One of Australia’s largest diversified mortgage groups has criticised a recent report authored by John Trowbridge, arguing its recommendations “play purely into the hands of insurance manufacturers”.
Mr Trowbridge, chairman of the Life Insurance and Advice Working Group, stated in his report 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 general manager Tania Milnes said the proposed recommendation would make life insurance more expensive for Australian consumers because advisers would be forced to charge a fee for advice in order to remain commercially viable, and consumers wouldn't see a corresponding reduction in premiums.
“While Mortgage Choice is extremely supportive of the need for change, highlighted by the fact 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,” Ms Milnes said.
“And as a result, fewer Australians would be able to access affordable insurance-related financial advice.”
Mortgage Choice believes 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,” Ms Milnes said.
“If Mr 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,” she said.
According to Ms Milnes, under Mr 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.
Ms Milnes argued 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,” she said.
“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.”