Australia: Life advice sector urged to work on reforms urgently
Source: Asia Insurance Review | May 2015
Australia’s troubled life insurance sector needs to come up with solutions to restore consumer trust in the industry urgently, or be prepared to face increased government intervention, Assistant Treasurer Josh Frydenberg has warned.
Speaking at a Financial Services Council (FSC) event last month, Mr Frydenberg said that the industry had a matter of weeks and not months to tackle conflicted payments such as hefty up-front commissions, reported the Sydney Morning Herald.
If the industry failed to act sooner, Mr Frydenberg warned that they will have to agree on a course of action which may involve further government regulation and added that he would prefer not to do that and said appropriate reform must be made as soon as possible and be led by the industry itself.
The Australian Securities and Investments Commission, in a report last year, said that nearly 40% of financial advisers it surveyed failed to comply with the law when selling life insurance products.
Recommendations from John Trowbridge report
Recently, former Australian Prudential Regulation Authority member John Trowbridge issued a report in response to ASIC’s findings, and proposed a A$1,200 (US$916) cap on up-front payments for advisers. Mr Trowbridge also suggested that financial planners should not pocket more than 60% of the first year’s premiums if a policy costs less than A$2,000.
The Association of Financial Advisers of Australia, which commissioned the report with the FSC, urged caution before adopting any of Mr Trowbridge’s recommendations.
But Mr Frydenberg said that public confidence in the financial advice sector had been “shaken –and understandably so” after the number of high-profile product and advice failures in recent years. Financial planners from Commonwealth Bank, Macquarie Private Wealth and National Australia Bank have been caught up in cases of dodgy advice that cost clients their retirement savings.