ASIC deputy chairman Peter Kell has ruled out endorsing a ban on insurance product commissions, despite finding “unacceptable failure” in the risk advice sector.
At a press conference reflecting on ASIC’s post-review findings of inappropriate advice yesterday, Mr Kell said that while the “failure rate is simply not good enough”, ASIC has no plans to recommend a change in the legal status quo.
“ASIC is not recommending or suggesting that commissions be prohibited,” Mr Kell said.
“Commissions for life insurance are allowed under FOFA – they are part and parcel of the life insurance industry.
However, at the same time Mr Kell reiterated the regulator’s belief that there is a link between upfront commissions and dodgy advice, putting the entire life insurance distribution chain “on notice”.
“ASIC’s message to the industry is clear: the industry needs to ensure that remuneration and incentive structures do not undermine good quality, compliant advice,” he said.
“The industry as a whole – that is insurers and advisers – need to ensure that the interests of clients are more regularly prioritised as part of the way this sector operates. And we’ll be working with the industry to make sure this eventuates.”
Meanwhile, Industry Super Australia issued a statement claiming the “damning” report provided evidence for an extension of the FOFA reforms, rather than a “wind-back”.
“The only logical response to this report is to extend the ban on commissions to include those paid on individual risk policies inside and outside super, and to withdraw from parliament the wind-back of FOFA until at least after the Financial System Inquiry has issued its final report,” said ISA chief executive David Whiteley.
Mortgage Choice also issued a statement welcoming the findings as “unsurprising” and arguing the report vindicates the ‘hybrid’ commission model.
“These findings further reinforce our decision to build the business model from scratch, so we didn't have to change adviser culture and deal with any legacy issues,” said Mortgage Choice Financial Planning general manager Tania Milnes.