Addressing the FSC Life Insurance Summit on Wednesday, shadow financial services minister Stephen Jones reiterated his remarks made at a number of recent industry functions around his bias towards removing commissions on risk advice unless a case could be made otherwise.
“We all know the royal commission set quite clearly a prima facie position on conflicted remuneration, a position that I find compelling,” Mr Jones said.
“Of course, we have found some areas where the prima facie position is not necessarily the most practical and best position.
“Mortgage brokers were able to make a case to government and the opposition that with the right sorts of protections surrounding that payment mechanism, consumers could get a good deal, we’d have more competition in the market and the remuneration structures appropriately adjusted could continue.
“Labor doesn’t intend to pre-empt the outcome of [the LIF] review but I want to say clearly to the industry that we are available to have a conversation about how we get this right.”
Responding to a question from the FSC’s Blake Briggs at the industry body’s Life Insurance Summit around what the “evidentiary threshold” would be for commissions to be retained in his mind, Mr Jones said the industry would first need to demonstrate its essential value to consumers.
“The first challenge is not around the remuneration, it’s around the value of the product that you’re selling in the first place. So the first challenge is being out there clearly articulating why consumers need the product that you’re selling, because unless you get over that hurdle, the remuneration of how you’re selling that product is inconsequential,” he said.
“When you’re able to prove the value, that it should be up there with car and house and health insurance, you’re then into the space of saying what’s the most efficient means of delivering that product to people and how can you do it in a way that protects consumers and ensures they pay the price of delivering it to them in the most efficient way.”
Mr Jones acknowledged that the removal of commissions could have further distorting impacts on an already volatile insurance market, saying the industry faced a challenge to balance appropriate incentives and sustainable cost structures.
“This whole cost issue is a bit like squeezing a balloon – you grab the balloon in the bit where commissions are and you squeeze it, and the air has flown to some other part of that balloon,” he said.
“The cost of distributing a product is going to be borne somewhere – the question is how you do that in the best way that removes all the unsatisfactory incentives, poor selling and churn practices. How do you remove the negative consequences?”
“Prove value, that it should be up there with car insurance”.. If you don’t understand that a persons life and ability to generate income is worth slightly more than a car then I’m not sure I can convince you that life insurance needs to be sold.
What would be really refreshing is instead of asking “prove why you should exist” we said “prove removing commissions is better before you stuff with it”..
Thus far every regulatory intervention from FOFA onwards has done exactly what existing industry participants said it would: drove up costs and failed to deliver consumer benefits. Every victory against passive fee revenue has been lost when advisers simply charge higher fees to fewer clients.
The idea that we should have to prove our existence to regulators when the evidence of their catastrophic meddling is all around us makes me sick.
In terms you will understand Mr Jones…commit to keeping commissions and you get my vote.
But Labor totally support HIDDEN COMMISSIONS for Intra Fund Advice by their Union Industry Funds.
Industry Fund Intra Fund Sales = Hidden commissions, massive commissions for no service as more members don’t get advice but pay for it, vertically integrated sales agents selling single product, no BID, no FARSEA code.
What a joke, convince us Jones and Labor how these hidden commissions can be justified ?
If any one is taken in by this guy and believe Labor is on your side you would have to be ? mad.
He has no idea of what a lifie actually foes let alone a financial adviser.
You would have rocks in your head if you believe Labor would do anything to assist financial planners (who are the greatest opposition to their money rorting union super funds). Laughable.
What is interesting is the lack of knowledge on Who Pays if australians do not have Insurnce cover. It is the Taxpayer through Disability pensions or greater age pensions as the Australian have no option but to ask for help if they cannot get affordable Insurance. Simply they cannot buiild wealth if unable to work!
There is lots of research on this which clearly has not reached the desk.
How is a Mortgage Brokers commission any different to a commission on life insurance? Why is one OK according to Jones yet the other he is not convinced about? I see he mentions churn too. Did he not see where ASIC came out and said churn was much lower than reported (pre-LIF)? Is he not aware of the overriding legislative and ethical obligations on Advisers that stipulate they must work in the clients best interest?
Mortgage Broker commissions are OK because they’re part of the Australian Sacred Cow property industry; could you imagine the developer, builder, union, and bank profit effects of removing froth from the mortgage and property market?