The truth will set you free, but first it will make you miserable.

James Garfield, 20th President of the United States

Just published in Applied Economics: https://www.tandfonline.com/doi/full/10.1080/00036846.2019.1646883

When we set out to investigate the impact of advisors on insurance disclosures as a component of my doctoral research, we did so with both an open-mind and trepidation. The trepidation was based on the fear that negative findings could further hurt an industry still reeling from the Hayne Royal Commission.

Our results, while open to some interpretation, are fairly clear. Advisors should not collect personal and medical information from customers, this is best done by insurers directly. While some advisors will naturally object to this recommendation, there is tremendous upside in allowing the insurer to collect data, a process that is lengthy and potentially awkward.

Despite the Royal Commission’s firm stand against commissions, I do not think the choice is binary. There is substantial evidence that the absence of commissions would make financial advice prohibitively expensive to those that need it the most. At the same time, there is strong evidence from our paper and elsewhere, that commissions have the potential to create mischief in the miss-selling of products and advice and now, lowering customer disclosures to implausible levels. So how do we retain the valuable parts of commission without generating poor client outcomes?

There is an argument to be made that commissions should be based on client satisfaction and client outcomes. A process should be started between FASEA, the FSC and other stakeholders to agree on the right drivers of commission; a middle ground that satisfies public interest and maintains a high quality and quantity of financial advice in the marketplace.