Concerns over conflicts of interest in financial advice have prompted the Productivity Commission to recommend a range of measures to help more superannuation fund members make better decisions about super without having to “resort” to seeking advice.
A Productivity Commission report, Superannuation: Assessing efficiency and competitiveness, released yesterday, says access to impartial advice is a critical factor in improving the efficiency of the superannuation system and achieving better outcomes for members, in both accumulation and decumulation phases.
But it says despite recent regulatory reforms, including the Future of Financial Advice (FoFA) reforms of 2012, “the presence of conflicted financial advice remains both egregious and problematic”.
It says higher education, professional and ethical standards under development by the Financial Adviser Standards and Ethics Authority (FASEA), along with an expectation of greater activity by regulators, will help to lift the quality of advice, but these reforms “do not address the fundamental problem of conflicted financial advice”.
“And they also reduce the supply of advice services and increase their costs,” the commission says. Its solution is to create an environment there members can make better decisions for themselves about superannuation and related matters, without having to “resort to expensive financial advice”. The commission’s recommendations include:
• Improving dashboards and disclosure, to help members make (and financial advisers inform) better decisions;
• Establishing a “best-in-show” shortlist to help members compare funds and products, to enable wiser switching decisions and to provide clear and unavoidable “if not, why not” points of reference for financial advice;
• Removing grandfathered trailing commissions, minimising the conflicts that such payments promote;
• Raising the quality products by introducing a more stringent outcomes test) to reduce the risk of a member switching to “a particularly poor product”;
• Improving governance to address conflicts of interest in vertically integrated organisations; and
• Establishing a well-resourced, independent member advocacy and advisory body to represent fund members on financial advice policy deliberations (among others), and help members interpret complex information.
The commission recommends that the term “advice” should only be allowed to be used if it relates to “personal advice” – or advice that takes into account an individual’s specific circumstances and needs. And it wants financial planning licensees to disclose to The Australian Securities and Investments Commission (ASIC) how many products are on the licensee’s approved product list (APL), how many of those are in-house products, what proportion of recommendations relate to in-house products, and what proportion of recommendations each year are off-APL – and ASIC should publish this information each year.