Level life insurance commissions will prove another distraction for advisers, Association of Financial Advisers (AFA) COO Phil Anderson says.

The Financial System Inquiry has recommended life insurance advisers be paid the same for upfront commissions as for trails, but Mr Anderson told insuranceNEWS.com.au this will raise more issues than it solves.

“We think level commissions are inappropriate because the adviser is not adequately paid for the initial advice. A hybrid commission is an alternative, but the consensus for the fee-for-service model [for life advice] is not there at this point.”

Mr Anderson says while a fee-for-service model may be more widely used in the future, life insurance is a small component of advice.

“We need to make sure remuneration for life advisers is balanced to look after the best interests of the client and the adviser,” he said.

“If the remuneration for the adviser is not enough, then that is a problem.”

Consumer group Choice has called on the Government to ban life insurance commissions as a priority.

The Financial System Inquiry report says life commissions should be banned only if the industry cannot move towards level payments.

Choice CEO Alan Kirkland says the “comprehensive and considered” report will make the financial system deliver for consumers.

“The recommendations would see consumer interests considered in every step of financial product development: product design, distribution, sale and after-sale processes,” he said.

“It calls to extend financial advice protections by closing the loop on commissions allowed in the life insurance industry.” 

Financial Planning Association GM Policy and Conduct Dante De Gori says the recommendations are “critical to ensure the industry as a whole better meets the financial needs of all Australians”.

“The recommendations cap a watershed year for the financial services industry as a whole,” he said. “After a year of intense public scrutiny, continued reform and political debate, we welcome clear, industry-wide recommendations that will deliver better consumer outcomes.”

A spokesman for the Financial Services Council (FSC) told insuranceNEWS.com.au it will comment on the life insurance recommendations when it releases the FSC-AFA working party interim report next week.

The financial services industry has until March 31 to respond to the inquiry’s recommendations.