In its submission to the life insurance inquiry, the FSU said “all remuneration systems should be structured to encourage and reward meeting the customer ‘best interest’ duty”.
“All forms of conflicted remuneration should be banned from the industry, including from executive remuneration systems,” the submission said.
“This ban should be straight forward and not complicated by loop holes and exemptions provided through the artifice or manufactured ‘balanced scorecards’ or similar devices intended to circumvent the best interests duty.
“We say this because of the evidence that the management culture relegates all non-sales considerations on an operational basis most of the time.”
The FSU noted to the parliamentary joint committee on corporations and financial services that, over the past decade, remuneration systems across the industry have shifted to performance management systems that primarily reward volume sales outcomes.
“These performance management systems make it clear to all employees that your value as a worker is based upon your ability to sell,” the submission said.
“Employees who do not achieve their volume based sales targets are routinely humiliated in meetings and on league table displays.”
The FSU also said legislation should impose greater transparency, requiring all companies offering life insurance products to “annually declare on their website how many claims they refused to pay as well as any adverse findings from relevant jurisdictions”.
Further, it said the removal of sales-based remuneration systems should not be used to reduce costs.
“Rather, the money should be redirected towards the implementation of the skill-based remuneration framework that professionalises the industry,” the submission said.
People cry out about active managers being too expensive when the obvious solution is to not use them if you feel that way. Markets listen when money talks. A free market should permit a variety of remuneration styles. PDS rules facilitate comparison if people can be bothered checking. Comparator businesses help too – e.g. superratings. If people just focus on AFTER TAX and FEE (or at least after fee) returns they can make a fairly swift assessment once a year to see if they are being ripped off or not. But mandating methods of payment is just over-the-top. Business should be able to set a price and see if people want to play.
In my opinion, FOFA should be extended to ban any fund or fund manager from charging a percentage on funds under management. It should be fee based. You can’t just target advisers. By the way, some of the old fund models that have 2%+ ICRs should be under more scrutiny. Generally these funds do not require advisers to provide their clients with an FDS. Tell me how that is improving transparency in financial advice.
Same can be said for ISA funds, who not only have a myriad of ‘indirect member charges’ and costs based on the overall FUM, but also utilise fund managers who charge based on FUM/AUM. Until there is one level playing field across the board, where all facets of wealth management/advice/governance are treated identically, then there will always be conflicts of interest and some models higher in costs than others (major difference is the transparency on some versus the opaqueness of others).