Commissions in the Spotlight

Our latest poll asks a difficult question around the continuation of life insurance commissions – because Commissioner Hayne raised this issue last week.

As we’ve reported, the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry released 39 policy questions arising from its Module 6 hearings into Insurance (see: Royal Commission Questions Ongoing Use of Life Insurance Commissions).

Commissioner Haynes’ Question 8 asks whether monetary benefits given in relation to life risk insurance products should remain exempt from the ban on conflicted remuneration that was introduced with the Future of Financial Advice reforms in 2012. The Commissioner also asked why the cap on such benefits (imposed in the LIF reforms) should not continue to reduce to zero.

The Commissioner’s questions require context to help inform our debate in this poll:

1. All 39 questions stemming from the Insurance round of hearings were based around case studies and other materials relating to group insurance, direct insurance and general insurance. They were not informed by ‘advised’ insurance issues, which were largely addressed in the second round hearings in April 2018, which focused on financial advice.
2. In his next question, Question 9, the Commissioner uses the term ‘sales representatives’. He asks whether a ban on conflicted remuneration would be sufficient to ensure ‘sales representatives’ – not ‘financial advisers’, do not use inappropriate sales tactics when selling financial products.
3. Question 11 asks, in part, whether there are some financial products that should only be sold with personal advice.

Back to our poll question: Commissioner Hayne seems to be confining his thoughts of a future ban on life insurance commissions only as it may apply to sales agents or representatives who may be employed to ‘sell’ direct insurance under no advice or general advice circumstances.

Given the issues raised at the Royal Commission, does the Commissioner have a point? Should those ‘selling’ un-advised, direct insurance continue to be remunerated by commissions? Hence our poll question.

As usual, there’s more we could talk about here, but we hope you get the idea of the poll, and look forward to your thoughts, as this great industry continues to undergo turmoil and change…

Editor’s Note: We note that Commissioner Hayne has raised elsewhere the question of the future of risk commissions as they apply to financial advisers. Section 3.12 in the Royal Commission’s Interim Report Volume 1, covering the first four rounds of hearings, including Financial Advice, asks questions about the continuation of risk commissions. It asks (page 157):

Should the life risk exceptions to the conflicted remuneration provisions now be changed?

– How far should they be changed?

– If they should be changed, when should the change or changes take effect?