Australia’s government is “pushing ahead with reforms” to its regulations governing its domestic insurance industry that, according to a report in today’s Sydney Morning Herald, “will allow life insurance brokers to pocket [up-front] commissions as high as 60 per cent”.
According to the report, Kelly O’Dwyer, minister for Revenue and Financial Services, ignored what the SMH said were calls for upfront commissions “to be banned altogether”, in her defense of the government’s decision to leave upfront broker commissions in place, but capping them at 60%.
Currently, Australian life insurance brokers pocket, on average, commissions equivalent to about 120% of the value of each policy they sell, the SMH noted.
The proposed reforms are contained in a package of legislation that is due to be re-introduced to Australia’s parliament this month, after failing to get passed before the July election.
Most commissions banned under FoFA
Commissions on the sale of most investment products were banned under a major piece of legislation known as the Future of Financial Advice Act, or FoFA, which was signed into law in 2011, with its provisions coming into force on 1 July 2013, after a 12-month period during which they were optional. Life insurance commissions, however, were excluded from the final FoFA package.
Last December, the government issued a consultation on commissions in the life insurance industry, with the deadline for comments the 29th of January 2016.
Proponents of commissions argue that replacing commission with flat fees for advice doesn’t work, and the result is that consumers end up worse off, as they tend not to seek out the types of products that are sold under commission, and also lose out on the “free” advice commission-remunerated salespeople provide.
Consumer groups argue that commissions should be banned, on the grounds that they encourage investment and savings strategies that benefit brokers with products to sell, rather than clients.
To read the story about the Australian government’s support of a 60% cap on up-front life insurance fees in the Sydney Morning Herald, click here.