A “shadow shopper” survey of life insurance advice has been recommended by a parliamentary committee looking at the Future of Financial Advice (FOFA) reforms.

The Parliamentary Joint Committee report into the FOFA bills wants the Australian Securities and Investments Commission (ASIC) to conduct the survey within the next two years.

The committee says it believes the ban on life insurance commissions within superannuation is important for consumer protection.

It also believes a fee-for-service model is appropriate for providing life insurance advice within superannuation.

“The committee is mindful of the prediction that life insurance will be the product most likely to provide advisers with commissions,” the report says.

“It recommends ASIC conduct shadow shopping exercises post implementation of the (FOFA) Bill to monitor whether conflicted advice is being provided on life insurance outside superannuation.”

The committee has also recommended ASIC monitor the amount of life insurance sold both inside and outside superannuation to see if there is any market distortion.

Many organisations have argued payments on group life insurance should be allowed where a member seeks personal advice. This could be in the form of a commission or an agreed fee.

The report notes Treasury is still looking at whether group life policies should be treated in the same way as individual policies regarding payment for advice.

But the committee did not accept that all members of a group scheme should receive personal advice on their life cover within the fund.

“[The committee] does recognise there are instances where tailored advice is provided on group life insurance and therefore it may be inequitable to allow for benefits to be paid on life insurance outside superannuation,” the report said.

“This may create market distortions and affect the quality of advice provided to consumers.”

It sees the possibility of advisers being deterred from offering group life insurance, instead selling it outside superannuation where they would receive a commission and the fund member would pay a higher premium.

“The committee considers this would be a poor outcome,” the report says.

The July 1 implementation date was also discussed in the report and the committee has recommended the Government should commission an independent review of the FOFA reforms.

This review would identify problems with compliance and implementation of the legislation.

“The reporting of this review should be staggered to allow an initial assessment of the annual fee disclosure requirement and the industry’s early adaptation, followed by a more complete assessment to consider the opt-in provisions and ASIC’s use of its new powers,” the report says.

Other recommendations by the committee include for the fee disclosure and opt-in proposals to be retained in the bills.