The Association of Independently Owned Financial Professionals (AIOFP) has urged both the government and ASIC to pay attention to the New Zealand government’s findings concerning life insurance commissions.
AIOFP executive director Peter Johnston says the Minister for Revenue and Financial Services Kelly O'Dwyer and the corporate regulator should take notice of a recent NZ government review which found that life insurance commissions are not harmful and banning them will not improve the quality of advice.
“The AIOFP concurs with the New Zealand government findings and urges both the minister and ASIC to study and take notice of the conclusions,” Mr Johnston said in the email to Risk Adviser.
“As we have pointed out on many occasions in the recent past, the LIF proposal is all about institutions wanting to sell second-rate risk policies directly to consumers with no regard for the nation's underinsurance dilemma and the quality of advice independently-owned risk advisers bring to the table.”
The review from New Zealand's Ministry of Business, Innovation and Employment (MBIE) recommended focusing on the conduct of those providing financial advice rather than imposing a ban or restriction on commissions.
“Commissions are not themselves harmful,” the report said.
“They are a means of funding the distribution cost of the adviser channel.
“There is a risk that banning commissions in New Zealand would further limit access to advice.”
The MBIE noted that “a ban on commissions would not directly target poor conduct”, citing the Financial Markets Authority’s (FMA) review of churning, which found “many advisers do not have high replacement business despite being paid on commission structure”.
It also found that banning commissions “would not address conflicts of interest where financial products are sold through in-house distribution channels, such as bonuses or sales targets”.
The MBIE review evaluated two pieces of legislation that oversees the provision of financial advice: the Financial Advisers Act 2008 and the Financial Service Providers (Registration and Dispute Resolution) Act 2008.
It proposed changes such as including simplifying the regime by removing regulatory boundaries, establishing an even playing field with more proportionate regulatory requirements and replacing current adviser designations.
“The proposals represent a more prudent approach in the first instance,” the review said.
“However, MBIE and the FMA will continue to monitor the conduct of advisers to ensure the measures are sufficient.”