April 09, 2015
Mortgage Choice has criticised a recent report authored by John Trowbridge, stating its recommendations play purely into the hands of insurance manufacturers.
Last week, Mr Trowbridge made it clear in his report as chairman of the Life Insurance and Advice Working Group that financial adviser remuneration should be limited to a 20 per cent level commission plus an initial payment of $1,200 for life insurance advice.
Mortgage Choice Financial Planning's general manager Tania Milnes said the proposed recommendation would make life insurance more expensive for Australian consumers as advisers would be forced to charge a fee for advice in order to remain commercially viable, without those consumers seeing a corresponding reduction in premiums.
“While Mortgage Choice is extremely supportive of the need for change, highlighted by the fact that we have already mandated a hybrid commission model, if Mr Trowbridge's specific recommendations relating to adviser remuneration are ratified it would make life insurance more expensive for Australian consumers. And as a result, fewer Australians would be able to access affordable insurance-related financial advice,” Ms Milnes said.
“We believe the recommendations relating to adviser remuneration included in the report contravene some of the ideologies behind the Future of Financial Advice (FoFA) legislation.
“The FoFA legislation was first introduced in order to improve the quality and trustworthiness of financial advice and make financial advice easily accessible to all Australians, regardless of their wealth status.
“If Trowbridge's remuneration recommendation is ratified it may stop certain Australians, particularly the wealth accumulators, from accessing quality financial advice – thereby directly contravening one of the ideologies behind FoFA.”
According to Ms Milnes, under Trowbridge's recommendations, financial planning practices would be forced to focus on clients who have more complex financial needs and a greater capacity to pay fees.
Furthermore, Ms Milnes said the recommendations would likely encourage practising advisers (specifically risk specialists) to reconsider their future within the profession, and discourage new professionals from entering it, due to the significant financial pressures they would face if they didn't charge a fee.
“The proposed remuneration structures are likely to drive advisers to vertically aligned channels with new licensees shut out of the industry. It would be very difficult for a new licensee that is not vertically integrated to generate a sufficient return on the start-up investment required to build a robust model,” she said.
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