The ban on up-front and trailing commissions in life insurance in default superannuation must be extended to general insurance sales because advisers continue to be incentivised by lucrative commissions, says a joint submission by Industry Super Australia (IST) and the Australian Institute of Superannuation Trustees (AIST).
They also say that the government’s financial advice overhaul is still yet to go far enough to protect consumers from poor guidance in the life insurance industry.
The super fund bodies, which represent funds with combined assets of about A$1 trillion (US$761 billion), said the ban on commissions for advice in the life insurance sector needed to be extended to the general insurance industry and to all life policies regardless of whether the policy was obtained through the super system or not. About 70% of all life insurance policies are obtained through superannuation, where cover is provided on an opt-out basis.
The submission to the Treasury said: "We cannot become desensitised to the magnitude of the damage that is been caused to consumers and the financial services industry due to the endless examples of poor, self-interest based behaviour by advisers. It is no accident that remuneration structures have been created in a way which supports business interests and adviser interests above consumer interests."
The Treasury is carrying out a partial review of the wide-ranging Future of Financial Advice reforms, which about four years ago banned upfront and trailing commissions for individual and group risk insurance obtained through superannuation. The aim is to ensure “efficient regulatory outcomes and prevent unnecessary red tape”.
The submission urges the government to “not take a backwards step by re-permitting conflicted forms of remuneration” or by lowering conduct standards.