Greens Senator Peter Whish-Wilson has called for mandatory ‘FoFA-style’ regulations to tackle the conflicts of interest within the insurance industry.
Responding to reports in Fairfax Media that NAB Wealth had ‘covered up’ a number of issues within its financial advice arm, including inappropriate insurance switching advice, Senator Whish-Wilson said the Government needed to act immediately.
He said the next most important step in reforming the advice sector was to introduce mandatory regulations, similar to those imposed by the Future of Financial Advice regime, to address the issues identified in the recent Australian Securities and Investments Commission (ASIC) report into retail life insurance advice.
“The Government needs to act immediately to address cultural problems in the big banks and look at what they can do to rein in the conflict of interest problems inherent with the vertically integrated, commission-driven model,” Senator Whish-Wilson said.
He argued that the Coalition Government’s failure to act was eroding community trust and would hit small financial advice businesses the hardest.
I have met dozens of independent financial advisers whose reputation has been unfairly damaged
“I have met dozens of independent financial advisers whose reputation has been unfairly damaged by the Abbott Government’s inability to reign in the systematic problems within the big players in the sector.
“The Government sought to deregulate the financial advice sector, and then they cut the budget of ASIC and weakened their ability to investigate fraud. It is time that the Government took some strong action and stood on the side of consumers and small businesses in the financial services sector,” he said.
Meanwhile, Shadow Treasurer, Chris Bowen, said there was a case for further inquiries into financial advice, but was not interested in ‘publicly belting’ the NAB for its mistakes.
“I think in these instances good discussions between the banks and the political parties is warranted… I’d rather be working with them to get good results for Australian financial consumers.”
He said that only the Government could call a Royal Commission, but that if it were to occur his party would work with the inquiry.
In contrast, Senator Whish-Wilson said there was now an urgency to establish a Royal Commission into white collar crime and cultural problems in the big end of the financial advice sector, especially around vertically integrated companies.
For more on the NAB advice scandal, see:
I cannot believe the level of ignorance that we have in our political leaders!
Firstly Mr Whish-Wilson seems to be unaware that retail insurance is already covered by FOFA. Perhaps he needs to understand issues before he comments on them?!
To ad insult to injury, Mr Bowen doesn’t think that “beating up” NAB for their mistakes is a worthy cause. If it wasn’t for the players such as NAB we wouldn’t need FOFA
The problem with the financial planning industry is that we allow investment managers to provide financial advice and expect them to be “independent”. That is like asking a General Motors employee to provide independent advice on which motor car is best – what do you think they will say?
To fix the financial planning industry ban fund managers (including banks) from providing financial advice!
Well Well Well, someone with a sensible response, I agree product providers are the only conflict in the industry, Mr Bowen grow up, Mr Whish-Wilson go back to the fish and chip shop you came from. its very simple the small independent will disappear if upfronts are taken away, Mr Wish-Wilson this is what happened to Holden and Ford in Australia, yes to many opinions not enough real understanding, Is Australian Politics serious? what happened in the UK SAME SH.. DIFFERENT DAY, YOU DONT understand the industry leave it alone you will destroy it. ITS NOT QADVISERS ITS THE FSP.
Maybe start with making it illegal for bank tellers and lenders to have KPIs and receive bonuses for referring clients to in house financial planners including advice on insurance.
Better still eliminate the GENERAL ADVICE that ASIC is so fond of these days
Why is there a two level advice system. Why allow the Direct Sellers and the ISA funds to sell insurance without giving PERSONAL ADVICE and explaining their products. If the Banks had their way ALL their risk products would be general advice – but that thankfully fell over at the last FOFA debacle
DOES ASIC REALLY UNDERSTAND HOW BAD THESE GENERAL ADVICE PRODUCTS ARE
Funny, isn’t it. The staff at the call centres are paid base salary & commissions. No call from ASIC to say the sale at the call centre must therefore be conflicted because the call center operator is remunerated by selling products.
Spot the difference
What a knob, we are covered by FOFA, the Greens are off with the Pixies and Bowen will gut the industry if he gets back in. They should get on a plane and go to the UK and see what a mess the industry is in after they banned commission on life insurance.
Can you see a pattern here? All of the recent issues over the years have come from the “big end” and it’s all about sales, walk into any bank you get questioned, call any industry fund (yes they are product pushes), you start the enquiry process and any of the larger institutions – same process.
Vertical Integration is a conflict of interest.
This emerging profession is being lumped in the Solicitors and Lawyers and are being massaged into their processes. Financial Planning is different – we service and have responsibilities to our clients.
The “noise” at present is very loud from many who don’t understand.
We have a long way to go until this industry is ours, who and what will be left?
A “best interests” obligation for the Direct Insurance providers (who are also players in the life insurance space) would be a great idea.
The issue here is as I’ve been saying for years. Our regulators and our Pollies are as ill informed and ignorant as our clients are prior to seeing us. They rely on Bureaucrats who go straight from Uni to a secure job and can read a spreadsheet really well, but have never met a client.
Insurance is non-tangible and must be sold and therefore there must be a conflict of interest achieved as the only party sufficiently motivated to pay for the advice required is the product provider. Commissions are NOT the issue. Greed is the issue and this needs addressing, but not at the cost of the industry. Employment agencies are now in the spot light for rorting, Doctors were in the spotlight for rorting the medicare system recently… Greed is human nature and there is always someone willing to try it out and it’s not just in the insurance industry or Financial Planning… it’s in EVERY industry.
BillB is exactly right, how is direct insurance legal? It is based on the principal of “buyer beware” which is effectively illegal in our current Consumer law but somehow fine for insurance. If a client “self-selects’ with limited or no knowledge they can only ever judge quality on price and those two words simply do not go together. The problem of course is that by the time they are aware of THEIR mistake no amount of good advice can go and get them good cover. The issue is that given that our Regulators and Pollies are as blind as our clients this is also their only yardstick for measurement. If they’re smart enough to realise this their first port of call will be a Bureaucrat, not a Risk Specialist because they of course have a conflict of interest anyway. This my friends is a fairly vicious circle. So back to my first statement, at least our clients see us, but the bureaucracy is making it harder to stay open to see them.
All of the above comments are spot on! Is this getting back to Whish-Wilson and Bowen?
You know what I wish-Wilson would do!
A VERY quick fix (but not the whole solution) would be to separate (as was supposed to be the case) Manufacture from distribution.
the Dealer group model was all about defining this independence. BUT what do we have? we have Bank dominated product providers and Bank dominated distribution.
The model was flawed from day 1 and is well and truly broken. adviser satisfaction is at an all-time low, and the Greedy top end of town are largely to blame.
If a similar style of legislation ( that exists in media ownership laws) were introduced where a bank could either own a distribution business (dealer group) OR own an insurer / fund manager, things would be much different.
it strikes me that if the either or both sides of politics wants an independent un biased and effective advice / distribution system, then the adviser needs to be wholly independent, not owned or controlled by a fund manager/ bank/ Insurer.
the best way to do this is standardise the commission for life insurance (but be sensible about it) allow a free market on fees for advice in financial planning, ensure a competent well engaged and educated adviser force is allowed to operate and ensure that conflicts of interest penalties are not inflicted (Wholly) on the adviser, but rather on the manufacturer.
If all of these ideas sound too simple or reasonable then it’s probably doomed to failure
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