The Financial System Inquiry (FSI) final report has reopened the question of whether commission-based arrangements remain suitable for either the sale of life insurance products or with respect to the activity of stockbrokers.
The inquiry final report has created scope for current efforts to address to address problems within the life/risk industry to be given time to work, but suggests that if there is no improvement that the "the Government should revisit banning commissions".
Nonetheless it said the findings of the current Financial Services Council and Association of Financial Advisers working group should be taken into consideration.
The inquiry report said it recommended a level commission structure implemented through legislation requiring that an upfront commission is not greater than the ongoing commission.
"This would provide a balanced and cost effective approach to better align the interests of advisers and consumers," it said. "The remuneration model needs to be sustainable; otherwise there is a risk that providers may exit the market, making it more difficult for consumers to obtain life insurance advice."
It said that alternative models of remuneration, such as delayed vesting of commissions and clawback arrangements, "may simply delay the issue of churn and are complex".
"At this stage, the Inquiry does not recommend removing all commissions, as some consumers may not purchase life insurance if the advice involves an upfront fee. However, if level commission structures do not address the issues in life insurance, Government should revisit banning commissions."
The Inquiry report said it had not determined the per centage amount of the level commissions that should apply in the life insurance sector and that it was something that should be left to the market and industry.
The inquiry recommendations urged specific attention to the stockbroking sector saying that, "unlike in the life insurance industry, a recent review of practices in stockbroking has not been undertaken".
"The Inquiry considers that ASIC should review current remuneration practices in stockbroking and advise Government on whether action is needed," it said.
