The proposed loosening up of the commission ban will have little effect on risk advisers but may prompt corporate super funds to provide personal advice, says the head of a financial advisory firm.
One of the Liberal-proposed changes for FOFA legislation include limiting the ban of commissions on risk insurance to circumstances where no personal financial advice has been provided, specifically where automatic cover is provided under a default or MySuper account.
The original ban on commissions related to commissions – including from risk – inside super only, and was set to come in from 1 July, 2013.
“It appears that in the amendments that you now can
receive commission where you do provide advice, but when you don’t – MySuper, employer default fund etcetera – you cannot receive commissions,” William Buck Wealth Advisers director Chris Kennedy told Wealth Professional.
But Kennedy thinks the amendments will have limited impact on advisers.
“There might be an impact on corporate super funds, where they’re acting for a number of employers who are putting employees into a default fund. They might decide to start providing personal advice so they can start collecting the commission.”
Commissions can be controversial, and the amendments still may not be passed by Parliament. Kennedy has “no idea” whether the change will glide through the finishing stages to become law.
“I really don’t know the answer to that. What I do know is that FOFA poorly thought through, probably designed to win votes first and protect investors second. I’m not sure how this will go through [the House], but if common sense prevails it should be better received.”
Of bigger concern to the industry is not the loosening up of commissions, but risk advisers who move clients around products for no other reason than to attract a commission, Kennedy said.
“I think another point that could be raised as a correlation between lapse rates and commissions is the more unscrupulous risk advisers in the industry who decide to move clients for no valid reason other than to gain a big upfront elsewhere.
"This would be seen as churning in the true sense and insurers would see it as an increase in their lapse rates.”
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