EXCLUSIVE: Banning life insurance commissions as recommended by the Hayne royal commission will be against the public interest as clients will move on to inferior products, argues a dealer group head.
The final report of the Hayne royal commission recommended commission caps be reduced further than that laid under the Life Insurance Framework.
Commissioner Kenneth Hayne said that, “unless there is clear justification for retaining those commissions, the cap should ultimately be reduced to zero”.
ASIC also confirmed it would review current life insurance commission arrangements sometime in 2021.
But in a blog exclusively written for ifa, Lifespan Financial Planning chief executive Eugene Ardino argued that, should the recommendation be implemented, clients will gravitate towards inferior or inappropriate “self-service” or online insurance products.
“Many financial advisers will say that if clients don’t want to pay a fee for advice, then that’s their problem and it’s too bad if they get inferior insurance or none at all, and it’s more important for the industry to make the transition to a profession,” Mr Ardino said.
“However, I think this is a callous attitude which puts the needs of the advice community ahead of the public interest.”
While Mr Ardino said he’s all for our industry becoming more professionalised, he would like to see it done in a way that allows more Australians to access advice, not less.
“The hypothesis that if we appear more professional then more people will obtain advice, no matter how much it costs, is an unrealistic and irrational fantasy,” he said.
“For the vast majority of consumers, a commission structure for life insurance is actually beneficial and can be quite sensibly justified.”
The Life Insurance Framework is divided into three stages, beginning in 2018 and continuing in 2019 and 2020. The first stage has already passed, with an initial commission rate of 88 per cent and a 22 per cent renewal rate.
The framework is currently at the second stage until the end of 2019 where the initial commission rate is at 77 per cent and a renewal rate of 22 per cent, before moving on to stage three at the start of 2020 where the initial rate is at 66 per cent and a renewal rate of 22 per cent.
To read the full contributed article by Eugene Ardino, click here.
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