Criticism has continued to mount against Financial Services Minister Bill Shorten’s move to ban commissions for risk insurance within superannuation.
Industry participants believe the ban, which was announced as part of the revised Future of Financial Advice (FOFA) package last month and would apply from July 2013 if approved, will force advisers out of the industry and also boost Australia’s underinsurance problem.
“The decision goes counter to commonsense,” Association of Financial Advisers chief executive Richard Klipin said.
“It also goes counter to the common view around the marketplace. It looks like an agenda play to a part of the marketplace that’s not where the majority of Australian industry operates.”
Klipin said Shorten’s decision on life insurance seemed like a solution for a problem that did not exist.
“Storm Financial, which has been positioned as the driver of the FOFA changes, and Opes Prime and the agribusiness failures – none of those were insurance failures,” he said.
“Insurance had nothing to do with the selling or fraudulent behaviour or disasters of the magnitude of Storm.
“Yet the Minister has seen fit to severely wade into the market and create a range of potential distortions that are not in the national interest.”
Financial practice OneInsure principal Andrew Holmes said the reform was misguided and poor policy.
“The main issue is that I don’t think this legislation was really consumer driven,” Holmes said.
The ban on risk insurance commissions in super would wipe away at least $1 billion in commissions in 2011, rising to $2 billion by 2017, according to estimates by Rice Warner Actuaries.
Futuro Financial Services managing director Dennis Bashford said the reforms would be disastrous, particularly for independent financial advisers.
Bashford said the proposal was out of touch with reality and the government should draw on lessons from the United Kingdom.
“All we have to do is look at the results of the banning of commissions from insurance in the UK,” he said.
“That was a mistake of such proportions that they had to simply reverse that a couple of years down the track.”
Specialist life insurer Asteron general manager Jordan Hawke said the industry would have to examine alternative revenue streams if the proposal became enshrined in legislation.
“I just think that Shorten has not thought this through; I think he has made a mistake, and certainly from my perspective and from Asteron’s perspective, we will continue to lobby hard against it,” Hawke said.
Shorten in April said the government’s position was consistent with the recommendation of the Cooper review that insurance commissions within super be prohibited.
He said they had the “potential to affect the quality of advice” and the findings of ASIC’s shadow-shopping surveys illustrated that, in the case of poor advice, over half involved poor life insurance advice.
