A PROPOSAL to exempt insurance agents from disclosing commissions on risk products has been roundly criticised by financial planners and the consumer lobby.
A Federal parliamentary committee has concluded that disclosure of commissions could “adversely affect the small risk insurance businesses”.
In a majority report, the joint parliamentary committee on corporations and financial services said commissions do not affect the end benefit received by consumers.
It argued that disclosure may “mislead consumers about the independence and reliability of advice on risk insurance products”.
The Financial Planning Association has welcomed a minority report by Labor members of the committee, which called for risk products to be subject to standard disclosure requirements.
FPA chief executive Ken Breakspear said it was imperative to hold a universal commitment to disclosing all commissions, fees, incentives, soft dollar arrangements and bonuses.
“Exempting risk products from the full disclosure requirements undermines the level playing field,” Mr Breakspear said.
“This is especially pertinent when both risk and investment products are delivered under the one stop financial advice provider.”
The FPA said commission rates for different risk products range from 30 per cent to 120 per cent and have the potential to influence the adviser’s selection of products for a client.
Mr Breakspear said non-disclosure of commission on risk products that were bundled with investment products had the potential to generate an overall distortion of returns.
This could be done by loading up commissions on the risk product and artificially enhancing returns on the investment product.
The Australian Consumers Association’s finance policy officer, Catherine Wolthuizen, labelled the majority report’s recommendations a disgrace.
“The proposal to exempt life insurance agents and other vendors of risk insurance from the commission disclosure requirements of the Financial Services Reform Act flies in the face of the basic transparency and accountability principles which underpin the government’s new regulatory framework,” Ms Wolthuizen said.
“If the Government is serious about consumer protection in financial services, it cannot justify allowing parts of that industry to withhold from consumers vital information about the commissions they receive.”
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