SMC calls for outright ban on lead generators in financial services

The Super Members Council has pushed back against the government’s proposal that would require lead generators to be licensed, arguing the practice should be outright banned.

However, the council, whose members are industry funds, has called for “targeted carve‑outs for safe, legitimate education and communication activities” to protect “legitimate” member communication. This included “nudges” that are due to be introduced in Tranche 2 of the Delivering Better Financial Outcomes reforms.

Additionally, the association reiterated its calls for the completion of DBFO which would help expand the advice super funds can give.

The SMC submitted these proposals in a submission to the consultation on lead generation, one of the three consultations simultaneously launched by Treasury in the aftermath of the $1 billion Shield and First Guardian collapse.

SMC argued that lead generation was different from “safe and legitimate activity by trusted institutions” engaging their own members, including super funds communicating and educating their members, offering general advice, or an employer or union giving staff access to information about their workplace super fund.

SMC chief executive Misha Schubert said the most effective fix would be to ban this conduct outright.

“These sorts of clickbait ads and high‑pressure sales funnels are putting Australians’ life savings at risk, misleading them into switching into high‑risk products like the collapsed Shield and First Guardian schemes,” Schubert said in a media release.

“Incremental changes – such as adding a bit more disclosure or tighter licencing rules – simply will not be enough to stop this terrible harm and would risk just shifting dangerous pressure sales into new forms.”

ASIC acted against the funds over concerns investor money was being misused on high-risk investments, pet projects of directors and personal expenses, and court proceedings against both funds are ongoing.

But the investments in Shield and First Guardian grew due to a sophisticated network of lead generators that contacted people who used online “superannuation health check” advertisements and applied high-pressure sales tactics to refer them to financial advisers.

However, investigations from the corporate regulator have led to allegations that advisers were receiving money from the funds for marketing and promotion.

ASIC has alleged InterPrac authorised representative Ferras Merhi signed 6000 Statements of Advice within a three-year period, used marketing companies to push potential clients to his financial advice businesses while receiving nearly $18 million in upfront advice fees and $19 million from entities associated with the funds to market them, and received inflated loans from the fund to help purchase his businesses.

Merhi has disputed any wrongdoing and told Professional Planner last month that he expects the courts will find in favour of any adviser who fights the regulator’s claims that they failed to meet client best interests.

AFCA determinations have also found that the lead generators were receiving a significant cut from the advice fees.

ASIC has released a list of lead generators and licensees that are utilising them. But while inclusion on the list isn’t an indication of wrongdoing, the regulator wanted to create a database to inform consumers of the business models operating.

In its submission to the lead generator consultation, Financial Advice Association Australia called for an investigation into social media companies for hosting the ads, accusing them of profiting from the ads without offering any remediation to consumers.

The SMC said a ban on lead generation should also include capturing them within the conflicted remuneration framework and narrowing the “benefit given by client” exemption so that fees deducted from a consumer’s super balance are no longer characterised as fees from the client.

The council also supported a proposal that would require AFSL numbers to be displayed on super advertisements and ASIC to have expanded stop-order powers on super ads.