A background paper on the sale of life/risk products provided for the Royal Commission has suggested that in return for subsidised dealer group fees institutionally-aligned advisers “are encouraged to recommend related party products”.
The background paper, prepared by academics from the University of Technology, Sydney, the University of Sydney, the University of Exeter, the University of Western Australia and the University of Queensland, has delivered a blunt analysis of aligned advisers and the sale of life/risk products.
The background papers make clear that the views expressed are those of the authors and not those of the Royal Commission.
Included among the background paper’s assertions is the claim that “the fees charged by institutionally-owned dealer groups deliberately do not cover the cost of providing dealer services. They are heavily discounted to attract advisers”.
“Typically, in exchange for subsidised dealer fees, advisers are encouraged to recommend related party products,” it said. “The main way this is legally done is via restricted approved product lists (APLs) which are populated with in-house product – life insurances issued by a life insurer in the same corporate group as the dealer group.”
The background paper also provides a blunt assessment of the operation of APLs suggesting that the “original” theory and practice was that APLs set out products that a licensee had researched and reviewed.
However, it then went on to state, “Now a material number of dealer groups offer few life insurance products on their APL and the majority are life insurance products issued by a life company within the same corporate group as the dealer group”.
The Royal Commission will begin its hearings relating to the insurance industry on 10 September.