The Financial Planning Association (FPA) has rejected calls from consumer advocacy groups to ban life insurance commissions, arguing that this would leave more consumers chronically underinsured.
In a statement on Tuesday, FPA chief executive officer Sarah Abood rebutted the calls made by a number of consumer groups including Choice and Super Consumers Australia, and argued that by banning commissions, “we’d effectively be removing consumers’ ability to choose how they wish to pay for their advice”.
Citing “multiple research studies”, Ms Abood argued that a high proportion of consumers would not purchase insurance at all if they were required to pay an upfront fee.
“So the result would be that far fewer Australians would have appropriate insurance protection in place,” Ms Abood said.
Labelling it a problem “not just for the individual but for our whole society”, Ms Abood said removing the life insurance commission would leave many Australians entirely dependent on the social security system.
Moreover, she cited NMG Consulting research showing that retail-advised new life insurance business volumes have more than halved, declining from $638 million in 2016, before the Life Insurance Framework (LIF) reforms commenced, to just $317 million in 2021.
This number, Ms Abood noted, is expected to fall further over the next few years driven, by several factors.
“Overall, the number of financial planners who provide life insurance advice has declined substantially in recent years, and this has meant that it has become much more difficult for Australians to access advice in this area,” Ms Abood said.
“LIF also substantially reduced the remuneration advisers can earn from individual policies, which has made it economically unviable to provide life insurance advice to younger Australians where the premiums are lower.
“As a result, advice is focusing increasingly on older Australians, increasing the risk of the overall insurance pool and ultimately driving up premiums for all.”
Ms Abood reiterated the FPA’s support for “all the proposals” made in the Quality of Advice Review paper on conflicted remuneration, including the proposal to leave the LIF model unchanged, and emphasised the group’s support for the continuation of the existing exemption on life insurance commissions under the LIF.
“We welcome the findings of the ASIC file review. They show significant improvement in the quality of life insurance advice provided over the past four years,” Ms Abood said.
She noted that “every profession has some level of conflict involved”.
“We echo the comments made recently by the AFA on this point: surgeons are potentially conflicted in performing surgery if other interventions are possible. Lawyers charging time-based fees are conflicted by having the incentive to extend disputes,” Ms Abood said.
“We expect these professionals to nevertheless act in the interests of their clients — despite the existence of the conflict. Financial planners, as professionals, do the same. And in fact, they are required by a legislated code to act in the best interests of their clients.”
Trailing commissions indefensible and sneaky.
The FPA was one of the causes, certainly not the solution. If they had of stood up and defended commissions earlier on we wouldn’t be in this mess.
all good and well building the foundations and strategies for future wealth accumulations etc ,
however its basic insurance principles and practices implemented that will save the family and its assets when all else fails ,
since my personal interaction with clients since the late 80s i DONT BELIVE THE NORMAL AUSTRALIAN out there will want to pay a fee for insurance and sincerely believe that they will not pay for service .
sorry my learned opinion.
It is not only “every profession has some level of conflict. It is every method of remuneration has some level of conflict.
The very foundation of financial planning is to address a clients current & potential future financial risk.
You don’t build a house with shaky or sub standard foundations and you should never implement future investment strategy without first addressing the here & now.
Without appropriate foundations the plan could well coming crashing down around you.
It’s all very well to talk & discuss future investment goals & retirement planning but the client has to get there in one piece first.
When you need to pull the ripcord on your parachute, you don’t want to look up and see it’s full of holes!!
If the know it all’s that never sit in front of a client and never have to go through the low paid compliance nightmare that is insurance advice would just move on and make someone else’s life a misery, we may even start giving insurance advice again. Until then, forget it.
The FPA supported LIF and was actually officially thanked for their support and participation in introducing LIF. It’s a bit rich that they are now trying to ride in like a white night to rescue advisers.
Pity the FPA/AFA/FSC did not think about this in 2015 when supporting Minister O’Dwyer with LIF/FASEA legislation whilst simultaneously taking money from the Institutions…
Ban life Insurance Commissions and ban all the hangers on that are not active financial advisers. Get rid of all the intermediaries and let the profession grow as a profession. Over to you Mr & Mrs Government. Jones and Co….
What would be the point of a ban ? How would this NOT lead to an even greater under insurance problem in this country. Start looking at the bigger/broader picture.
Be careful what you wish for.
I agree Marcus. Complicated risk can be handled under a fee for service. The next tier under holistic planning. And there is no stopping on-line / robo advice. The risk industry environment has changed from what it was 20, 10 even 3 years ago.
FPA a day late and a dollar short. The FOA supported LIF, a complete failure.
Not only did the FPA endorse LIF, but agree with the recommendations from QAR, which provides nothing, and I mean absolutely nothing, to positively affect the financial planning fraternity with whom they are supposed to represent. Again, the FPA is only there to ensure that the banks and other instos are catered to.
“Lawyers charging time-based fees are conflicted by having an incentive to extend disputes,” Ms Abood said. This is a terrible analogy to use, because this is what lawyers do on a daily basis, particularly in matters of Family law. I wouldn’t want to be compared to a lawyer when comes to best interest duties.
Haven’t lawyers been at the forefront at attacking our industry? Good on Sarah Abood for standing up for the industry for a change.