A push by life insurance
salespeople to be exempt from
new commission disclosure
rules seems to have floundered
following a special hearing of the
Senate in Canberra last week.
With the Government still keen
to see uniform rules applied across
all sectors of the industry, life and
general insurance salespeople will
be forced to reveal all commissions
from March next year.
The new disclosure regime is
part of the Financial Services
Reform Act, which became law in
March last year.
In a rare demonstration of cooperation,
proponents – including
the Australian Securities and
Investments Commission, the
Financial Planning Association
(FPA), the Institute of Chartered
Accountants and the Australian
Consumers Association (ACA) –
mounted arguments supporting the
concept of full disclosure.
The president of the Australian
Financial Advisers Association,
Robin Yates, argued that disclosure
would be bad for consumers.
"Disclosure is likely to drive
commissions lower, which means
that advisers will not be able to
provide the same levels of service,"
said Yates.
"There will be less incentive to
sell the correct levels of cover,
leaving Australians with less than
the level of insurance they need."
The claim was fiercely rejected
by Catherine Wolthuizen, an ACA
finance policy officer. "We think
that unless commissions are visible,
consumers are not in a fully
informed position to judge the
merits of the insurance product
being sold," she said. "We’re
concerned that the adviser will
recommend the product with the
highest commission, rather than
what’s best for the customer."
An example given at the hearing
showed how an identical level of
life insurance cover provided by the
same insurer and under similar
conditions could be obtained for
$19.91 a month through an
employer’s superannuation fund.
The same policy sold to a retail
client through a broker cost $41.66 a
month. No commission was payable
through the employer fund on the
life insurance component but in the
more expensive policy the
commission was 104 per cent of the
first year’s premium, or $519, with
ongoing or "trailing" brokerage of 11
per cent a year.
Other life insurance policies such
as income protection schemes
typically pay commissions of about
50 per cent of the premium and
then trailing brokerage of 25 per
cent a year. "Practitioner members
of the FPA have been required to
disclose commission on all
insurance products provided to
clients since the early 1990s," said
Con Hristodoulidis, policy
development manager at the FPA.
"We have no evidence from our
members that they have had
difficulties in calculating or
disclosing the levels received." Other
life insurance advisers at the
meeting claimed that many of the
other services provided would also
be lost if commissions were
disclosed and rates were forced
down. These services included
assistance with claims and the extra
work required to have "difficult"
cases accepted. On occasions where
the cover was ultimately refused,
the salesman received nothing.
Commissions associated with
general insurance products, such as
policies for homes, household
contents and motor vehicles, will
also need to be disclosed.
Senator Ian Campbell,
parliamentary secretary responsible
for the Financial Services Reform
Act, says: "The Government
supports full and open disclosure
and we have seen nothing to
dissuade us from this approach."
The author is a financial planner
and was a participant at the Senate
hearing where he spoke in favour of
disclosure.
