Trust in financial advice a must

The submission by over-50s consumer lobby, National Seniors, urges the Inquiry to consider whether: conflicted remuneration and percentage fees should be allowed in the provision of financial advice; minimum educational standards for financial advisers should be lifted; and, the tougher of the APES 230 financial advice standards should be adopted by the Australian Securities and Investments Commission (ASIC).

The call comes barely two weeks after acting Assistant Treasurer Mathias Cormann delayed the dilution of consumer protections introduced by the former Labor government in response to recent corporate failures such as Storm Financial (2009), Trio (2009) and Banksia (2012).

National Seniors chief executive, Michael O’Neill, said that with the growth of superannuation and risk, an increasingly complex financial system had shifted to individuals.

“The system needs to acknowledge and reflect the shift to individual risk,” he said.

“For older Australians there’s a great deal at stake – nest eggs are on the line and, if you’re in or nearing retirement, there’s little opportunity to recoup losses.

“Yet, the system is so complex that consumers, no matter how savvy, are increasingly forced to seek professional financial advice,” Mr O’Neill said.

“Australians should be able to trust that financial advice is independent and in their best interests; that their hard earned money is safe; and that, on the promise of commission, they’re not being sold a lemon.”

The submission quotes a 2012 ASIC shadow shopping survey that shows only 3% of retirement financial advice was of good quality; 58% adequate; and almost 40% poor. Yet, more than 80% of consumers believed they had received good quality advice and 78% had paid commissions or fees based on a percentage of their assets or investments under advice.

Mr O’Neill said there were lessons to be learnt from corporate collapses which left thousands of vulnerable, elderly investors destitute.

“Government has a role to play in ensuring higher standards, greater transparency and more accountability across the system from banks and financial advisers to regulators.

“The challenge is to create a strong regulatory framework that puts consumers first without stifling growth,” he said.

National Seniors is also calling on the Inquiry to:

• Consider how to better protect ill-informed consumers who are increasingly reliant on professional advice to navigate complex systems and products;
• Consider what can be done to improve financial awareness (as distinct from literacy) to help people navigate the system, understand who does what and whom they can trust;
• Investigate the costs and benefits of exempting equity from the sale of the family home from the age pension assets test;
• Investigate the costs and benefits of states and territories providing a one-off exemption from land transfer duty on the purchase of a cheaper residence using the balance of the sale proceeds, provided the released equity is invested in eligible retirement income producing products;
• Identify impediments to the development of products that can better insure retirees against longevity risk – including the mandatory minimum annual withdrawal requirements for superannuation pensions;
• Consider how to improve access for older Australians to the internet and to mobile devices so that they might share in the benefits offered by these technologies.

Announced by Treasurer Joe Hockey late last year, the Inquiry is charged with exploring how to position the financial system to best meet Australia’s evolving needs and economic growth.

An interim report is due midyear, and the final report by November 2014.