Parliamentary Secretary to the Treasurer Chris Pearce has backed the use of commission payments in the financial services industry, warning practitioners about political and broader community interference to outlaw the practice.

Speaking at the Investment and Financial Services Association (IFSA) annual conference in Brisbane last week, Mr Pearce said the commission structure has a place in the industry despite its sullied reputation.

“As I see it, there is a place for commissions, so long as the adviser being paid the commission makes full and proper disclosure to the investor that this is how she or he is to be paid.

“But there are some in politics, and those in the broader community, who from time to time intimate that commissions should be banned, even though there is evidence that fees have come down despite increased demand for financial services advice, and even though most advisers being paid a commission are doing their best to comply with the law.”

Commission payments have long been a sore point with brokers and financial planners, and the practice has attracted widespread criticism in the US for creating conflicts of interest.

In 2004, insurance brokers in the US were fined billions of dollars after investigations by former New York Attorney-General Eliot Spitzer (now Governor) found the practice had led to widespread corruption and steering of customers into certain insurance products.

A subsequent investigation by ASIC found no evidence that commissions were being abused in a similar way in Australia. The study did find they could create conflicts of interest.

“When you get down to it, the most important fact is that there is, and is seen to be, a correlation between the value of advice and the amount paid, whether payment is upfront or through commissions over time,” Mr Pearce said.

Momentum towards amalgamation of the seven external dispute resolution (EDR) schemes is also building, and Mr Pearce is encouraging the different financial services schemes to discuss possible mergers.

The Banking and Financial Services Ombudsman, the Financial Industry Complaints Service and the Insurance Ombudsman Service have planned a meeting to discuss becoming one scheme.

The Federal Labor Party has announced it will also consider cutting the number of dispute bodies through amalgamation if it wins office.