The Australian Federal Government is set to review general insurance broker commissions and non-monetary benefits in three years after Commissioner Kenneth Hayne made clear that he is generally opposed to financial services regime exemptions and carve-outs.
The general insurance conflicted remuneration carve-out was achieved as part of the 2012 Future of Financial Advice (FOFA) reforms.
While he hasn’t directly called for a ban on broker commissions, the National Insurance Brokers Association (NIBA) says it’s time “to think about the future of broking and broking remuneration”.
Broker commissions were not highlighted as an issue during the hearings, but Commissioner Hayne says in his final report released late yesterday that they should be part of a review of financial advice scheduled to start in three years.
“The commissioner is keen to simplify the overall legislative framework to, by and large, remove exemptions, carve-outs and qualifications,” NIBA CEO Dallas Booth told insuranceNEWS.com.au.
“Because there is no basis for recommending reform on [broker] commissions he hasn’t, but he is interested in the over-arching approach of removing exemptions wherever possible.”
Mr Booth says there are strong arguments in favour of the general insurance exemption continuing, but there is a lot of distrust around commission structures in general due to experiences in other areas of financial services.
“The review in three years gives us a chance to think about the future of broking and broking remuneration, and that is something I will be suggesting to the NIBA board,” he said.
“There is time to give some very careful reflection as to whether we want to argue in favour of the status quo or move to a different position.”
Both the Government and the Labor Party have said they will adopt the Hayne royal commission recommendations, signalling the proposed review will go ahead whoever wins this year’s election.
NIBA is continuing to review other proposals in the Hayne report and will clarify whether a recommendation for mandatory individual financial adviser registration extends to brokers.
Commissioner Hayne’s plan to reduce carve-outs is also reflected in a recommendation to end the claims-handling exemption from the definition of financial services, allowing greater ASIC scrutiny.
He says that where possible conflicts of interest should be eliminated, rather than “managed”.
Mr Booth says the royal commission has highlighted the need for high standards across the financial services sector.
“Clearly the level of tolerance for misconduct and for breaches is much reduced from now on and there is a much higher expectation on firms to identify, report and deal with misconduct and take steps to make sure it is not repeated,” he said.
“That is a really strong message we will be putting out to our members as well.”
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