A legislative ban on commissions on risk and insurance products for advisers is inevitable, Paramount Wealth Management principal Wayne Leggett has anticipated.
Speaking to ifa, Mr Leggett said it was a case of “when, rather than if, risk commissions will cease to be a feature of the financial services landscape”.
But at the same time, the number of Australians carrying adequate personal insurance is “worsening over time” and the removal of commissions may contribute to it further, he said.
“It is universally accepted that the average Australian carries inadequate personal insurance and this situation is reputed to be worsening over time,” Mr Leggett said.
“If this is occurring in a marketplace where commissions are still a prominent feature, one can only imagine that the situation would deteriorate further should commissions be banned,” he said.
Financial Planning Expert founder Trent Alexander said the abolishment of risk commissions “is long overdue” and while commissions exists so does a “conflict of interest”.
“Commission rates vary between insurance products and this means a risk of advice being in the adviser’s best interest instead of the client’s,” Mr Alexander said.
“[They] also result in higher premium costs. To fund the payments to advisers, commission-based risk products have higher annual premiums, typically up to 30 per cent more than commission-free equivalents,” he said.
Mr Alexander also said that as clients' needs for insurance are generally longer term, they will “pay much more in premium costs” over the policy term where commission-based products are taken out.
“Paying a once-off adviser fee that covers product advice and implementation (of a commission-free policy) is usually cheaper over the long term. It’s also more likely to be in a client’s best interest,” Mr Alexander said.
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