Risk commission ban 'poor policy'

The Federal Government’s decision to ban commissions on all life and risk products within superannuation will only serve to add another layer of complexity and confusion, according to a Money Management roundtable of senior risk company executives, consultants and financial advisers.

The roundtable, conducted in late June, concluded that the Government’s decision to impose the risk commissions ban as part of its Future of Financial Advice (FOFA) changes represented bad policy that would only serve to undermine the objective of overcoming Australia’s underinsurance problems.

Tower Australia Limited head of life insurance solutions, Brett Yardley, said the Government’s announcement had a great deal of uncertainty, particularly with respect to structures both inside and outside of superannuation.

“It creates a whole lot of new complexity in terms of potential differential pricing or differential funding of fees inside and outside of super,” Yardley said. “How that then marries up with the best advice requirement is going to be especially complicated, particularly if you have a product that’s theoretically cheaper in super than it is outside of super.

“How advisers and how the market will make sure that customers’ needs are being met in the most appropriate way just introduces a whole lot of extra complexity,” he said.

Guardian Financial Planning executive manager, Simon Harris (pictured), said that, overall, his firm believed the banning of commissions inside of super represented “poor policy, probably delivered on the fly for political reasons”.

“It will probably lead to an exacerbation of the underinsurance problem in Australia,” he said.

“Combined with the best interest legislation that’s going to go through, it provides a possible conflict for advisers,” Harris said. “On the one hand, best interest may dictate that they ask their clients to take insurance outside of superannuation or inside of superannuation, but then there’s the client’s willingness to pay for the insurance either inside or outside superannuation.”

Australian Unity planner Andrew McKee said he really struggled to understand the rationale for the Government’s decision because part of the rationale for FOFA was to remove conflict “and here we are deliberately introducing a brand new conflict into the system”.

“I really struggle to see what purpose it serves,” he said. “I don’t understand who we’re trying to protect in this process.

“It’s going to be really difficult for advisers and it’s going to place them in a difficult position,” he said. “They’re going to have to make decisions about different pricing structures and different fee versus commission structures. It’s going to be challenging and it’s added a lot of complexity into the system for advisers … I just don’t understand the rationale and what purpose it serves.”