Super funds are ‘trial run’ for insurers’ advice entry, says Abood

The chief executive officer of the Financial Advice Association Australia (FAAA), Sarah Abood, has reiterated her understanding that superannuation funds will act as a “trial run” to essentially test the waters for the entry of insurers into advice.

Speaking in Adelaide last week, Ms Abood said she is certainly not getting the message that stream three of the government’s Quality of Advice Review (QAR) response “is dead” and explained that Minister for Financial Services Stephen Jones picked superannuation funds to go first for a reason.

“He is certainly seeing superannuation as the focus because he sees the retirement income need as the greatest need right now, but he is also explicitly viewing this as a way of testing and making sure we’ve got the setting right where we are potentially extending some advice beyond registered financial advisers,” Ms Abood said.

“There are a couple of reasons he picked super funds and the other one was the duty that the trustee owes to their members and that that duty is something that gave him more confidence that this would be a good place to start. But of course, life insurers also owe a duty to their policyholders.”

Ms Abood added that she “certainly” sees that there is a need in the life insurance space.

“Not enough Australians have got enough life insurance cover and that’s something that is inarguable. You look at the stats, consumers are getting less cover and cover is getting more expensive.

“So, I do think that there is a strong argument that life insurers could be the next cab off the rank if we’re able to get a functioning model that works well for super funds.”

Ms Abood noted that the FAAA is currently working with the Council of Australian Life Insurers (CALI) on “some of these matters”.

“We need to fix this. We need to ensure Australia’s have got enough cover.”

Also in Adelaide, Mr Jones addressed life commission caps, which are set to remain at 60 per cent for upfront commissions and 20 per cent for trailing commissions as per the QAR's recommendation 13.7, included in the government’s first tranche of legislation.

Questioned about the likelihood that commission caps may increase in the future, the minister said caps are “not something that is on our agenda”.

“It’s not even in the in-tray,” the minister added.

“Look at what is in the in-tray, and there’s a lot.”

The retention of current commission levels was called for in the QAR by reviewer Michelle Levy, who said at the time that an increase would only up costs for insurers and would therefore have an impact on premiums.

The government is consulting on the first tranche of legislation until 6 December. After that’s wrapped up, the minister expects the policy confirmation of the details on statements of advice and other elements of the second tranche to be released before Christmas, with further legislation to be put to consultation next year.