Shadow Assistant Treasurer and Shadow Minister for Financial Services and Superannuation Stephen Jones has conceded that there are some areas where a prima facie position on conflicted remuneration is not the most practical position for the consumer.
Speaking at the 2021 FSC Life Summit last week, Jones told attendees that the Banking Royal Commission set quite clearly a prima facie position on conflicted remuneration, a position he said he finds “compelling”.
“Of course, we have found some areas where the prima facie position is not necessarily the most practical and best position,” he said, noting that mortgage brokers were able to make a case to Government and to the Opposition that “…with the right sorts of protections surrounding that payment mechanism, consumers could get a good deal, we’d have more competition in the market and the remuneration structures, appropriately adjusted, could continue.”
He also told the summit that Labor will not preempt the outcome of the Government review into life insurance but he wanted to say “…quite clearly to the industry that we are available to have a conversation about how we get this right”.
“There is a prima facie position, there has been been some exceptions… we’re giving you the opportunity, from our point of view, to convince us that we can do this, perhaps in a modified way, in a way that ensures we have sustainability of life insurance and the retail distribution of life insurance products.”
…the first challenge is not around the remuneration, but around the value of the product the industry is selling…
Later, during a Q&A session, Jones was asked what the industry could do to convince him around remuneration models and why there is a consumer benefit to take a different approach to that discussed by the Royal Commission?
He told the summit that the first challenge is not around the remuneration, but around the value of the product the industry is selling.
He said the first challenge for the industry is to be clearly articulating why Australian consumers need the product it is selling. “Unless you get over that hurdle, how you remunerate people for selling that product is a second or third order issue.
“So when you are able to prove the value, and it should be up there with car, house and health insurance – if you’re able to get over that hurdle you are then into the space of saying what’s the most efficient means of delivering that product to people.”
“And how can you do it in a way that protects consumers and ensures they pay the price of delivering that to them in the most efficient way.”
…from an economists point of view this cost issue is a bit like squeezing a balloon…
Jones says that from an economists point of view this cost issue is a bit like squeezing a balloon, you might grab that bit where commissions are writ, and once grabbed and squeezed, the cost has flown to some other part of the balloon.
“So the cost of distributing a product is going to be borne somewhere. The question is how do you do that in the best way that removes all the very unsatisfactory incentives, poor selling practices and churn practices?
“How do you remove all of those negative consequences of poor selling practices at the same time as delivering a product and ensuring the costs of delivering that product are appropriately met,” he said.