Opt-in measures needed to crack down on ‘money for jam’ payments
CHOICE says the government’s release of draft reforms to the financial advice sector are extremely significant, as they put consumers first and reduce the control of vested industry interests.
The consumer group, which has spent 20 years campaigning to remove conflicts of interests around financial advisors, says the draft legislation means more reliable advice should be available to more Australians at more reasonable prices.
The package of reforms helps consumers get the advice they need, relative to life events or life stages such as; family budgets, school fee savings plans, an inheritance, compensation payment or retirement.
“Without these reforms, consumers face the real possibility of paying the higher costs of more general, holistic advice rather than the unbiased expert information they deserve,” says Christopher Zinn, CHOICE director of campaigns & communications.
“The package is a major step in putting the industry on track to becoming a profession that provides strategic advice to consumers, rather than mere sellers of financial products that are often not in consumers’ best interests, such as the type we saw after the collapses of Storm and Westpoint.”
One key area for attention, because of industry lobbying to dilute the reforms, are the opt-in provisions which require advisers to seek a client’s consent before on-going fees can automatically be charged.
It is specifically needed to prevent such fees acting like trail commissions which have seen consumers’ savings and retirement incomes eroded as a result of bad advice, or even worse, no advice at all.
“For those advice-related businesses that operate like everyone else in the economy, setting out fees, charges and services regularly and and transparently, opt-in is not an issue. It is simply good business practice,” says Mr Zinn.
“But for those who have lazily relied on the golden egg of trail commissions as ‘money for jam’, the opt-in reforms are needed to end such practices.”
CHOICE is disappointed opt-in will only apply to new clients after July 2012.
“We are concerned because sections of the industry are talking about signing up as many clients as they can under current rules so they can continue to receive commissions. We urge consumers to be very careful about that,” says Zinn.
Many firms are offering professional fees where consumers pay for work performed or agree to fees on an annual basis. CHOICE urges consumers to shop around and find a planner that provides regular accounts so clients can keep track of what advice they are getting and how much they are paying for it.
• Christopher Zinn, Director of Campaigns, CHOICE: 0425 296 442
• Ingrid Just, Head of Media, CHOICE: 0430 172 669