FPA wants commissions on some group life sales

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12 December 2011

The Financial Planning Association (FPA) has called for some commissions on life insurance sold within superannuation schemes to be allowed.

In its submission on the second Future of Financial Advice (FOFA) Bill, the FPA notes that commissions on individual life policies sold outside superannuation are allowed while those in group policies will be banned.

“This is despite the fact that individuals receiving life insurance cover under the ‘group life’ insurance policies may, like the individuals receiving cover under the individual life insurance policies, be the recipients of personal financial advice in respect of their life insurance cover,” the FPA submission said.

“The draft legislation, from our perspective, is unclear in its application and appears to capture circumstances that were not intended.”

The FPA is proposing two amendments to the bill to allow commissions to be paid on life insurance within superannuation.

It believes when a client seeks individual personal advice to buy a policy through a group scheme, commissions should be allowed.

“The financial planner should only be eligible to receive commission on the ‘group life’ insurance policy that they have provided individual personal advice on,” the FPA said.

“Where a client seeks individual personal financial advice to review and top up their insurance needs within a ‘group life’ arrangement, a commission for the financial advice relating to that individual’s increased cover should be permitted.”

The Corporate Super Specialist Alliance (CSSA) has called for an “insurance service fee” in its submission on the second tranche of FOFA.

The fee would not be for personal advice to the member, but would include such services as negotiation with insurers on an ongoing basis for better premiums and features.

This fee would also include monitoring of insurance data to correct errors and ensuring members receive their full entitlements.

“The CSSA recognises that it is inappropriate that commissions should be included in the premium when no service is being delivered,” it said in the submission. It “proposes where insurance services are provided to an employer group, an insurance service fee should be allowed on a ‘dial up’ basis”.

The alliance is proposing the fee is initially set at zero and a percentage can then be set after it has been agreed with the workforce.

AIA Australia has expressed concerns superannuation trustees may be prohibited from recovering the cost of administering life insurance provided to the fund’s members.

“We foresee considerable implications for funds and their members if trustees were unable to continue to have the discretion to recover insurance costs from the underwriting life insurer,” it said in the submission on the second FOFA bill.

“AIA Australia believes funds could potentially be burdened with significant expense associated with the provision of insurance benefits. 

“With these costs ultimately borne by members, any increase over the long term could consequently reduce a member’s final retirement benefit.”