FPA positions on insurance commissions

FPA/fpa-chief-executive/disclosure/fee-for-service/commissions/remuneration/insurance/financial-services-association/life-insurance/financial-planning-association/chief-executive/

17 March 2010
| By Lucinda Beaman |
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The Financial Planning Association (FPA) is standing by commission payments to financial advisers for the sale of life insurance products, while stating standards for commission conditions and disclosure must be raised.

The FPA board has considered the issue of commission payments for superannuation products and believes an overhaul of the existing system would be detrimental to consumers, a statement from the association said.

Outgoing FPA chief executive Jo-Anne Bloch said in a fee-for-service environment, the cost of advice for life insurance would be too high for many consumers, resulting in an exacerbation of the existing underinsurance problem.

“Until we are able to deduct the costs of upfront fees as a tax deduction, then commission-based advice remains the most cost-effective manner by which the widest range of consumers can secure insurance cover,” Bloch said.

The FPA Board argues there has been “no demonstrated link between commission payments and reported cases of mis-selling and conflicts in the life insurance sector”, which the FPA said lends weight to its stance.

Putting forward a less compelling argument from consumers’ perspective, the FPA said a lot of work would need to be done at a product level to be able to facilitate a shift from commissions to fee-based advice for insurance products.

While the FPA wants to see product payments to advisers continue, the association did say it wants greater transparency and disclosure regarding insurance costs. The association said the first five of its six ‘financial planner remuneration’ rules should apply to insurance products.

That means consumers must be able to understand and compare the fees they are paying, have fees that separate advice and product, and be able to negotiate the fee with their financial planner and have the fee removed where no ongoing advice is provided or required.

In a separate decision the FPA Board re-affirmed all six of its ‘financial planner remuneration’ principles should apply to corporate superannuation.

“It was agreed that, in accordance with the current legislative approach in the SIS Act, we would widen the definition of ‘client’ in our remuneration policy to include a formally constituted ‘policy committee’,” Bloch said.

“The key issue of being able to opt out of receiving corporate super advice was one that needed to be escalated with the [Investments and Financial Services Association], and the Cooper Review Panel and the FPA will continue to do so.”

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