Industry lobbying must not dilute ban on conflicts of interest
CHOICE has welcomed the federal government’s proposed reforms to the financial planning industry as a very significant step forward but warned the support of parliament is now needed to ensure these reforms become law.
The consumer watchdog says the bans on commissions, the opt-in requirement and volume payments if properly implemented have the capacity to increase consumer confidence and trust in the industry.
Jenni Mack, the chair of CHOICE, says changes should help the industry respond to what consumers want - specific advice relevant to a life event or life stage.
“They address what had become an intractable issue-- commission based remuneration that biased advice and caused far too many consumers to lose far too much money,” she says.
“Outside of major losses from incidents like Westpoint and Storm commissions which conflict the advice planners give have been eroding the retirement incomes of Australians for years. “
CHOICE which has spent 20 years campaigning for justice and the abolition of commissions, says commissions on superannuation alone in 2009 were estimated at $1.3billion - much of this was "money for jam", passive income that flowed from consumers accounts to adviser accounts in return for nothing.
“The requirement to gain consumers explicit consent for ongoing fees every two years will significantly address this problem and is particularly welcome,” Ms Mack said.
“Consumers should be particularly pleased the government has opted for a complete ban on volume payments - the pressure from the industry has been enormous - a complete ban is a huge win,” said Ms Mack.
“Volume payments are particularly odious because they are very large, very hidden and impossible to disclose - they were a great big secret payment that were conflicting advice and eroding consumers savings”
CHOICE says the ban on commissions on life insurance when sold inside superannuation is a significant reform and while a ban on all such payments would have been preferable the changes will put competitive pressure on life products sold outside the superannuation system.
“We think commission based remuneration has contributed to the underinsurance problem as it has pushed up the cost of advice by around 30 – 40%. Such payments are not consistent with an advice industry and advisers should rebate any commissions back to consumers and separately charge for the cost of life insurance advice. Otherwise - rightly or wrongly - the quality of advice will be questioned,” says Ms Mack
CHOICE urges industry not to replace commissions with asset based fees as these bias advice as much as commissions. If they become the norm they will continue to erode consumer trust and confidence and prevent Australians who would benefit from advice from accessing it.
It says the grandfathering provisions, which leave commissions on existing products in place are very generous, and any industry inspired dilution of the reforms would require a re-examination of grandfather provisions.
“We expect the industry will continue to resist these reforms and it is now up to Parliament to follow through and ensure the whole package becomes law,” Ms Mack says.
- Jenni Mack, Chair, CHOICE, 0429 300 458
- Christopher Zinn director campaigns & communications 0425 296 442