This article was edited on March 8 to clarify the AFA’s position on a ban on insurance commissions.
