TheAustralian Consumers’ Association (ACA) has hit out at the funds management and financial planning industry in Australia, stating it is “characterised by structural corruption”.
The comments were made last week at an industry conference by ACA chief executive Louise Sylvan, who was referring to incentives such as commissions and soft-dollar bonuses received by financial planners.
She says these incentives compromise the independence of financial planners and drive the cost of products up for consumers.
In the context of superannuation choice in Australia, Sylvan says there is a possibility that advisers will “churn” clients to obtain commissions, making the UK pension mis-selling problem “look like a picnic compared to the Australian situation”.
The comments by Sylvan come on the back of a spate of recent attacks by other industry bodies on the lack of adviser independence.
TheAustralian Prudential Regulation Authority’s Charles Littrell was recently quoted as saying the retail investment industry is “based on bribery” when referring to commission-based investment advisers, whileCPA Australiarecently claimed independent financial advice is diminishing due to increasing ownership of large dealer groups by institutions.
TheFinancial Planning Association(FPA) responded by arguing financial planners were able to adopt a professional mindset, despite commissions to provide honest, competent advice.
Sylvan disagrees, saying the ACA is considering if it will take the position that it is impossible to be both an adviser and a product seller.
She says the ACA is moving toward a possible new model of financial planning in the Australian marketplace that would see a structural separation of advice and product sales.
She also argued that the increasing dealer group reliance on fund manager infrastructure was an unsatisfying outcome for the industry.
Sylvan says that the fee-for-service model is not being taken up widely in the industry, and that while commissions exist, it will be hard for consumers to see the value in an up-front fee.
She says the problem is that advisers are seen by consumers as being independent and impartial, although in reality they are starting to act more like tied agents.
