Consumer group urges greater commissions focus in advice review

Harm caused by insurance commissions and sales incentives must be elevated as a focus in the Federal Government review of financial advice that will take place this year, the Consumer Action Law Centre says.

Proposed terms of reference fail to reflect the weight of evidence at the Hayne royal commission on high-pressure sales tactics and the effect on consumers, the group has warned in a submission released today.

“We are concerned that the draft terms of reference for this review are silent about the harms of conflicted remuneration, and barely even mention the word insurance,” Senior Policy Officer Cat Newton told insuranceNEWS.com.au today.

“What we would really like to see is a rewrite of those terms of reference so that the findings and evidence of the royal commission of the terrible sales behaviour that is motivated by commissions and incentives for sales staff is front and centre.”

The draft terms say the review “will consider how the regulatory framework could better enable the provision of high quality, accessible and affordable financial advice for retail investors” and that it will examine the legislative framework.

That includes “the life insurance remuneration reforms and the impact of the reforms on the levels of insurance coverage” as well as “the remaining exemptions to the ban on conflicted remuneration in life and general insurance.”

Consumer Action says the insurance references represent a small and inadequate part of the overall proposed focus.

“The review will look at the legislative framework for those exemptions but until the review is expanded to look at the harm and the findings at the royal commission about conflicted remuneration, then we are concerned this review won’t do justice to these issues,” Ms Newton says.

The review overall will “have regard to” areas including professionalism, international practices, technology, other regulatory developments and the level of demand for advice and the needs and preferences of consumers.

Consumer Action proposes adding “the review should have regard to the findings and commentary of the Financial Services Royal Commission regarding conflicts between duty and interest in financial services and advice, and the benefits of removing all forms of conflicted remuneration”.

Additionally, it recommends the terms of reference say “the review should have regard to the need to ensure good consumer outcomes and preventing misconduct and harm”.

Hayne royal commission case studies and evidence examined the aggressive sale of life insurance products and the role of commissions in driving the sale of “junk” add-on insurance in car dealerships, the submission highlights.

Consultation on the draft terms of reference closes tomorrow.