ISN attacks FPA insurance commissions stance

The Industry Super Network (ISN) has pointed to the Financial Planning Association’s (FPA’s) statement on the retention of insurance commissions as proof that the financial advice industry cannot self-regulate against conflicts of interest.

The ISN, the body representing industry superannuation funds, argues commissions motivate financial planners to sell “unnecessary or excessively costly insurance, which workers could purchase more cheaply through their super fund”.

The ISN argued it has demonstrated that for most people, industry super funds can provide insurance at a “fraction” of the cost of a comparable product purchased through a financial planner.

However, the ISN didn’t point to the significant underinsurance problem evident in many industry funds. A 2008 survey by the Australian Institute of Superannuation Trustees and the Industry Funds Forum found that one in two industry fund members were underinsured by $100,000 or more. Rice Warner Actuaries has also estimated that life insurance cover within super is on average only 20 per cent of what is required.

ISN executive manager David Whiteley argues industry super funds have “led the way by providing affordable default cover that addresses the high levels of underinsurance in the community”.

The ISN wants to see financial advice provided on a fee-for-service basis. Whiteley argues the premium savings consumers will benefit from when not being placed in “unnecessary or excessively costly insurance” as advised by a financial planner — “often hundreds of dollars a year — will more than offset a fee-for-service charge”.

“It’s hard to believe that the FPA cares about the cost to consumers and is not simply preserving the insidious sources of revenue for financial planners,” Whiteley said.

“Rather than seeking to transform the financial planning industry into a profession, the FPA is advocating that financial planners return to their 1980s roots as an insurance product sales force.”

Furthermore Whiteley said the FPA had “walked away from their commitment to phase out commissions”.

“The FPA’s backsliding proves that the industry is unwilling to end the drain of commissions from workers’ saving.”

He argued that only regulation put in place by Government to ban commissions to financial planners will ensure super members receive appropriate and affordable insurance.