Next year the way brokers are paid will have to change dramatically if the Federal Government gets its way with the Future of Financial Advice (FOFA) reforms.

The reforms have mainly been aimed at financial planners giving investment advice, but as always with government proposals, other people are drawn into the debate.

And as these reforms will affect anyone who holds an Australian financial services licence (AFSL), brokers will be included in any final outcome.

The contentious issue for brokers is what the Government terms “conflicted remuneration structures”.

These structures include individual product payments to the broker and volume payments based on the amount of business given to a product manufacturer.

In its information pack on the reforms, the Government has said it will ban “all commission payments from any financial services business relating to the distribution and provision of advice for retail financial products”.

However, the Government has recognised insurance products – both general and life – are different to investment products, and ways of handling these commissions is still being looked into.

The proposals to ban commissions has split the financial services industry, with bodies such as the Financial Planning Association supporting the move while the Association of Financial Advisers (AFA) has opposed it because many of its members are solely life insurance advisers.

National Insurance Brokers Association (NIBA) CEO Noel Pettersen says the association has argued that life insurance and investment advice is different from general insurance.

The Government argument is based around the premise that removing commissions stops insurers influencing broker recommendations to clients.

But Mr Pettersen is adamant there is “simply no justification” for the banning of commission on general risk products.

“There is no evidence that current disclosure and conduct arrangements are ineffective or comparable to investment-type products,” he told insuranceNEWS.com.au.

“A recent review by the Australian Securities and Investments Commission and a continual lack of Financial Ombudsman Service complaints on such matters confirm this.”

However, questions about the independence of bank-owned advisers are always a topic of hot debate.

The second area of commissions being looked at by FOFA is volume payments.

Again the Government has defined these as “any form of payment relating to volume or sales targets (including employee sales and volume targets) from any financial services business, relating to the distribution and provision of advice for retail financial products”.

Stopping these payments has been driven by the realisation that significant amounts of money have been given to financial planning dealer groups by investment platforms.

The channelling of product selection through these platforms has concerned previous financial services ministers such as Nick Sherry.

However, the amount of influence such payments to life insurance advisers and general insurance brokers have on product selection is open to debate.

The Government says these payments have the potential to conflict advice in the same way as individual commission payments.

“The form of these payments also does not engender the right behaviour,” it says in its information pack.

The financial industry services have been united in opposing the ban on these forms of payments. The AFA argues they renumerate advisers for the risk they take on building a dealer group.

NIBA has also joined the chorus calling for these payments to stay, with Mr Pettersen saying they shouldn’t be banned “as long as all the required disclosure duties are fulfilled and the consumer suffers no detriment”.

While the bans are not law yet, the Government seems determined to push through a series of reforms relating to financial adviser payments.

Its options for the reforms have mainly focused on defining the type of investor rather than clients buying financial services products such as general and life insurance.

The Government has promised to deliver a paper later this year on how life insurance industry advisers will be renumerated. But there has been no indication as to whether that will include general insurance brokers.

Arguably it should, as the two sectors are more aligned than the goals of financial planning advisers.

Unless the Government does a significant backflip, brokers may be having to look at their revenue streams a lot closer after July 1 next year.