Riskinfo thanks AFA CEO, Phil Anderson, for permission to release an extract based on one of his recent LinkedIn posts, in which he calls out the uninformed nature of what he refers to as an ideological obsession held by some consumer groups and superannuation fund bodies when it comes to conflicted remuneration – especially with regard to life insurance commissions…
On Friday 18 November 2022, the AFR published an article titled “Consumer groups demand ban on insurance commissions”, where statements from a joint consumer group submission and another from the ISA were quoted. The joint consumer groups included Choice, Super Consumers Australia, the Consumer Action Law Centre and Financial Counselling Australia. On the same day, an industry publication also published an article titled “’Extremely disappointed’: consumer groups push for commission ban.”
…these groups have long been wedded to their ideological obsession with removing conflicted remuneration
We are not surprised by these calls, as these groups have long been wedded to their ideological obsession with removing conflicted remuneration. They seem to think that banning commissions on life insurance would be some kind of panacea, as it would remove the issue of conflicts of interest and thus improve the prospect of better advice. This is a very simplistic view, where they are just ignoring all the other serious consequences of a ban.
Choice is trying to remove choice from consumers
It is unfortunate that their obsession with this is getting in the way of seeing what is in the best interests of consumers, and more specifically what consumers actually want. Strangely enough, Choice is trying to remove choice from consumers. We know from the research that has been done, and from the experience of many advisers, that the vast majority of clients choose to pay for their life insurance advice through the payment of commissions. Everyone in the financial advice sector and the life insurance industry knows what would happen to access to life insurance advice if commissions were banned. In the context of consumer hesitancy to pay an upfront fee, it would largely disappear, and most of the people responsible for more than 50% of the premiums that are paid to life insurers would choose to do something else. This is a big gamble for these groups to call upon the Government to make. I suspect that they might think a bit more deeply about this if they actually spent time talking to the clients of advisers who have been the beneficiary of a life insurance claim.
We wonder whether in their obsession about conflicts of interest, they have thought about what happens in other professions:
In medicine, a surgeon has a conflict in recommending an operation, as opposed to alternative forms of treatment. Let’s not even go into what conflicts Medicare creates.
In law, a barrister has a conflict in recommending that a client litigate, when they could mediate.
Conflicts exist in all forms of life. I am sorry to tell them, but it is impossible to legislate to remove all forms of conflicts and in most cases, it is simply not in the best interest of consumers. That is precisely the case with life insurance commissions. They would know this if they spoke to advised life insurance clients.
The joint consumer group submission makes the point “Life insurance is a complex financial product that often has confusing exclusions and definitions,” which is a good point, highlighting the need for advice; not the basis for demanding changes that will make it almost impossible to access.
The Consumer groups claim that the conflicted remuneration consultation paper did not evidence the increasing issue with under-insurance, however these facts are readily available with a significant decline in individually advised clients over the last four years, a 50% decline in new business over five years and an emerging trend of advisers no longer focussing on the insurance needs of everyday Australians. In stating that 70% of Australians have life insurance through their super fund, they are missing the critical point that it is often substantially less than they need. $150k of life cover is helpful in the event of the death of the primary income earner in a young family, but simply not enough, if the mortgage is anything like the Australian average of $560k. These facts are all readily available if they wish to look. ISA is equally choosing to ignore the overwhelming feedback from the market.
…retail advised life insurance [is] notably cheaper than the majority of Group Super products. A little research by the Consumer groups would help to highlight this point.
Whilst the Consumer groups are obsessed about conflicts of interest, of course ISA is very much conflicted in their positioning. They want to retain people in the group super insurance market, and not let them move to the individual advised market. There is a good reason why they would be concerned about this. The reality that is very evident to financial advisers is that retail advised life insurance, which meets the needs of consumers, despite being better products and paying commissions for the advice that is provided, is also notably cheaper than the majority of Group Super products. A little research by the Consumer groups would help to highlight this point.
Choice and its counterparts have been strongly opposed to the Quality of Advice Review from very early on. Seemingly they have some problem with making financial advice more accessible and affordable. The day the QAR proposal paper was released (29 August 2022), Choice, Financial Counselling Australia and the Consumer Action Law Centre came out with a joint media release with the heading “A major step backwards in consumer financial protection.”
I have been in this game for a long time, and I know how long it normally takes to form a joint position with other associations and to agree to a joint media release. This was a 46-page document. You could only review the proposals and pull a joint media response together on the same day if you had a pre-meditated position. So, the big question is ‘Why?’ Why do people – who supposedly represent consumers – want to defeat proposals to make financial advice more accessible and affordable? Let me know your thoughts.
Click these links to access:
Joint Consumer Submission to the Quality of Advice Review – Conflicted Remuneration Paper
Industry Super Australia Submission to the Quality of Advice Review – Conflicted Remuneration Paper
Australian Institute of Superannuation Trustees Submission to the Quality of Advice Review – Conflicted Remuneration Paper