Consumers Groups and ISA Continue Demands to Ban Commissions

On Friday 18 November 2022, Aleks Vickovich, the Wealth editor at the AFR, published an article titled “Consumer groups demand ban on insurance commissions”, where he quoted statements from a joint consumer group submission and another from the ISA.?The joint consumer groups included Choice, Super Consumers Australia, the Consumer Action Law Centre and Financial Counselling Australia.?In the article, Aleks refers to an unpublished document seen by the AFR.?On Friday 18 November 2022, Insurance News also published an article titled “’Extremely disappointed’: consumer groups push for commission ban”.?Insurance News have presumably seen the joint consumer group submission as well.

We are not surprised by these calls, as these groups have long been wedded to their ideological obsession with removing conflicted remuneration.?They seem to think that banning commissions on life insurance would be some kind of panacea, as it would remove the issue of conflicts of interest and thus improve the prospect of better advice.?This is a very simplistic view, where they are just ignoring all the other serious consequences of a ban.

It is unfortunate that their obsession with this is getting in the way of seeing what is in the best interests of consumers, and more specifically what consumers actually want.?Strangely enough, Choice are trying to remove choice from consumers.?We know from the research that has been done, and from the experience of many advisers, that the vast majority of clients choose to pay for their life insurance advice through the payment of commissions.?Everyone, in the financial advice sector and the life insurance industry knows what would happen to access to life insurance advice if commissions were banned.?In the context of consumer hesitancy to pay an upfront fee, it would largely disappear, and most of the people responsible for more than 50% of the premiums that are paid to life insurers would choose to do something else.?This is a big gamble for these groups to call upon the Government to make.?I suspect that they might think a bit more deeply about this if they actually spent time talking to the clients of advisers who have been the beneficiary of a life insurance claim.

What I find quite surprising is that despite obviously taking steps to make their submission available to the media, no doubt to get a big headline, they have in large part avoided making their submission publicly available.?There has been no media release, and as of Sunday 20 November 2022, you cannot find this submission on either the Choice, Super Consumers Australia or Financial Counselling Australia websites.?In terms of transparency, there is a big question about why not.?It seems that the Consumer Action Law Centre didn’t get the message about keeping the submission under wraps, and they have published the submission on their website.

It is equally the case that there is no media release from ISA and neither is their submission on their website.?This is going back to the bad old days of prosecuting financial advice regulatory reform agendas in the media, and not on the basis of fact and consumer interest.

So, the important question is why most of these consumer groups believe that it is acceptable to engineer this media coverage, without actually publishing what they believe.?They seemingly want the initial headlines without being able to be challenged on the logic of their views.?Surely, if they want to be participants in this debate, then they can be transparent, and not just seek to play a strategic game through the media.

We wonder whether in their obsession about conflicts of interest, they have thought about what happens in other professions:

·???????In medicine, a surgeon has a conflict in recommending an operation, as opposed to alternative forms of treatment.?Let’s not even go into what conflicts Medicare creates.

·???????In law, a barrister has a conflict in recommending that a client litigate, when they could mediate.

Conflicts exist in all forms of life.?I am sorry to tell them, but it is impossible to legislate to remove all forms of conflicts and in most cases, it is simply not in the best interest of consumers.?That is precisely the case with life insurance commissions.?They would know this if they spoke to advised life insurance clients.

The joint consumer group submission makes the point “Life insurance is a complex financial product that often has confusing exclusions and definitions”, which is a good point, highlighting the need for advice, not the basis for demanding changes that will make it almost impossible to get.?The Consumer groups claim that the conflicted remuneration consultation paper did not evidence the increasing issue with under-insurance, however these facts are readily available with a significant decline in individually advised clients over the last four years, a 50% decline in new business over 5 years and an emerging trend of advisers no longer focussing on the insurance needs of everyday Australians.?In stating that 70% of Australians have life insurance through their super fund, they are missing the critical point, that it is often substantially less than they need.?$150k of life cover is helpful in the event of the death of the primary income earner in a young family, but simply not enough, if the mortgage is anything like the Australian average of $560k.?These facts are all readily available if they wish to look.?ISA are equally choosing to ignore the overwhelming feedback from the market.

Whilst the Consumer groups are obsessed about conflicts of interest, of course ISA is very much conflicted in their positioning.?They want to retain people in the group super insurance market, and not let them move to the individual advised market.?There is a good reason why they would be concerned about this.?The reality that is very evident to financial advisers is that retail advised life insurance, that meets the needs of consumers, despite being better products and paying commissions for the advice that is provided, are also notably cheaper than the majority of Group Super products.?A little research by the Consumer groups would help to highlight this point.

Choice and their counterparts have been strongly opposed to the Quality of Advice Review from very early on.?Seemingly they have some problem with making financial advice more accessible and affordable.?The day the QAR proposal paper was released (29 August 2022), Choice, Financial Counselling Australia and the Consumer Action Law Centre came out with a joint media release with the heading “A major step backwards in consumer financial protection”.?I have been in this game for a long time, and I know how long it normally takes to form a joint position with other associations and to agree to a joint media release.?This was a 46 page document.?You could only review the proposals and pull a joint media response together on the same day, if you had a pre-meditated position.?So, the big question is why??Why do people who supposedly represent consumers, want to defeat proposals to make financial advice more accessible and affordable??Let me know your thoughts.

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