Elissa Freeman outlines CHOICE’s campaign against product commissions.

“As things stand, fear of bad advice is stopping me from seeking any advice.”

If the financial advice industry was looking for any further reason to embrace reform, then this comment – from a signatory to the CHOICE email campaign – should stoke a desire for industry renewal among even the most strident defenders of the status quo. At CHOICE we believe the personal financial advice industry needs to undergo a transformation in order to provide more trustworthy advice, with fewer conflicts of interest.

In early June we launched a public campaign to enable consumers to add their views to the chorus of voices calling for change in the financial advice industry. We firmly believe that the best outcomes will be achieved when the users of financial advice services become a vocal part of the reform process.

Our campaign is positioned in the context of a society and economy where people need (and want) to take responsibility for their financial security. But in a world of complex financial products, decisionmaking often requires input from trained, trusted professionals. Information about the campaign – which targets commissions, asset-based fees and incentive payments to advisers and licensees – can be found at: www.choice.com.au/commissionfree.

As well as presenting CHOICE’s views on this issue, our website encourages people to make their own submissions to the Ripoll Inquiry and is generating a conversation about the sort of financial advice people want to see. For those people who share CHOICE’s concerns about conflicts of interest there is also an e-mail campaign, calling on the Prime Minister to remove structural conflicts in the industry.

The website has enabled hundreds of people to engage in this debate and is providing an insight into the views of existing customers, wary consumers and financial planners themselves. So what sort of change do people want? Unsurprisingly, there is a mix of views about where the industry needs to go. Unfortunately a recurring theme from the public is that they’ve either been stung by bad advice or know people who’ve been at the receiving end of bad advice.

One woman explains: “We have been burned by being given wrong advice from an adviser and now, approaching retirement years, we are in more financial debt than when we were first married. It is absolutely gut-wrenching not knowing what our future holds.”

While stories like these may be at the extreme end of the spectrum, it appears that they have influenced much of the population, to the point where there is a crisis of confidence in the advice industry. It’s tempting to suggest that the problem of bad advice is confined to the legitimate and vocal grievances of victims of corporate collapses like Storm Financial and Westpoint.

However, another signatory to the campaign paints a different picture, writing: “I obtained paid advice about 10 years ago and it was the best financial advice I ever received. Nowadays I struggle to find someone I can pay for the advice who is not collecting a commission. I am still paying (through commission), but I can no longer be absolutely confident I have received objective advice.” This comment suggests that while the corporate collapses hit the front pages, a different and more sustained conversation is happening in Australian households.

That conversation is about the inherent problems of commissioned-based advice and the increasing challenge in getting good, objective financial advice. CHOICE has stated publicly its dislike of commissions and other fees that can bias advice, preferring instead fixed-dollar fees for fixed services. It’s a view that has been shared by many people who’ve taken part in the campaign.

One individual explains his view about commissions as follows: “There is a clear and obvious conflict of interest when financial advisers receive commission for selling products.”

The forthcoming Ripoll Inquiry, along with recent announcements from major industry associations, signal the dawning of a new era for the financial advice industry. But as the comments above demonstrate, restoring consumer confidence demands that the industry address its structural conflicts of interest.

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