In its submission to the Financial System Inquiry CHOICE is calling for the banning of all fees, commissions and remuneration that create a risk of conflict of interest for financial advisers.
CHOICE argues these poor practices are at the heart of the steady stream of financial planning disasters including Storm Financial, TimberCorp, Commonwealth Bank and most recently Macquarie Bank, which have cost consumers over $5.7 billion.
“We have 20 years of evidence demonstrating how conflicts of interest distort financial advice given to consumers,” says CHOICE CEO Alan Kirkland.
“Scandal after scandal has demonstrated the impact of these conflicts, with too many consumers losing their life savings and their homes.
“The Government’s changes to the Future of Financial Advice, or FoFA, laws, introduced in June, will perpetuate incentives that encourage advisers to push the products that create the greatest financial rewards for them, rather than the best result for clients.
“The Financial System Inquiry has already recognised the corrupting influence that conflicts of interest have on financial advice. We’re calling for the Inquiry to act on this concern and recommend a ban on all conflicts,” Mr Kirkland says.
CHOICE says the problem is not just about commissions but any kind of payment that can influence a financial adviser to recommend one product over another. This can be a bonus linked to sales targets or asset-based fees, which are still common across the industry.
Asset-based fees are paid by a client to an adviser as a percentage of the total funds under advice. These fees were not banned by any iteration of the Future of Financial Advice reforms.
“Asset-based fees introduce many of the same conflicts created by commissions, which have, in the most part, already been banned,” Mr Kirkland says.
“Too often financial advisers have placed their own interests first and used their relationship with clients to push inappropriate products. Advisers should also be required to act in the best interests of their clients at all times. No exceptions. No excuses.”
“The financial regulator also needs increased ability to intervene before disaster strikes. CHOICE is calling for ASIC to be given additional powers to take stronger action when necessary through product intervention rules, which would allow ASIC to ban or place restrictions on dangerous products.”
