Australia ’s politicians seem incapable of making a decision about dealing with the conflicts of interest in financial planning. Both major parties are attempting to steer an identical middle course – the line of least resistance – between the competing lobby groups. As a result, they have produced absolutely nothing of value themselves.
But why be surprised at that? This looks like an election contest between competing small targets in which the ALP leader Kevin Rudd makes non-policy on the run (almost whatever the subject, “our policy is identical to the Government’s”) while the Government’s only policy seems to be the expenditure of money.
On the subject of conflicts of interest in financial advice, neither party has anything useful to say. Last year the assistant treasurer, Chris Pearce, mused that perhaps there should be a legislative separation between sales and advice, which was an innovative and perhaps even courageous bit of musing. But it went nowhere.
The ALP, to my knowledge, hasn’t even mused. In June, spokesman Senator Nick Sherry whacked out a press release criticising the Government for its disclosure regime, calling for a “total overhaul of disclosure documentation … simple, readable, standardised, no longer than three to four pages on a product-by-product basis, focusing on fees, return and risk level must be key elements of reform”.
Yes, well, three to four pages of unread Product Disclosure Statements instead of 100 pages would certainly save trees, but I can’t help thinking this would leave a lot of stuff out and some people might regard a 96 percent reduction in the amount of disclosure as less disclosure. I don’t know. But is that it? Shorter documents?
In August, the Parliamentary Joint Committee on Corporations and Financial Services, which includes Senators Sherry and Murray of the Democrats and is chaired by Senator Grant Chapman (Liberal, SA), coughed up a 223-page report on the structure and operation of the superannuation industry following an inquiry into the issue that began in June.
The report includes a long and detailed chapter on the costs and conflicts associated with financial advice, the reading of which should only be undertaken with the accompaniment of a stiff drink. It is a deeply frustrating and disappointing experience.
The report sets out the conflicts and how they arise, runs through the various arguments and then recommends that the Government work with the industry “with a view” to reducing the constraints of the sole purpose test on the payment of advice fees out of super funds. It also recommended that the Government investigate the most effective way to develop, with the industry, “appropriate nomenclature where the product recommendation advice available to consumers is limited by sales imperatives,” whatever that means, and recommends that ASIC release a policy statement mandating that financial advisers disclose their ownership structure.
As far as I can tell, the inquiry represented nothing more than an opportunity for all concerned to trot out the same old arguments and for the politicians to dutifully record them before deciding nothing.
The committee decided not to ban commissions because “many consumers cannot afford to pay for up front fee-for-service advice on their superannuation, especially with the unresolved problem of the current disclosure regime causing advice to cost more than its inherent value”. Sigh
Alan Kohler has been a financial journalist for 37 years and is currently the publisher of Eureka Report, an online independent publication for investors, and Business Spectator, a new 24-hour-a-day business news and commentary website