The Future of Financial Advice (FoFA) reforms were a firm step forward for Australians consumers. This is according to TOWER Australia’s Managing Director Jim Minto.
However, Minto cautioned that there were still certain design elements the financial services industry needed to contribute to, to secure the best outcomes for all stakeholders.
Minto said, “TOWER Australia has been expressing concern since 2003 that FSR (Financial Services Reform) has partly failed in that it denied access to advice to many Australians. It is pleasing that FoFA acknowledges the value of advice and offers improved access to it for consumers through its „scaled advice‟ model. We believe life insurance is very valuable to consumers and we want to improve access for consumers to gain the benefits it offers.”
“The move to make advice more accessible through the new „scaled advice‟ proposal is very welcome. We have, as an industry, developed processes to significantly enhance access over the past few years with extensive technology and process investment. Now, the way is clear with this new form of advice and these new industry tools to ensure the protection needs of many more Australians can be met.”
Minto said other FoFA changes were largely expected and welcomed although there has been early debate around the proposed removal of life insurance commissions inside superannuation.
“There has been considerable public comment in the past few years around concerns associated with life insurance commissions and the speculation about the banning of life commissions has created industry uncertainty. We need to clear the way forward and create more confidence in this model for the future.”
Minto said some listed entities had reported adverse lapse experiences with life insurance policies in the past year and independent analysis showed industry policy lapse rates have been rising and resulting losses have been increasing. This applies to life insurance inside and outside of superannuation.
“An independent report shows profit reductions across the industry of $100m per annum. This has created some sustainability concerns around this model for the industry and in time potential cost increases for consumers. No doubt some of this information and media comment has been picked up in the development of these FoFA proposals.”
“The reality is the life insurance commission model has generally served the nation well and has some very good aspects that have endured for a long period. At its heart, there is nothing fundamentally wrong with the commission model. However there are perceived conflict of interest and lapse issues now and some change is being forced by these FoFA proposals. We can either continue to just push back as an industry or we can develop changes to make the model viable for the longer term and attempt to win Government confidence in these. At TOWER Australia, we favour being proactive.”
Minto said TOWER Australia would propose to the life industry that a set of proposals be developed to ensure a sustainable life commission model that resolves these issues and serves all stakeholders – customers, advisers and life insurers alike. These should apply both inside and outside of superannuation and remove the concern of unequal treatment between the two as well as ensuring the underinsurance issue is not exacerbated.
“These proposals should be put to government as part of the FoFA legislation development process.”
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