Members of the Parliamentary Joint Committee (PJC) have called on ASIC to conduct shadow shopping exercises on advice linked to life risk insurance following the implementation of the federal government’s advice reforms.
The PJC made the request as part of its report on the federal government’s Future of Financial Advice (FOFA) reforms tabled to the House of Representatives on Wednesday.
The PJC said it is mindful of the prediction that life-risk insurance will be the product most likely to provide financial advisers with commissions.
“The committee recommends that [ASIC] conduct shadow shopping exercises on advice pertaining to life risk insurance outside superannuation post implementation of the Corporations Amendment [FOFA] Bill 2011,” the committee said in its report.
The shadow shopping exercise will monitor whether conflicted advice is being provided on risk insurance outside superannuation, the report said.
The recommendation was one of 15 contained in the PJC report.
The PJC also called on ASIC to work more closely with Treasury in a post FOFA environment.
“The committee recommends that post-implementation, Treasury work with [ASIC] to monitor closely the quality of advice on the sale of risk insurance inside and outside superannuation and any market distortions that may occur,” the report said.
Association of Financial Advisers (AFA) chief executive Richard Klipin welcomed the shadow shopping call, though said it was important to note that such surveys should simply focus on advice.
“A shadow shop is not just about retirement advice or superannuation advice it’s about advice,” Klipin said.
“There’s no doubt that ASIC shadow shops in future will look specifically at advice pertaining to insurance. We’ve always said shadow shops done well are appropriate and gives the industry a benchmark and in a sense a reflection of the state of the market.”
ASIC is required to report its life insurance shadow shop findings within two years of the date the FOFA bill commences, the PJC report said.
The corporate regulator is expected to release results from its retirement shadow shop survey this month.
In January, ASIC commissioner Peter Kell revealed preliminary figures from the survey at a public hearing of the PJC inquiry into FOFA.
Kell said of the 64 financial plans obtained by ASIC from around Australia during the survey, around 36 per cent or 23 of the plans were graded as poor.
He said around 61 per cent or 39 plans were graded as adequate, with only 3 per cent or two plans graded as good.
ASIC representatives were unavailable for comment by InvestorDaily’s deadline.
