The ban on group life commissions is distorting the market and stopping specialist advisers being paid, according to the Corporate Super Specialist Alliance.

In a submission to the Senate Economics Legislation Committee, which is assessing amendments to the Future of Financial Advice (FOFA) legislation, the alliance says the ban may “lead to worse consumer outcomes” and should be lifted.

“Advisers are now financially motivated to provide only retail insurances, which are often more expensive than group insurance, so as to receive remuneration for the valuable ongoing services they provide,” it says.

The Association of Financial Advisers’ (AFA) also calls for the ban to be lifted.

Its submission says the ban causes a “distortion of the marketplace” because an adviser can sell an individual policy and receive a commission.

“This… might pose the risk that it would inappropriately influence a financial adviser to recommend one product over another. Insurance through a group life policy should, in many cases, deliver lower premiums and other benefits, including higher automatic acceptance limits.”

The AFA says there is no “relevant basis to prevent commissions on group insurance policies”.

It also calls on the Government to review the ban on corporate superannuation advisers receiving payment for insurance advice.

“Corporate super advisers also play a very important role in assisting members or their families in making insurance claims,” its submission says.

“[They] may also provide corporations with services to assist individual members with their insurance arrangements. However, this would not typically involve providing personal financial advice to the member.”

Meanwhile, the battle lines on other FOFA changes – including removal of the “other steps” clause in the best-interests duty – remain unchanged from previous inquiries.

Industry super funds and consumer group Choice says the amendments have watered down the legislation and leave consumers unprotected from unscrupulous advisers.

The AFA and the Financial Planning Association (FPA) argue removal of the “other steps” clause is in everybody’s best interest, because it leaves advisers open to endless legal action.

Choice warns the changes, if passed, will mean “consumer protection will be reduced in an area that has seen numerous cases of mis-selling and high-profile scandals”.

Industry Super Australia says the bill “significantly waters down the consumer protection measures in the original FOFA legislation”.

The AFA submission says it “believes removal of the ‘other steps’ obligation creates an improved piece of legislation with an immaterial impact on consumer protection. From our perspective, there is a lack of clarity with respect to what is required to comply with this obligation. We therefore support the repeal of the ‘other steps’ obligation.”

The FPA calls the clause an “unclear and unrealistic expectation for even professional financial advisers. This lack of clarity opens significant litigation risks for financial advisers that are only tenuously connected to a consumer protection benefit.

“Removing these provisions does not water down the consumer protections of the FOFA regime.”

The committee will hand down its report on the changes this afternoon.