Risk commission ban key area of FOFA concern

Industry responses to the Government’s Future of Financial Advice (FOFA) reform package have been largely positive, but a ban on risk commissions within superannuation has proved the main area of concern.

This ban will have the potential to exacerbate the country’s chronic underinsurance problem, while the fact that it applies within superannuation but not to other risk advisers has the potential to distort the advice market, according to several industry commentators.

AMP supported the fiduciary elements of the package, but AMP financial services managing director Craig Meller (pictured) said he believed the super risk commission ban went too far and would exacerbate underinsurance.

The Financial Services Council (FSC) said the changes would improve professionalism and build trust, but at the expense of increased cost of advice.

“This package is much fairer than the one announced by the Government last year. The Government’s concessions in a number of areas ensure consumers will continue to receive the benefits of scale and competition,” FSC chief executive John Brogden said.

Count Financial chief executive Andrew Gale said most of the changes were expected and his group was well prepared. However, he also expressed concern that the risk commission ban in super could distort advice.

The Joint Accounting Bodies, representing CPA Australia, The Institute of Chartered Accountants in Australia and the National Institute of Accountants, issued a statement saying the removal of conflicted remuneration was a vital step towards removing conflicts of interest within the industry.

It should also give professional accountants scope to provide non-product financial advice, the statement read.

The Self-Managed Super Fund Professionals’ Association of Australia (SPAA) was pleased the Government was considering scaled advice to replace the accountants’ exemption, and supported the ban on conflicted remuneration – including commissions and soft dollar benefits – but was disappointed risk commissions had been dealt with separately inside and outside of super.

“The SPAA is very concerned that the commission ban on insurance products which only applies in superannuation, may distort the market and encourage mis-selling practices by opportunistic intermediaries,” said SPAA chief executive Andrea Slattery.

The Association of Superannuation Funds of Australia was broadly positive on the changes but cautioned there was still a long way to go, and said it would be consulting closely with its members about the ban on insurance commissions inside super to assess the impact on the provision of advisory services on that area.

The Financial Planning Association stated they had concerns over opt-in and banning of risk commissions in super but would need a more detailed examination to formulate a response.

BT Financial Group chief executive Brad Cooper supported the aim of improved transparency and increased investor confidence, but expressed concern over the impact on levels of life insurance coverage.

Director and head of life insurance of Rice Warner, Richard Weatherhead, said that while some elements, such as the ban of commissions on risk insurance in super, were a little surprising, ultimately they seemed practical.