The Financial Planning Association (FPA) has confirmed it will support the continuation of commission as a remuneration option for risk insurance products.
This move follows confirmation from two of the strongest supporters of transitioning to a fee for service remuneration structure, MLC and AMP, who are both on record as supporting the continuation of risk commissions.
The FPA Board notes that Principle Six in its Financial Planner Remuneration Principles, which prohibits payments from product manufacturers, “… cannot reasonably be applied without potential consumer detriment.”
Outgoing FPA CEO, Jo-Anne Blochsaid the FPA considered the barriers to changing risk products to a fee for service basis and felt that the cost of advice for life insurance would be too high for many consumers, resulting in further underinsurance.
… there is no demonstrated link between commission payments and reported cases of misselling and conflicts in the life insurance sector
Importantly, the FPA Board also noted that ‘… there is no demonstrated link between commission payments and reported cases of misselling and conflicts in the life insurance sector which lends weight to the appropriateness of continuing commission based advice.’
In its release, the FPA implies there may be future scenarios where transitioning away from risk commissions may be considered, with Ms Bloch commenting, “Until we are able to deduct the costs of up front 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.”
With a view to the medium to long term, the FPA Board also noted that ‘… much work needed to be done at a product level to be able to facilitate a move away from commissions to fees for risk products.’
With the FPA now confirming its support for continuing commissions for insurance products, at least in the short to medium term, will this move have any bearing on the current debate regarding the prospect of a merger between the FPA and the AFA? (See our current poll story: To Merge, or Not to Merge?)
