81% of consumers are concerned about the watering down of financial advice protections
30 April 2014
Consumer advocates are calling on the Government to abandon the wind back of Future of Financial Advice (FoFA) protections as a CHOICE survey found 81% of consumers were concerned at the prospect of bank tellers up-selling customers complex financial products.
In a submission to the Senate Committee on Economics, CHOICE and a coalition of other consumer groups have recommended that legislation diluting FoFA protections be abandoned as it will expose consumers to unnecessary financial risk.
"Our research shows that when the Government's FoFA proposals are explained in plain English, many consumers are worried about what is being proposed," said CHOICE Chief Executive Alan Kirkland.
CHOICE's nationally representative research found 81% of consumers were concerned that bank tellers would be able to sell complex financial products like superannuation without assessing customers' personal needs and that they would earn a commission for doing so.
"It's important to remember that FoFA was introduced last year to clean up the financial advice industry and these protections have barely been implemented before this move to water them down," Mr Kirkland says.
"The issues are complex but the potential for consumer harm is very real, and when CHOICE took the time to explain what the wind back of FoFA would mean, consumers were rightly concerned."
CHOICE says that in focusing on reducing industry compliance costs, the Government has not given enough weight to the costs to consumers of poor and conflicted advice, or ongoing fees for advice that a consumer is no longer even receiving.
"There are some basic principles at stake here.
"If financial advisers are going to charge fees, they should be required to check in with consumers from time to time, to disclose the fees and check that the consumer is happy to keep paying them.
"Financial advisers should be required to act in a client's best interests – full stop.
"And their advice should not be clouded by commissions that reward them based on how much of a particular product they sell.
"The Government's proposed changes remove these protections, which is why we oppose them," Mr Kirkland says.
"A growing number of Australians will rely on superannuation savings to retire, underlining the need for quality, trusted financial advice. It makes no sense for the Government to wind back financial advice protections in this climate."
Read CHOICE's submission on the Corporations Amendment (Streamlining of Future of Financial Advice) Bill 2014 at choice.com.au.
The Future of Financial Advice reforms were introduced in 2012 following extensive consultation with industry, government and consumer groups. The Senate Committee on Economics is conducting an Inquiry into the Corporations Amendment (Streamlining of Future of Financial Advice) Bill 2014. Additional reforms have also been proposed via regulation.
Six consumer organisations have signed a letter to the Senate Committee on Economics asking that the Bill be abandoned and endorsing the CHOICE submission to the Committee. These organisations are CHOICE, the Superannuation Consumers' Centre, the Consumer Action Law Centre, COTA Australia, Consumer Credit Legal Centre NSW and Footscray Community Legal Centre Inc.
In March 2014 CHOICE commissioned a nationally representative survey of more than one thousand consumers. When asked "Bank tellers in branches will be able to sell complex financial products such as superannuation without assessing your personal needs or situation and earn a commission for doing so. How concerned are you with the following change?", 81% of consumers said they were concerned. For further information about the survey see CHOICE (2014) CHOICE submission: Financial System Inquiry, p.10.