The Financial Planning Association (FPA) has pushed back against a renewed call for a total ban on commission and all forms of conflicted remuneration, weeks before the Quality of Advice Review final report is submitted to the Federal Government.

FPA says the measure, if implemented, would leave more Australians without adequate life insurance as various surveys have indicated a majority are not willing to pay out-of-pocket for financial advice.

“By banning commissions, we’d effectively be removing consumers’ ability to choose how they wish to pay for their advice,” FPA CEO Sarah Abood said.

“So the result would be that far fewer Australians would have appropriate insurance protection in place.”

FPA reiterated its commissions stance after consumer groups voiced disappointment with the review’s recommendation that life and general insurance should remain exempt from the ban on conflicted remuneration.

The review made the recommendation in its Conflicted Remuneration paper released earlier this month and also proposed requiring intermediaries to obtain written consent from clients to receive commissions or other benefit.

The groups – Choice, Consumer Action Law Centre, Financial Counselling Australia, Consumer Credit Legal Service WA and Super Consumers Australia – say the solution to reduce widespread consumer harm caused by conflicted remuneration is to remove conflicts of interest, not disclose them.

FPA says the pool of advisers available to consumers has shrunk in recent years, partly due to the tougher business environment.

It cites research from NMG Consulting showing retail advised new life insurance business volumes have more than halved, declining from $638 million in 2016 before the Life Insurance Framework (LIF) reforms commenced in 2018, to just $317 million in last year.

Under LIF, upfront commission rates have been gradually capped and are now limited to 60% of the premium in the first year of a policy.

“Overall, the number of financial planners who provide life insurance advice has declined substantially in recent years and this has meant that it has become much more difficult for Australians to access advice in this area,” Ms Abood said.

“LIF also substantially reduced the remuneration advisers can earn from individual policies, which has made it economically unviable to provide life insurance advice to younger Australians where the premiums are lower.”

Ms Abood says every profession has some “level of conflict” involved, as flagged by the Association of Financial Advisers. Provision of legal services is an example where lawyers who charge time-based fees are conflicted by having an incentive to extend disputes.

“We expect these professionals to nevertheless act in the interests of their clients - despite the existence of the conflict, Ms Abood said. “Financial planners as professionals do the same, and in fact they are required by a legislated code to act in the best interests of their clients.”

“This is a problem not just for the individual but for our whole society. It would leave many Australians entirely dependent on the social security system in the event they became ill or suffered an accident and were unable to work, or where a family breadwinner passes away.”