Extending the ban on commissions to risk insurance would limit consumer choice and possibly exacerbate underinsurance, the Association of Financial Advisers (AFA) has warned.

The AFA is the latest membership body to advise against extending a ban on financial product commissions to risk insurance, joining the National Insurance Brokers Association and the Financial Planners Association (FPA).

The Federal Government is considering extending the ban on commissions to risk products as part of its Future of Financial Advice review, but AFA National President Jim Taggart baulks at the implication that financial planners have been “tainted” by commissions.

“What I find abhorrent is that blanket generalisation thrown over everybody,” he told insuranceNEWS.com.au. “Every industry and profession has skeletons in the closet. Are we saddened by the [global financial crisis] storm? Absolutely. The carnage those particular events did to our fellow human beings was tragic.

“But to simply draw the conclusion that all advisers are tainted by commissions – I struggle with that.”

Dr Taggart supports giving customers a choice between the fee for service preferred by the Federal Government and the commission-based system used by the industry.

“We are very clear and very articulate that we believe consumers should have a choice about how they pay for their services,” he said.

“I’m not saying that structure is right or wrong, but I’m saying we should have the ability to negotiate.”

Dr Taggart says far from being a boon for consumers, the fee-for-service model has its own structural problems.

“When you start to drill down it opens up a can of worms,” he said. “How much is a fair rate per hour? Even I don’t know that.”

Treasury finished a national series of public information sessions on the reforms last week. These will be followed in coming months by “targeted consultation” on key policy details.

A report by researcher Investment Trends has found 50% of Australian planners feel the reforms will adversely affect their businesses. Nearly 30% are expecting a large number to leave the industry in response to the ban on commissions, although only 3% have openly stated they will exit.

The report also says 54% of planners believe the reforms will increase the cost of financial advice, which runs contrary to the Government-sponsored line of cheaper advice through greater transparency.