BT opens up insurance as ASIC eyes life shake-up

Westpac’s move comes as ASIC ramps up its policing of financial planners and the industry attempts to lift its standards.

BT Financial advisers will be able to offer policies from a “minimum of three” life insurers from next year.

Westpac’s move to end its cross-selling policy that forced its financial planner to sell only its own life insurance products is expected to be a forerunner to further reforms likely to sweep the pressured wealth management industry.

The Australian Securities & Investments Commission has confirmed the so-called approved products lists — which dictate what products a bank’s financial advisers are allowed to recommend — will be a key area of investigation for the regulator.

Westpac’s move comes as the corporate watchdog ramps up its policing of financial planners as the industry attempts to overhaul its standards following the government’s Future of Financial Advice reforms.

A parliamentary inquiry into the $60 billion life insurance sector is currently considering the issue of approved products lists and a stemming from its investigation will be published soon.

Last week ASIC won a landmark case against a Melbourne-based financial planning firm, sending a signal to advisers that the watchdog was prepared to take action against planners who breach duties to act in the best interest of customers.

Golden Financial Group was stung with a $1.1 million fine for a series of financial planning breaches, including running a “commission only” remuneration model, which meant that advisers were paid commission for sales of life insurance product.

Independent life insurance companies and independent financial advisers are continuing to pressure the major banks to open up their vertically integrated business models, although many of the major lenders are stripping wealth management units from the core mortgage businesses.

“It is now undeniable that the institutions are using restricted APLs to channel life insurance sales into in-house products and effectively limit the ability of their aligned financial advisers to offer their clients the best products in the market,” Simon Swanson, chief executive of independent insurer ClearView, said.

“They are effectively influencing advice and making it difficult for advisers to meet their fiduciary duty and act in the client’s best interest. They also show why the banks shouldn’t be in wealth protection and wealth management. They are incapable of genuinely supporting ‘independent’ financial advisers and providing objective advice,” Mr Swanson said.

Integrity Resolutions principal Col Fullagar, who specialises in life insurance dispute resolution and consults on approved product list construction, said any form of financial kickback from an insurer to a financial adviser will only further damage the credibility of the industry. “An insurer’s conduct is the single most important factor when constructing an approved product list — not product definitions and terms which are largely commoditised,” Mr Fullagar said.

Westpac Life is currently the only insurer on the approved product list that BT Financial advisers can offer to their customers. Although it allows planners to go “off list” and recommend products from other insurers, BT Financial has now pledged to give financial planners the option to offer customers policies from a “minimum of three” life insurance companies by early next year.

Commonwealth Bank holds its junior advisers to a list of just three companies — CommInsure, TAL and Asteron — and NAB allows advisers to only recommend two insurers. ANZ has a master list of nine insurers on its APLs. AMP’s licensees Hillross and Charter have eight of the 10 largest insurers to offer.

Institutions can generate millions annually by getting rival insurers to pay “shelf space fees” for a spot on their list. Zurich confirmed to the parliamentary inquiry it paid up to $800,000 a year in fees to access these lists.

Mr Swanson questioned whether BT Financial’s move to increase its list from one to three insurers would “deliver adequate choice and foster competition. “Why shouldn’t advisers and consumers have access to all 11 or so APRA-regulated retail life insurers?” he asked.