Consumer groups unite for fairer and clearer financial advice
Consumer groups say despite an industry campaign there’s no justification for any more delays or concessions which would further dilute much-needed federal government reforms to the regulation of financial advisers.
Today (Monday) a parliamentary joint committee in Sydney will begin hearing evidence about the proposed Future of Financial Advice reforms which are aimed at improving the quality of the advice as well as lifting public trust and confidence in it.
Consumers groups including CHOICE, the Consumer Action Law Centre, the Australian investors and shareholders associations, retirement investment information centre NICRI, and COTA in a joint submission argue the case for reform is overwhelming.
Conflicts of interest, poor remuneration models, a sales-driven culture and mismatch between supply and demand have all led to poor quality financial advice, excessive fees and low demand for advice services.
“The industry has been on notice for years things were going to change, the government has bent over backwards to consult them and enormous concessions have already been made. Yet still key elements of the industry want to be cut more slack and be given more time,” said CHOICE director of campaigns Christopher Zinn.
“Any delay will see consumers continue to have their savings unjustly eroded by commissions and other unfair, unclear and excessive charges. The generous grandfathering means that anyone who seeks advice prior to the start date for the reforms is denied the key benefits of the ban on commissions or the opt-in. “
* The consumer groups say that the renewal notice, or opt-in, which has already been changed from annual to biennial, is crucial to the protection of disengaged clients. They believe that without this reform there is a danger that industry will replicate all the negative features of the existing commission system through the use of non-transparent, ongoing asset-based fees. Disengaged clients are very vulnerable to exploitation through such remuneration models. The renewal notice requirement will force clients to take an active step once every two years.
* The consumer groups say that the fee disclosure statement is essential to ensure that there is clear disclosure of advice fees and to empower consumers- especially that large group of existing clients who will not have the benefit of the opt-in because of another concession to industry. The fee disclosure statement will operate much like an annual account, requiring disclosure of the fees actually paid in the past year and information about the fees likely to be paid in the coming year.
“The best financial advisers already provide such disclosure to their clients. However, remarkably, it is the case that the current law does not actually require disclosure of this information and so many consumers do not get this basic information about the fees they are paying. In these circumstances it is very difficult for consumers to make informed decisions,” said Zinn.
* Consumer groups believe that the imposition of a best interests duty is an essential step in the creation of a professional financial advice industry. However, they have concerns about the drafting of the obligation and, in particular, the generous exemptions for basic banking product advice and general insurance advice. This exemption actually leads to a lower standard of financial advice in relation to these two products than under the existing law.
*The consumer representatives also strongly reject the argument that the compliance costs of the disclosure statement and renewal notice requirements are disproportionate to the benefit of the requirements.
Media inquiries: Christopher Zinn - CHOICE Director of Campaigns & Communications 0425 296 442