The Federal Parliament has been told it needs to act against vertical integration within the financial services industry in circumstances where recent Government legislation, including that underpinning the Life Insurance Framework (LIF), had failed to do so.
The Australian Lawyers Alliance (ALA) has used a submission to the Senate Economics Committee inquiry into consumer protection in the banking, insurance and financial sector to point to what it described as “recent controversies” including those related to CommInsure and claims handling.
“It is apparent that action is needed now to deal with the vertically-integrated sales model, which remains rife in the advice industry. Yet the Corporations Amendment (Life Insurance Remuneration Arrangements) Bill 2016 which finally passed both houses in February 2017 does not provide any substantive reform on this issue,” the submission said. “The Minister for Revenue and Financial Services, Kelly O’Dwyer, instead previously entrusted the industry with ‘responsibility for widening approved product lists (APLs) through the development of a new industry standard.”
“Given the advice industry’s poor track record of self-regulation, and its manifest commercial interest in continuing to sell ‘in-house’ products, such an approach is troubling and it is unsurprising that no significant change has occurred to date,” it said.
The submission said O'Dwyer’s October 2016 announcement in relation to adviser remuneration “fails to address significant concerns regarding APLs”.
“The practice of providing vertically-integrated advice whereby advisers recommend financial products (including life risk insurance) of entities to which they are associated, to the exclusion of more suitable non-affiliated products, is widespread in the industry,” it said.
The ALA said legislative reform was needed now to require financial advisers to demonstrate that they consider and recommend both affiliated and non-affiliated products.
“Specifically, that could be achieved by making the following improvements:
- Requiring that APLs include a balance of affiliated and non-affiliated products, and/or a minimum proportion of non-affiliated products from a reputable provider; and
- Requiring that, if a statement of advice (SOA) produced for a customer recommends an affiliated product, that should be disclosed and the SOA should show a comparison with one or more non-affiliated products to demonstrate that the affiliated product is more appropriate.”