Government should ban sales commissions on life insurance
The only way to remove conflicts of interest in financial advice is to work towards the removal of sales commissions and other incentives paid to financial advisers, according to the Industry Super Australia (ISA).
Additionally, the ISA expressed concerns that while the proposed life insurance reforms by the government were a step in the right direction, they did not go far enough.
According to chief executive of ISA, David Whiteley, the government's current proposals restructured sale commissions, but they did not remove them and they fell short of the recommendations made by former regulator, John Trowbridge, as the new proposals did not set a dollar limit on commissions.
This would expose financial advisers to continuous delivery of conflicted advice in order to sell insurance products including over-insuring their clients.
The Australian Securities and Investments Commission (ASIC) report in 2014 found that over 30 per cent of life insurance advice failed to meet the appropriate advice test and that there was a strong correlation between the payment of commissions and poor quality advice.
"Given the importance of life insurance to Australians, the government and industry need to ensure that financial advice is only in the interests of consumers and all conflicts of interests are removed," Whiteley said.
"Consumers need to be well aware that their financial adviser cannot act in their best interests while receiving a financial incentive from a bank or insurance company."
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