In its submission to the ABA review, ISA said it is “increasingly concerned that the lack of community trust and confidence in the banks could reduce public confidence in our compulsory super system”.
“We are concerned that the [ABA] review excludes from its scope the very areas where there have been ongoing scandals that have resulted in significant detriment for consumers,” ISA said.
“These areas include life insurance commissions, conflicted remuneration where permitted by FOFA, the practice of banks bundling super with business banking products, balanced scorecard arrangements and cross-selling superannuation products to consumers.”
ISA chief executive David Whiteley said, “To restore public confidence, by 2020 the banking system should be free of all conflicted remuneration.
“What is required is a comprehensive ban on all incentives and commissions paid to all employees by all banks, including cashiers, business bankers and financial advisers.”
ISA referenced the 2014 Final Report of the Financial System Inquiry, citing that collapses involving poor advice, information imbalances and exploitation of consumer behavioural biases have affected more than 80,000 consumers, with losses totalling more than $5 billion.
“A decision by the banks to cease paying all incentives by 1 Jan 2020, including all grandfathered commissions, is the circuit breaker needed to send a clear signal to the Australian community, parliament and regulators that the banks will stop cross-selling and up-selling superannuation and other products to consumers when it is not in their best interests,” Mr Whiteley said.
David Whitely himself is conflicted, so based on his own standard, why would anyone listen to him or an adviser working for ISA? This is a slippery slope folks, one that impacts on all industries and professions, not just financial planning. Be careful what you wish for.
Why is it that Insurance in Super costs more, covers less and hardly pays out any claims when compared to a standard retail policy provided by a Financial Planner. Yes the banks have a lot to answer for but many super funds charge fees for very expensive insurance until the super balance runs out. Despicable – Yes. As bad if not worse than the banks – oh Yes. The best protected clients are the ones that receive non-aligned decent advice.
Just like communism the idea of no conflict is nice in theory but doesn’t work in practice. Even with a massive reduction in compliance requirements, documentation and processing costs the end result will be significantly less people being insured. This experiment has already been conducted in the UK and it was a total failure for the common person. Conflict of interest in inherent in all commercial transactions without exception. Is a doctor treating you because they like you or because they are being paid? We’ve seen the public outcry over people being asked to spend just $7 to see a GP yet miracle of miracles people will pay a fee for insurance advice that many don’t think they need until it’s too late. Anyone charging money for a service has a conflict: the payment for a service is an incentive to provide a more service, simple as that.
By the same argument Industry super funds should be banned from operating multiple member funds (hesta, Aust super, Rest etc) because the duplication of more than 15 management teams for no apparent benefit greatly reduces the retirement savings of Australians.
The banks could do this. It wouldn’t hurt them too much. But it would bankrupt small, independently owned financial planning practices. So that is really what they are seeking here. Let’s call a spade a spade.They don’t like the scrutiny they receive from financial planners. They want us out of the way.
If you don’t give people incentives, how do you reward people. Ideally everyone works as hard as everyone else and all should be paid exactly the same !! Unfortunately it doesn’t work for the majority.
Can the Mr Whitely and the ISA confirm/deny whether any of the Union Super Funds receive commissions from the insurers for their respective funds when a member takes out higher levels of cover? Can Mr Whitely and the ISA confirm/deny whether any of the Union Super Funds participate in any ‘profit sharing’ or ‘bonus pools’ if claims are kept below a certain level? Can Mr Whitely and the ISA confirm/deny that there have been cases where the insurer has been willing to pay claims but where the fund trustees have denied the claims?
Think carefully about banning incentives. Why wouldn’t you want to incentivize planners to give great advice to more Australians. The right behavior can and should be recognized and rewarded