The Shadow Minister for Financial Services Mathias Cormann has criticised the government’s decision to impose a ban on commissions from risk cover taken inside superannuation as part of its Future of Financial Advice (FOFA) reforms citing the failure of this initiative overseas as evidence of it being a mistake.
“We do not agree with Labor’s assertion that commissions on risk insurance are in themselves a conflicted remuneration structure,” Corrmann said.
“We know from recent experience in the UK that the banning of commissions on risk insurance does not work, which is why the UK has reversed that decision. We should learn from that experience,” he continued.
According to Cormann the decision will increase the cost of risk insurance for consumers and also limit the choice individuals have in how they want this type of cover structured.
Furthermore he said the move would not help other issues regarding risk insurance.
“We already have a problem of underinsurance in Australia, which this proposed ban would only make worse because it increases the upfront cost of taking out adequate risk insurance,” Cormann said.
“To treat commissions on all risk insurance inside super differently from insurance outside super will also create inappropriate distortions, which invariably will not be in the best interests of consumers,” he explained.
Cormann also disagreed with the decision to implement an opt-in obligation for financial advisers every two years as part of the FOFA package, a move he labelled as bad public policy.
“We note Bill Shorten has backed down from his initial intention to force people to re-sign those contracts every year,” he said.
“However even his revised proposal to require people to re-sign contracts every two years will add unnecessary red tape, increasing costs for both small business financial advisers and for their clients. We do not think the Parliament should endorse it.”
Cormann said Treasury estimates showed the opt-in requirement would cost a small advisory practice an additional $50,000 in expenses per year.
